Thursday, August 9, 2012

A Question for Austrians: Who Wrote This?

Who wrote this passage?:
“Government thus has to intervene in economic life for the benefit of all not only to redress grievances, but also to establish enterprises that promote economic efforts but, because of their size, are beyond the means of individuals and even private corporations. These are not paternalistic measures to restrain the citizens’ activities; on the contrary, they furnish the means for promoting such activities; furthermore, they are of some importance for those great ends of the whole state that make it appear civilized and cultured.

Important roads, railways and canals that improve the general well-being by improving traffic and communication are special examples of this kind of enterprise and lasting evidence of the concern of the state for the well-being of its parts and thereby its own power; at the same time, they are/constitute major prerequisites for the prosperity of a modern state.

The building of schools, too, is a suitable field for government to prove its concern with the success of its citizens’ economic efforts.”
Was it some evil statist?

Well, no, it was none other than Carl Menger, the founder of Austrian economics, in his Lectures to Crown Prince Rudolf of Austria, p. 121.

A hat tip to Isaac Marmolejo. Please see his original post here:
Isaac Marmolejo, “A Passage by Carl Menger on the State,” The Radical Subjectivist, August 3, 2012.
This confirms for me how far some of early Austrian school were from the modern extremism of Rothbardian anarcho-capitalism.

In fact, some of the early Austrians such as Eugen von Philippovich, Friedrich von Wieser and Richard von Strigl had progressive liberal and even Fabian socialist sympathies, as I have noted before in this post:
“Why are There No Austrian Socialists?,” June 3, 2011.


Menger, Carl. 1994. Carl Menger’s Lectures to Crown Prince Rudolf of Austria (ed. by Erich W. Streissler and Monika Streissler; trans. Monika Streissler and David F. Good), E. Elgar, Aldershot.


  1. I like this game. I got one.

    Who wrote this:

    "Why has the world been so credulous of the unveracities of politicians? If an explanation is needed, I attribute this particular credulity to the following influences in part. In the first place, the vast expenditures of the war, the inflation of prices, and the depreciation of currency, leading up to a complete instability of the unit of value, have made us lose all sense of number and magnitude in matters of finance. What we believed to be the limits of possibility have been so enormously exceeded, and those who founded their expectations on the past have been so often wrong, that the man in the street is now prepared to believe anything which is told him with some show of authority, and the larger the figure the more readily he swallows it."


    "By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth. Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become ‘profiteers,’ who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.”

    "Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."


    Was this some kooky gold bug deflationist anarchist selfish Austrian cultist?

    Nope, it was John Maynard Keynes, in his essay "The Economic Consequences of the Peace."

  2. Guy above is being silly. Keynes had no real political ideology. He was simply interested in progress.

    But anyway, the above is a clear indication of what I keep insisting. The "Austrian School" as we presently know them are a creation of Mises and Hayek. Prior to the 1930s they actually tried to contribute to economics as a real social science. Afterwards they began to simply try to spread political propaganda through the metaphysical theories cooked up by these two thinkers.

    They were rather successful too, if you'd care to investigate their political/institutional influence -- which was 1000 times more important -- rather than their actual history of ideas. After the 1930s their ideas meant nothing to anyone outside of a fringe political cult. But their political cult had enormous success. Both in the halls of power and among cranks on the internet.

    The mistake of Post-Keynesians with regard to the Austrians is to think of them as kindred spirits against the mainstream. This is simply not the case. PKers are people who are interested in injecting economics with a greater degree of empirical reality. Austrians are political propagandists. Read Hayek and compare it to Kaldor and this is instantly obvious.

    The fact that these two schools were conflated under the term "heterodox" was a ghastly mistake made by history and the longer it persists the more damage will be done. The longer this goes on the more characters who use usernames bordering on self-parody like Major_Freedom will be deluded into thinking that this is some sort of political or ideological battle -- because, to put it simply, that's the only manner in which their narrow minds can grasp the world.

    1. Why is it silly? He's doing the exact same thing that LK is doing. LK's agenda is to say, "See, the gods of the Austrian School have said nice things about govt. Therefore, uh... well you know. You're wrong about, like, stuff."

