Keynes Economics Quotes

If you owe your bank a hundred pounds, you have a problem. But if you owe a million, it has.

The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.

The political problem of mankind is to combine three things: economic efficiency, social justice and individual liberty.

When the final result is expected to be a compromise, it is often prudent to start from an extreme position.

By this means the government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.

Too large a proportion of recent "mathematical" economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.

The so-called “socialism” exceeded the mangiest recommendations of Keynes! Such a regulated state capitalism, such an intervention of the state in the economy like “socialism” does, Keynes had not even dreamed possible! The exceptional assistance of the state for the monopolies and their coalescence in a constitution—still after the receipt of Keynes! There is no better application of Keynes’s doctrine than the “socialism” of the twentieth century! Keynesian doctrine is an ideology of étatism, which strangely, was proclaimed as an essence of socialism! Keynes—the ideologist of the national debt, of the chronic budgetary deficit, and the inflation! His idea is the militarization of the economy, increasing workmen’s taxes, regulation of incomes through a “moderate inflation” in favor of the rich and the “solution” of the economic crises by regulation of the money circulation. All that was so well carried and applied in the “socialist” system that Keynes himself would have to wonder and to be proud of his “communist” disciples! Actually, Keynes, by observing the Soviet Union, had understood well the role of the state and the monopoly of the capital and sincerely recognized, by contrast with Stalin and the others after him, that they were used in a wonderful manner for the confirmation and for the perpetuation of the sovereignty of capitalism but not for its abolition. His “planned capitalism” is the same “planned socialism” of the twentieth century!

In the long run we are all dead. Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again.

In the long run we are all dead.

In the conditions of this “New World Order,” a crucial part of the contemporary world economy is a criminal economy, in which the excess profits are accumulated not by the production of material comforts, but by drug-traffic, arms trafficking, and human trafficking, including prostitution. The contemporary world economy is an economy of the global organized criminality whose eminently form is the modern capitalist state. The contemporary world economy is an economy not of the real commodity production, but an economy of the jobbery; this is expressed directly in supply and demand of the capital of the speculation, i.e., in the fictitious capital trade, in the antagonistic games with share capital in the stock exchange. Just Wall Street’s stock exchange, i.e., the world speculative capital market, is the contemporary tremendous pump for inflation of the balloons of the world economic crises, the last one of which began in 2007. The aggregate amount of the bonds on the world market, as many economists know, is over one hundred trillion US dollars! Without taking in mind the derivatives! If including those, the aggregate amount is several times more! This is an enormous balloon as inflated as a red giant star! And when added to this amount the world market of the shares, the passing each other between real and fictitious capital grows to cosmic dimensions! This cosmic balloon will burst very soon! That means the most destructive capitalist crisis in human history lies just round the corner, the global economic apocalypse is just forthcoming! This ruin will be due to the stock exchange antagonistic games, the stock exchange that is, as a matter of fact, a gambling house! Because the securities and shares’ trading is sheer gambling! This becomes clear by the direct proportionality between risk and profitability, the more risk—the more profitability, and vice versa! However, this is gambling in which the stakes are not simply money, but millions and billions of human fates. So, this is a destroying-the-civilization-world crime economy!

The decadent international but individualistic capitalism in the hands of which we found ourselves after the war is not a success. It is not intelligent. It is not beautiful. It is not just. It is not virtuous. And it doesn't deliver the goods.

..either immediately or ultimately every dollar of government spending must be raised through a dollar of taxation. Once we look at the matter. In this way, the supposed miracles of government spending will appear in another light.

This is what Keynes had meant when he warned of the dangers of economic chaos—you never know what combination of rage, racism and revolution will be unleashed.

The General Theory was not truly revolutionary at all but merely old and oft-refuted mercantilist and inflationist fallacies dressed up in shiny new garb, replete with newly constructed and largely incomprehensible jargon.

Men will not always die quietly.

The power to become habituated to his surroundings is a marked characteristic of mankind.