      He's done this with Lachmann, Hayek, Mises, and now Menger. What's his point?

    2. Menger was an economist. Current Austrians follow Mises and Hayek. They are not economists. They are political propagandists.

    3. Philip, as previous commenters have said, you are being too harsh on Mises and Hayek. Of course they were economists. Why would Lachmann, who is hardly seen as a political propagandist, incorporate the positives of Mises into his view on the Shackleian world ('From Mises to Shackle'). Why would Shackle give much praise to his Lse mentor, even if their politics were miles apart? Hayek's articles on capital are great works, especially is 'The Maintanence of Capital' where he concludes that capital is immeasurable in disequilibrium, decades before the whole Captial Cambridge debates.

      Most post Keynesians don't view Austrian econ as kindred spirits compared to the neoclassicals. Paul Davidson, for example, even harshly criticizes this idea that the schools can ever learn from each other now ( see his 'Economics of Ignorance or Ignorance of Economics'). Steve Keen has no sympathies for Austrian economics, since he only sees it as the cousin of neoclassicals. The same could of course be said about the other side too, Austrians do not typically view PKs as kindred spirits against mainstream econ. I am lucky enough to be grouped in the minority in which there is some optimIsm on what the two schools can learn from each other.

    4. Philip:

      1. The game was guess who said the quote. I contributed a quote that many people might not have guessed, just like the blog administrator did with the quote from Menger. Which reminds me: LK, Austrian economics proper does not contain any normative statements on what the state should do and what the state should not do. To be "Austrian" does not require one to be anarchist. Most Austrians are anarchists because of the strong influence of Rothbard. Who knows, maybe in 100 years most Austrians will be statists again. Right now, they're mostly anarchists. Statists and anarchists can be Austrian, since Austrianism is value free.

      2. Keynes was only in favor of "progress"? Sure, "progress" that presupposes state activity. Keynesianism cannot occur without a state. Without a state, there can be no "fiscal stimulus", or "monetary stimulus".

      This is a major reason why Keynes wrote in the preface to the German edition of his General Theory:

      "Nevertheless the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state, than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire."

      Even Keynes himself advertised his theory as more conducive to statism than laissez-faire. Keynesianism is NOT apolitical.

      Keynes most certainly had a political ideology. His ideology was the extent to which he wanted the state to act and when he wanted the state not to act.

      Current Keynesians are political propagandists. Austrians who advocate for small/non-existent government are doing so as libertarians, not Austrian economists. Austrian economics is value free. Keynesian economics is not. Keynesian economics CALLS for governmental "stimulus" during recessions and "austerity" during booms.

      Austrian economics is praxeology, the science of human action. It talks of means, ends, costs, profits, losses, and economic laws like the quantity theory of money and marginal utility.

      Congrats on being yet another clueless drone critic of Austrianism.

    5. Anonymous:

      He's done this with Lachmann, Hayek, Mises, and now Menger. What's his point?

      His point is that he is desperately protecting Keynesianism from death.

      Keynesianism is only as relevant as the state is relevant. Without the state, there can be no Keynesianism. Without a state, LK's entire intellectual investment would go up in smoke, and he knows it.

      Austrians are not afraid because Austrian economics applies to ANY social system, since it is the science of individual human action. Individuals act in every social system, from anarchies at one extreme all the way to fascist dictatorships at the other.

      So we're not as smitten by emotional biases and muddleheadedness.

      LK has a personal vested interest in attacking the anarchist wing of the Austrian School, because it is the largest threat to his intellectual investment.

      It is why he spends so much time trying to refute anarchist Austrians like Rothbard and Hoppe, but is more courteous and welcoming towards "statist" Austrians like Mises, Lachmann and Hayek.

      Do you think that is a coincidence? LK is not against any economists who accept the validity of states. He'll quibble over details here and there, but overall, he's positive and partial to "statist" Austrians.

      If I had a nickel for every time he writes on blogs things like "Even [statist Austrian economist] believed in [state program X]!", I'd be a millionaire.

      LK's number one goal is protect the state from criticism. Everything else, EVERYTHING ELSE is derivative and secondary. It's why the quality of his Austrian criticisms tend to be filled with so many errors all the time. It's because he isn't concerned with economics so much as he is concerned with advancing certain state programs, and he always has an emotional mind warping mindset when addressing highly threatening Austrian arguments, such as economic calculation.