When the accumulation of wealth is no longer of high social importance, there will be great changes in the code of morals. We shall be able to rid ourselves of many of the pseudo-moral principles which have hag-ridden us for two hundred years, by which we have exalted some of the most distasteful of human qualities into the position of the highest virtues. We shall be able to afford to dare to assess the money-motive at its true value. The love of money as a possession — as distinguished from the love of money as a means to the enjoyments and realities of life — will be recognized for what it is, a somewhat disgusting morbidity, one of those semi-criminal, semi-pathological propensities which one hands over with a shudder to the specialists in mental disease.

Of course, coaches are Humans. They tend to do things the way they have always been done, because those decisions will not be second-guessed by the boss. As Keynes noted, following the conventional wisdom keeps you from getting fired.

Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. 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 [also] 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.

I cannot leave this subject as though its just treatment wholly depended either on our own pledges or economic facts. The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable, - abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe. Some preach it in the name of Justice. In the great events of man's history, in the unwinding of the complex fates of nations Justice is not so simple. And if it were, nations are not authorized, by religion or by natural morals, to visit on the children of their enemies the misdoings of parents of rulers.

The appeal to the intellectually insecure is also more important than it might seem. Because economics touches so much of life, everyone wants to have an opinion. Yet the kind of economics covered in the textbooks is a technical subject that many people find hard to follow. How reassuring, then, to be told that it is all irrelevant -- that all you really need to know are a few simple ideas! Quite a few supply-siders have created for themselves a wonderful alternative intellectual history in which John Maynard Keynes was a fraud, Paul Samuelson and even Milton Friedman are fools, and the true line of deep economic thought runs from Adam Smith through obscure turn-of-the-century Austrians straight to them.

Keynes was a great economist. In every discipline, progress comes from people who make hypotheses, most of which turn out to be wrong, but all of which ultimately point to the right answer. Now Keynes, in The General Theory of Employment, Interest and Money,set forth a hypothesis which was a beautiful one, and it really altered the shape of economics. But it turned out that it was a wrong hypothesis. That doesn't mean that he wasn't a great man!

I find economics increasingly satisfactory, and I think I am rather good at it. I want to manage a railroad or organise a Trust or at least swindle the investing public

There are men regarded today as brilliant economists, who deprecate saving and recommend squandering on a national scale as the way of economic salvation; and when anyone points to what the consequences of these policies will be in the long run, they reply flippantly, as might the prodigal son of a warning father: "In the long run we are all dead." And such shallow wisecracks pass as devastating epigrams and the ripest wisdom.

Spend a few hours every week studying American history, human nature, and economic theory. Start with “Economics in One Lesson.” Then try Keynes. Then Hayek. Then Marx. Then Hegel. Develop a worldview that you can articulate as well as defend. Test your theory with people who disagree with you. Debate. Argue. Adjust your philosophy as necessary.

Practical men who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.

With the breakdown of money economy the practice of international barter is becoming prevalent.

Keynes declared capitalism the best system ever devised to achieve a civilized economic society. But he recognized in it two major faults—“its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes.

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. 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 immense accumulations of fixed capital which, to the great benefit of mankind, were built up during the half century before the war, could never have come about in a Society where wealth was divided equitably.

The science of public happiness was how Keynes saw his work as an economist.

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.

We should not conclude from this that everything depends on waves of irrational psychology. On the contrary, the state of long-term expectation is often steady, and, even when it is not, the other factors exert their compensating effects. We are merely reminding ourselves that human decisions affecting the future, whether personal or political or economic, cannot depend on strict mathematical expectation, since the basis for making such calculations does not exist; and that it is our innate urge to activity which makes the wheels go round, our rational selves choosing between the alternatives as best we are able, calculating where we can, but often falling back for our motive on whim or sentiment or chance.

Imperialism as an arrangement, however, has remained largely invisible to the discipline of economics, even to its best practitioners and even in the colonial period. No less a person than John Maynard Keynes, in his classic work The Economic Consequences of the Peace (1919), where he talks of the ‘economic Eldorado’ that prewar Europe represented, fails to mention that this Eldorado rested upon an elaborate framework of imperialism. Europe’s accessing of food from the ‘new world’, an important aspect of this Eldorado, would not have been possible if this food had not been paid for, through an intricate arrangement, by Britain’s appropriation gratis of a part of the surplus of its colonies and semi-colonies (‘drain of wealth’), and by its export of manufactured goods to its colonies and semi-colonies at the expense of their local producers (‘de-industrialization’).