      Maybe he lives on welfare and has a personal FINANCIAL motive in protecting the state. This guy is spending all day every day blogging, and his emotional maturity shows that he is probably in his 20s or 30s. Who is he? Who would call themselves LORD KEYNES anyway? There was only one Lord Keynes. Isn't it a little cult of personalityish to call oneself the name of someone else, prefaced with "Lord"?

    6. @ Isaac Izzy Marmolejo

      I'm not familiar with Shackle's work. The opinions I espouse are my own. Some Austrian ideas (like dynamism and innovation) may be interesting -- just as Marxism has interesting aspects -- but the School has a coherent framework. And that framework is pseudo-scientific garbage.

      @ Major_Freedom

      Yeah, I know. It's all about politics for you. I got that straight away.

      Hint: When me and other commenters talk about "caricature Austrians" we're referring to you. Now pipe down.

      For the rest of you, Major_Freedom and his ilk are EXACTLY what Mises and Hayek wanted. Ideologues who worship at the feet of "Praexology" and think that they have discovered a "science of human action". This sort of thing is not an embarrassing by-product of Austrian thinking -- it is THE RESULT SOUGHT FOR BY THE LATTER DAY AUSTRIANS.

      Just like Rand wanted a cult devoted to her obscurantist doctrine of Objectivism, Hayek and Mises wanted a cult blindly devoted to "free markets" (quote-unquote) and "Praexology"; a cult who believe they have found the Bible of how to live their lives. And if you read the economically-oriented writings you'll see that its strewn with value judgements that promote this cultishness even in the sphere of theoretical and applied economics.

      Again, it is in their doctrines of "value" that the Austrian priests peddle this muck. And this muck is targeted at producing disciples like Major_Freedom and Maggie Thatcher. It's remarkably effective political propaganda that reduces the world to a battle between Good (The Market) and Evil (The State). It's also juvenile and non-scientific.

      Again, Keynes saw these sorts of people attracted to Marxism and his quote is equally applicable to Austrian cult devotees:

      "[They derive their] power not from the multitude but from a small minority of enthusiastic converts whose zeal and intolerance make each one equal in strength to a hundred indifferentists."

    7. One more thing and then I'm done. It's Friday night and I have to go out and engage in some "human action". Even though I'm going to a pub I'm going to try to do everything through the lens of "praexology"... ;-)

      Major_Freedom, you can be a Post-Keynesian and be in favour of small government. In that case a stimulus could be applied in the form of a tax cut. For example, Warren Mosler advocates a full payroll tax holiday as a means to stimulate the economy. I know I'm not going to get this through to you -- because EVERYTHING to you is politics -- but Post-Keynesian theory is politically and ideological neutral. Austrian theory is not.

    8. Philip:

      Austrian economics is value free. It's not all about politics for me. It's all about politics in Keynesianism, since Keynesianism presupposes and requires state activity. You can't have Keynesian "stimulus" without a state. Ergo, Keynesianism is political, not value free.

      Praxeology is not propaganda. Means, ends, profit, loss, marginal utility, quantity theory of money, these are not ideological covers for bourgeoisie class interests. These are irrefutable categories of action derived from Kantian (or Aristotelean, depending on how one considers action to be grounded) epistemology.

      You are a political hack. You are insisting that because Austrian economists tend to be small/zero government types, that there is something sinister in Austrian economics proper.

      Well, regardless of the motivations of praxeologists, there claims still stand or fall according to logic and evidence. As far as I can see, nobody has ever REFUTED praxeology, since, after all, all refutations whatsoever would have to be understood as actions themselves, namely, behavior from humans that is intended to achieve something (refutation, truth searching, etc).

      You are committing the fallacy of ad hominem tu quoque. You are addressing praxeology not by engaging praxeology itself, but rather by pointing to other things that praxeologists might believe in, like anarchy. You cannot do that. If you want to refute an argument, you have to engage the argument, not dismiss the people advancing it on the basis that they are political ideologues.

      Get a grip.

      And if you want to talk about "derivations of power" from a "small minority", then look to Keynesianism, which derives its entire legitimacy from the relatively small number of people who populate the government.

    9. "Means, ends, profit, loss, marginal utility, quantity theory of money, these are not ideological covers for bourgeoisie class interests. These are irrefutable categories of action derived from Kantian (or Aristotelean, depending on how one considers action to be grounded) epistemology."

      All "categories of action" belong to a highly suspect, if not idiotic, Kantian epistemology, refuted decades ago.

    10. What framework are you considering fake science? The emphasis of human action to explain economics? To some extent, this is the major reason why PKs differ from neo Ricardians, they at least put more emphasis to human action, like for example, subjective expectations. I guess the thing that is worth debating is if human action is sufficient to explain economic reality, but this is much different than just saying that a framework based on human action is fake science.

    11. @ Lord Keynes

      True. But while Kant's Critique of Pure Reason is a sublime piece of philosophy, praexology is an obsessional neurosis...

    12. All "categories of action" belong to a highly suspect, if not idiotic, Kantian epistemology, refuted decades ago.

      Of course you won't dare explain this charge.

      Refuted by who? In which text(s)/journal(s)? Wouldn't those REFUTATIONS have to be considered actions, as intentional behavior, intended to achieve something (refute Kant), using some scarce means (computers, pens, paper, body, etc), and the outcome is either a success (what you claim it to be) or a failure (what I claim it to be)?

      You are constantly presupposing those same categories of actions not only when you claim that these categories were refuted, but also whenever you advocate for Keynesian "stimulus".

      You present Keynesian "stimulus" as intended to achieve some goal (employment, output, etc), that it requires scarce means to achieve it (government spending, dollars being spent, etc), and that the outcome is either a success or a failure.

      If these categories are "suspect, if not idiotic", then your claim that Kant was refuted would be based on "suspect, if not idiotic" foundation, and Keynesianism would also be based on a "suspect, if not idiotic" foundation as well.

    13. (1) first there is the issue of whether Mises' epistemology really understood or is consistent with Kantian philosophy at all:

      Pierluigi Barrotta, 1996. "A neo-Kantian Critique of von Mises's Epistemology," Economics and Philosophy 12: 51-66.

      (2) As for Kant's a priori categories of the human mind, the literature criticising this is vast.

    14. (1) Barotta? Who? Anyone can play that silly game of googling for criticisms of X and then claim that X is therefore "suspect, if not idiotic." You have to SHOW that you understand it first before you can claim it is a legitimate criticism. For there are counter-arguments to EVERY argument that has ever made, except of course for arguments that have just been made recently that haven't been read by enough people yet. Merely identifying the existence of someone somewhere challenging a theory, is not sufficient for you to claim that Kantian epistemology is "suspect, if not idiotic." That's just dodging the issue and refusing to engage it. Did you even read the paper you cited like you typically don't do as is evidenced by your claims against Austrianism? Playing this silly game of fallacy of authority is not how to engage arguments. It's weak and evasive.

      (2) Yes, criticisms of Kantianism are indeed "vast", but then again so is the set of criticisms of Keynesianism. The mere existence of criticisms is not sufficient for showing the criticisms to be correct, nor that what is being critiqued is wrong or flawed. Again you're just appealing to authority.

      Should I take it from your response that you don't understand that which you choose to criticize, which is just par for the course for you?

  3. I, for one, a, an "Austrian", and i find this quote from Menger to be something to be expected, and is a view that most Libertarians hold. And that article by Isaac Marmolejo is a most excellent one.

    It's a shame that so much people (and by "people", i mean particularly overzealous Rothbardians) seem to forget that the Austrian School is a School of economics which Mises stressed should be value-free, NOT a political ideology or philosophical movement. And Austrian Econ is most definitely not monolithic like many would like you to believe.

    Sometimes i believe the Mises Institute should be split into two: A "Mises" Institute that dealt exclusively with economics( producing academic Austrian econ to be published and also articles explaining Austrian Econ to laymen) and a "Rothbard" Institute that dealt exclusively Libertarian politics, ethics, philosophy, history and etc.