Keynes was not only inventing modern economics, he was helping invent the modern economist and placing him at the apex of a new intellectual power structure.

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency.

In this autumn of 1919, in which I write, we are at the dead season of our fortunes.

Keynes knew perfectly well that fascist economic policy could never have succeeded in the long-run without war, occupation and exploitation.

saving" became nine-tenths of virtue and the growth

He never sat an examination in economics: his knowledge came from pondering problems and discussing them as much as from book-learning.

Our attitude to these criticisms must be determined by our whole moral and emotional reaction to the future of international relations and the Peace of the World.

Halfway through the second term of Franklin Roosevelt, the New Deal braintrusters began to worry about mounting popular concern over the national debt. In those days the size of the national debt was on everyone’s mind. Indeed, Franklin Roosevelt had talked himself into office, in 1932, in part by promising to hack away at a debt which, even under the frugal Mr. Hoover, the people tended to think of as grown to menacing size. Mr. Roosevelt’s wisemen worried deeply about the mounting tension ... And then, suddenly, the academic community came to the rescue. Economists across the length and breadth of the land were electrified by a theory of debt introduced in England by John Maynard Keynes. The politicians wrung their hands in gratitude. Depicting the intoxicating political consequences of Lord Keynes’s discovery, the wry cartoonist of the Washington Times Herald drew a memorable picture. In the center, sitting on a throne in front of a Maypole, was a jubilant FDR, cigarette tilted almost vertically, a grin on his face that stretched from ear to ear. Dancing about him in a circle, hands clasped together, their faces glowing with ecstasy, the braintrusters, vested in academic robes, sang the magical incantation, the great discovery of Lord Keynes: “We owe it to ourselves.” With five talismanic words, the planners had disposed of the problem of deficit spending. Anyone thenceforward who worried about an increase in the national debt was just plain ignorant of the central insight of modern economics: What do we care how much we - the government - owe so long as we owe it to ourselves? On with the spending. Tax and tax, spend and spend, elect and elect ...

In Keynes’s time, physicists were first grappling with the concept of quantum mechanics, which, among other things, imagined a cosmos governed by two entirely different sets of physical laws: one for very small particles, like protons and electrons, and another for everything else. Perhaps sensing that the boring study of economics needed a fresh shot in the arm, Keynes proposed a similar world view in which one set of economic laws came in to play at the micro level (concerning the realm of individuals and families) and another set at the macro level (concerning nations and governments).

Economists who simply advised leaving the economy alone, governments whose first instincts, apart from protecting the gold standard by deflationary policies, was to stick to financial orthodoxy, balance budgets and cut costs, were visibly not making the situation better. Indeed, as the depression continued, it was argued with considerable force not least by J.M. Keynes who consequently became the most influential economist of the next forty years - that they were making the depression worse. Those of us who lived through the years of the Great Slump still find it almost impossible to understand how the orthodoxies of the pure free market, then so obviously discredited, once again came to preside over a global period of depression in the late 1980s and 1990s, which, once again, they were equally unable to understand or to deal with. Still, this strange phenomenon should remind us of the major characteristic of history which it exemplifies: the incredible shortness of memory of both the theorists and practitioners of economics. It also provides a vivid illustration of society's need for historians, who are the professional remembrancers of what their fellow-citizens wish to forget.

It is not sufficient that the state of affairs which we seek to promote should be better than the state of affairs which preceded it; it must be sufficiently better to make up for the evils of transition

The individualist insists that drastic depressions are the result of credit inflation; (not excessive savings, as the Keynesians would have it) which at all times in history has been caused by direct government action or by government influence. As for aggravated unemployment, the individualist insists that it is exclusively the result of government intervention through inflation, wage rigidities, burdensome taxes, and restrictions on trade and production such as price controls and tariffs. The inflation that comes inevitably with government pump-priming soon catches up with the laborer, wipes away any real increase in his wages, discourages private investment, and sets off a new deflationary spiral which can in turn only be counteracted by more coercive and paternalistic government policies. And so it is that the "long run" is very soon a-coming, and the harmful effects of government intervention are far more durable than those that are sustained by encouraging the unhampered free market to work out its own destiny.