    And such "Mises" Institute should get the other wings of Austrians to work and debate in it (Free Bankers, Subjectivists, etc), whilst such "Rothbard" Institute should get the other wings of Libertarianism (Geolibertarians, Mutualists, Agorists, etc) to contribute too.

    And contributing to the critique Isaac made of Hoppe's position on Hayek, this short correspondence between Walter Block and Milton Friedman that is on Mises is excellent:

  4. Philip, just like many Austrians commit the mistake of treating their school from a political perspective, you are also misinterpreting several of them in a very silly and even immature form.

    The idea that "The "Austrian School" as we presently know them are a creation of Mises and Hayek." is simply wrong. First you have to define what you mean with "The Austrians we presently know".

    Are there a lot of populist Austrians who don't really create actual econ? Yes, there sadly are. Are there also a lot of academic Austrian economists doing a lot of work in economics? YES, there are. LK has spoken more favorably of the Radical Subjectivists and Free Bankers than of the Rothbardians for a reason, you know. Steven Hortwitz (a brilliant Austrian economist, i should add) came up with the terms "consumer Austrian" (men who "consume" the ideas perceived to be "Austrian" with out contributing) and "producer Austrian" (actual Austrian economist at work) in his discussion with Lorenzo, and those terms do apply to a lot of people.

    And second, your outright insult at Hayek and Mises is simply wrong. If one Austrian economist truly did move some people from the school into a bad direction, it was Rothbard (and i believe this wasn't his intention at all). Both Hayek and Mises did have political positions they were honest about, but they ALSO produced a lot of actual economics in their lives, and their ideas are most definitely relevant, even if you believe them to be wrong. Hayek was a major player in the debates with Keynes in the 30's and both men respected each other immensely. Keynes himself would slap you in the face if you told him Hayek was "a political propagandist".

    You should know better than to discredit Austrians, and more specifically Mises and Hayek, based on such a silly caricature of them that exists on the internet.

    1. I'm not referring to a caricature found on the internet. Although there is a reason that such people are drawn to Austrian economics and Marxism.

      Here's roughly what I mean by Austrians today. They are the people who follow the work carried out by Hayek and Mises after the mid-1930s. This was not economics in any meaningful sense. It was political propaganda. They masked such propaganda as economics by switching from a marginal theory of value to a theory of value based upon the entrepreneur.

      This leap of faith was a purely tautological expression (just as their acceptance of the MTV was, incidentally). There is no reason to think that entrepreneurs create value except that Mises and Hayek say that it is so. But such a conception has massive implications if accepted for how we understand the economy and economic policy.

      This is just the same as when a Marxist highlights the importance of the Labour Theory of Value. Without the LTV surplus value proper is not a meaningful term. And without surplus value Marx's political program falls apart and instead you get something like Post-Keynesianism. Just the same, without their theories of value Austrian economics falls apart in the sense that we no longer must assume that markets produce optimal outcomes while government "malinvests" (all these moral judgements rest on tautological/metaphysical Austrian value theory). Both LTV and the Austrian argument are metaphysical/tautological statements deployed as pillars upon which adherents support a political ideology and a code of morality not unlike a religious dotrine.

      Now, you may say that this approach is immature. Frankly, I don't care. I know for a fact that Marxism and Austrianism are pseudo-science and I have no bones with characterising them as such. If I were living in the Renaissance era I would be proud to be labelled "immature" for characterising Scholasticism as pseudo-logic that was deployed to pursue political goals. If Austrians or those sympathetic to their cause should label me immature today, I take it as a compliment. I know what their "economics" is a mask for and I know why they attract cultists and weirdos.

      I also know why Mises wrote cultist books that tried to, in a manner not dissimilar to Ayn Rand, lay out the principles that people should follow to live their lives. The work of this "second phase" Austrian School is quite clear about what it is to anyone caring to look with a disinterested eye. Mises and Hayek are not social scientists -- they are modern day priests using sophistical arguments to mask the fact that they trade in morality rather than logic and Faith rather than Reason.

      I'll end with a Keynes quote in which he talks about Marxism but which can just as easily be applied to the latter day Austrian School:

      "[It] is the combination of two things which Europeans have kept for some centuries in different compartments of the soul – religion and business."