It is perhaps worth noting here that even Hayek cannot be held responsible for the ideological simplifications of his acolytes. Like Keynes, he regarded economics as an interpretive science, not amenable to prediction or precision.

It is true that Keynes’s ‘model’ was a short-run model, but that’s not because he was interested only in short-run stabilization. He wanted a full employment level of investment in the short-run, so as to get to the long-run quicker.

If you talk here with people over 40 years of age— except Hansen—they sound sane and relatively conservative. It is the generation brought up by Keynes and Hansen, which is blind to the political implications of their economic views.

What's better- supply side economics a la John Keynes, or libertarian free markets a la Milton Friedman? Safety nets or bootstraps to build a just society? Big sticks or carrots to preserve international order? Federal or states' rights to guide the governed? Investing in education or employment to empower a citizenry? Seperation or integration of church and state? Multicultural melting pot or national identity? Revolution or evolution? The only honest answer is "it depends." and we're not entirely sure.

Classical economics saw money as something static, like a painting. Keynes saw it as creating narratives of economic possibility, more like a film or a novel. “The importance of money essentially flows from its being a link between the present and the future.

Keynes once wrote: ‘The day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems of life and of human relations, of creation and behaviour and religion.

The study of economics does not seem to require any specialized gifts of an unusually high order. Is it not, intellectually regarded, a very easy subject compared with the higher branches of philosophy and pure science? Yet good, or even competent, economists are the rarest of birds. An easy subject, at which very few excel! The paradox finds its explanation, perhaps, in that the master-economist must possess a rare combination of gifts. He must reach a high standard in several different directions and must combine talents not often found together. He must be mathematician, historian, statesman, philosopher – in some degree. He must understand symbols and speak in words. He must contemplate the particular in terms of the general, and touch abstract and concrete in the same flight of thought. He must study the present in the light of the past for the purposes of the future. No part of man's nature or his institutions must lie entirely outside his regard. He must be purposeful and disinterested in a simultaneous mood; as aloof and incorruptible as an artist, yet sometimes as near the earth as a politician.

As Keynes explained his own methods in The General Theory: “The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organised and orderly method of thinking out particular problems….Too large a proportion of recent ‘mathematical’ economics are mere concoctions, as imprecise as the initial assumptions they rest on, which allow the author to lose sight of the complexities and interdependencies of the real world in a maze of pretentious and unhelpful symbols.”8

The Bretton Woods saga unfurled at a unique crossroads in modern history. An ascendant anticolonial superpower, the United States, used its economic leverage over an insolvent allied imperial power, Great Britain, to set the terms by which the latter would cede its dwindling dominion over the rules and norms of foreign trade and finance. Britain cooperated because the overriding aim of survival seemed to dictate the course. The monetary architecture that Harry White designed, and powered through an international gathering of dollar-starved allies, ultimately fell, its critics agree, of its own contradictions.

Even apart from the instability due to speculation, there is the instability due to the characteristic of human nature that a large proportion of our positive activities depend on spontaneous optimism rather than mathematical expectations, whether moral or hedonistic or economic. Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits—a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities.

But if America recalls for a moment what Europe has meant to her and still means to her, what Europe, the mother of art and of knowledge, in spite of everything, still is and still will be, will she not reject these counsels of indifference and isolation, and interest herself in what may prove decisive issues for the progress and civilization of all mankind?

I sympathize, therefore, with those who would minimize, rather than with those who would maximize, economic entanglement among nations. Ideas, knowledge, science, hospitality, travel--these are the things which should of their nature be international. But let goods be homespun whenever it is reasonably and conveniently possible, and, above all, let finance be primarily national.

Prior to The General Theory, economics was almost exclusively concerned with scarcity and efficiency. The very word for the productive output of society—economy—was a metaphor for making do with less. The root cause of human suffering was understood to be a shortage of resources to meet human needs. Social reformers might protest the extravagances of the rich, but poverty and squalor were driven not

If we aim deliberately at the impoverishment of Central Europe, vengeance, I dare predict, will not limp. Nothing can then delay for very long that final civil war between the forces of Reaction and the despairing convulsions of Revolution, before which the horrors of the late German war will fade into nothing, and which will destroy, whoever is victor, the civilization and the progress of our generation.