    2. Philip:

      There is no reason to think that entrepreneurs create value

      Well you've just proven yourself not only ignorant of Austrian economics, but ignorant of reality.

      Who in their right mind would deny that entrepreneurs create value?

    3. So Post-Keynesians believe "There is no reason to think that entrepreneurs create value"? Or just this guy (I hope so)?

      I guess he prefers complete self-sufficiency instead of paying the ridiculous markups these evil firms charge. Why does he ever go shopping?

      Oh, I forgot--to stimulate aggregate demand. What a great guy!

    4. Entrepreneurs are involved in the creation of commodities that consumers value. That statement should be uncontroversial.

      The value itself even in Austrian theory is a subjective experience in the minds of consumers. That entrepreneurs have created the value indirectly, through their goods/services, seems a reasonable enough proposition.

  5. Isaac is one of the better Austrians out there. Philip's comment is a bit too harsh, especially if one is a regular reader of Issac's blog where he does try to make Austrian economics a respectable branch of the Heterdoxy. Though, he does claim that not all of Austrian economics is of the heterodox branch

  6. Yup. The austrian school wasn't even pro-free market until the 1920's. That was when the state socialists had just won a victory in the USSR, and pro-capitalist ideologues in the US and elsewhere were terrified that people in their countries would end up being inspired to pull off a similar revolution/coup. Terms like "free market capitalism" didn't even exist until then. All the people who were proponents of free markets were market socialists who believed free markets would give labor a victory over capital. At least, this is what I've read.

    1. . It is worth noting that a free market economist doesn't just say "market, market, market" all the time and thinks of all interventions as bad. A recent example is George Selgin's approval of the 'Swedish Solution' as a way to fix the banking situation currently. And obviously, there was still similar debates back then on liberalism vs a social liberalism. Clearly, I think we could say that Wieser thought that Menger's liberalism just wasn't enough, or in modern terms, it may have been too 'free market' relative to what Wieser wanted to see government doing.

      Nevertheless, the term free market is best used as relative to something else. For example, relative to Lord Keynes, I am seen as a free market economist and,using LK's example from a comment he made, Keynesianism relative to communism may indeed be more free market

  7. In terms of “Why are There No Austrian Socialists?,” have you seen Socialism after Hayek by Theodore A. Burczak -- he tries to squeeze markets in Marxism via Austrian economics, with little success (as I discuss in my review, an edited version of which appeared in Anarchist Studes). If he knew more about the wider socialist tradition (like Proudhon) then he would save some time and discuss the market socialist tradition rather than trying to save Marxism from its own dogmas.

    As a (libertarian) socialist, I think I'm right in saying that it is doubtful that "Austrian" economics would be that appealing to many socialists, given that it seems to be little more than cheer-leading for the capitalist class rather than a serious attempt to understand how the capitalist economies (or markets in general) work. Take the example of the information problems associated with central planning -- this applies, surely, also to capitalist corporations but for some strange reason "Austrians" never seem to mention that. When it comes to centralised, hierarchical, top-down decision making within the firm, it appears there are no information problems -- I wonder why?

    Any useful notion the "Austrians" pay lip-service to (such as uncertainty, disequilibrium, etc) can be found in post-Keynesianism (and used in a meaningful manner).

    An Anarchist FAQ

  8. I have another good one:

    Who said this:

    "I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago."

    It was John Maynard Keynes once again, 10 days before his death.

    If he lived longer than he did in his short life, then maybe he would have continued with relying on "the invisible hand", and maybe he would have outright repudiated his life's work.

    1. The quotation you cite is an *alleged* citation of Keynes by Henry Clay:

      “On Thursday 11 April he had lunch at the Bank after the regular meeting of the court. He sat next to Henry Clay; they discussed the American loan. Keynes said that he relied on Adam Smith’s ‘invisible hand’ to get Britain out of the mess it was in, and went on: ‘I find myself more and more relying for a solution of our problems on the invisible hand which I tried to eject from economic thinking twenty years ago.’ ‘An interesting confession for our arch-planner,’ Henry Clay noted."

      For full analysis of this alleged quote from Keynes, see here:

    2. Are you saying Henry Clay was a liar?

      If we charitably assume he told the truth, then it serves as a good example for this game you started where we post a quote and then ask who said it.

      Assuming Clay is not lying, it is interesting that Keynes late in his life would say that he is relying more and more on the "invisible hand" that he earlier in his life tried to eject from economic thinking. It is obvious that by itself this confession does not make or break The General Theory, but it is interesting nonetheless.

      If Keynes can say something like that, then surely a cult fan of his, who names himself after the real world Keynes, and includes the word "Lord", may one day significantly alter his mindset too and be more favorable to the market than he currently claims to be.

    3. The response to that anecdote of Clay is here:

      (1) Was Keynes being a gracious and diplomatic lunch guest in making what was in fact a mere throw-away remark here?

      (2) The context of this statement of Keynes is “the American loan.” That much is clear. The post war problems of the UK in its American loan and balance of payments difficulties were presumably also in Keynes’s mind.

      (3) The idea that this statement shows Keynes clearly repudiating the ideas of the General Theory is absurd.

      (4) I suspect that Keynes’s thinking in these days was influenced by the policy of the new Labour government and its more wide-ranging policies of economic intervention: on April 18, 1946, Keynes, in a private conversation, attacked the Labour government’s decision to “nationalise the road-hauliers, which he regarded as an unnecessary act of regimentation” (Skidelsky 2000: 471). Keynes was a lifelong liberal and had never supported the Labour party. It is not surprising that in his last days he was out of temper with the nationalisation program and other interventions of the Labour party. These programs were different from what he advocated in the General Theory, and went far beyond his own views.

      (5) Let us say for the sake of argument that Keynes did repudiate the General Theory in his last days, does this provide good grounds in itself for dismissing the fundamental ideas of the General Theory or modern Keynesian economics? It would not. The ideas of the General Theory stand or fall on their own merits, as do the theories of modern Post Keynesian economics. The attempt to dismiss Keynesian economics by appealing to this anecdote is as wrong-headed and foolish as Christian fundamentalists who try and discredit Darwinian evolution by invoking the fiction that Darwin repudiated his Origin of Species on his deathbed. We know, of course, that this story is a complete lie invented by a Christian apologist called Elizabeth Hope. But suppose it were true: that Darwin recanted the Origin of Species. Would such a thing provide good grounds for rejecting the modern theory of Darwinian evolution? Not in the least. Certainly not if Darwin provided no arguments refuting his original evidence. The theory presented in Origin of Species stands by itself and its truth depends on the cogency of the evidence and arguments. Modern science has reinforced the central ideas of the Origin of Species, and whatever the dying Darwin thought is irrelevant to the case that can be made for its truth. It is the same with the central ideas of the General Theory. In the end, it matters not one whit what Keynes though in his last days or on his deathbed. Theories in the natural sciences, social sciences and economics stand and fall on their merits, not on what the original inventor of them thought about them in his last days.

  9. The obvious difference between Major_Freedom's quotes and LK's is that most Keynesians would endorse what Keynes said, whereas Menger's reasonable position is diametrically at odds with much of modern 'Austrianism.'

  10. Mostly interesting discussion (looking past the many pejoratives). One thing that has not been developed is the fundamental difference in approach between Austrians and Keynesians: Austrian philosophy is "bottoms up", starting with microeconomic thinking and extrapolating to macro scale; Keynesian philosophy is "top down" with an attempt to define the macro per se without carefully defining the micro elements.

    This difference is at the core of the failure of the two "sides" in this thread to communicate with each other - there are two relatively unconnected perspectives.

    The Keynesians (and mostly also post-Keynesians) have no workable pathway to deal with the micro aspects of individual behaviors.

    The Austrians have no reasonable process to address complex systems.

    Wait a minute - I hear screams of protest from both sides. Before you continue screaming please answer this question: Has either side developed processes that go beyond linear extrapolations?

    I would suggest that the answer is MOSTLY no.

    MOSTLY because there have been attempts by a few to address nonlinearity of complex social and economic systems.

    Now that I have offended almost everyone involved in this thread, I hope there are some replies.

    Why? I expect many here can tell me something (some things) I don't know and I can learn.