One of the most mendacious fantasies that pervades Keynesian economic thought is the idea that the national debt “does not matter, since we owe it to ourselves.” Only a high‐time‐preference disciple of Keynes could fail to understand that this “ourselves” is not one homogeneous blob but is differentiated into several generations—namely, the current ones which consume recklessly at the expense of future ones.

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. ... in the field of economic and political philosophy there are not many who are influenced by new theories after they are twenty-five or thirty years of age, so that the ideas which civil servants and politicians and even agitators apply to current events are not likely to be the newest.

It is not true that individuals possess a prescriptive ‘natural liberty’ in their economic activities,” Keynes wrote. “There is no ‘compact’ conferring perpetual rights on those who Have or on those who Acquire. The world is not so governed from above that private and social interests always coincide. It is not a correct deduction from the principles of economics that enlightened self-interest always operates in the public interest.

Alas, I soon grew disillusioned, concluding that economics was largely a form of intellectual prostitution where you got rewarded for saying what the powers that be wanted to hear. Whatever a politician wanted to do, he or she could find an economist as advisor who had argued for doing precisely that. Franklin D. Roosevelt wanted to increase government spending, so he listened to John Maynard Keynes, whereas Ronald Reagan wanted to decrease government spending, so he listened to Milton Friedman.

Lenin is said to have declared that the bestway to destroy the Capitalist System was to debauch the currency. 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 confiscatearbitrarily; 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.

The war has ended with every one owing every one else immense sums of money. Germany owes a large sum to the Allies, the Allies owe a large sum to Great Britain, and Great Britain owes a large sum to the United States. The holders of war loan in every country are owed a large sum by the States, and the States in its turn is owed a large sum by these and other taxpayers. The whole position is in the highest degree artificial, misleading, and vexatious. We shall never be able to move again, unless we can free our limbs from these paper shackles.

What an extraordinary episode in the economic progress of man that age was which came to an end in August 1914! The greater part of the population, it is true, worked hard and lived at a low standard of comfort, yet were, to all appearances, reasonably contented with this lot. But escape was possible, for any man of capacity or character at all exceeding the average, into the middle and upper classes, for whom life offered, at a low cost and with the least trouble, conveniences, comforts, and amenities beyond the compass of the richest and most powerful monarchs of other ages. The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighbouring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalisation of which was nearly complete in practice.

The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep; he could at the same moment and by the same means adventure his wealth in the natural resources and new enterprises of any quarter of the world, and share, without exertion or even trouble, in their prospective fruits and advantages; or he could decide to couple the security of his fortunes with the good faith of the townspeople of any substantial municipality in any continent that fancy or information might recommend. He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable. The projects and politics of militarism and imperialism, of racial and cultural rivalries, of monopolies, restrictions, and exclusion, which were to play the serpent to this paradise, were little more than the amusements of his daily newspaper, and appeared to exercise almost no influence at all on the ordinary course of social and economic life, the internationalization of which was nearly complete in practice.

Finance is concerned with the relations between the values of securities and their risk, and with the behavior of those values. It aspires to be a practical, like physics or chemistry or electrical engineering. As John Maynard Keynes once remarked about economics, “If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid.” Dentists rely on science, engineering, empirical knowledge, and heuristics, and there are no theorems in dentistry. Similarly, one would hope that nance would be concerned with laws rather than theorems, with behavior rather than assumptions. One doesn’t seriously describe the behavior of a market with theorems.

I also want to emphasise strongly the point about economics being a moral science. I mentioned before that it deals with introspection and with values. I might have added that it deals with motives, expectations, psychological uncertainties. One has to be constantly on guard against treating the material as constant and homogeneous in the same way that the material of the other sciences, in spite of its complexity, is constant and homogeneous. It is as though the fall of the apple to the ground depended on the apple's motives, on whether it is worth while falling to the ground, and whether the ground wanted the apple to fall, and on mistaken calculations on the part of the apple as to how far it was from the centre of the earth.

In a BBC broadcast in 1934, when he was a year away from finishing The General Theory, Keynes pinpointed the fundamental difference between an approach to the Depression based on frictions and imperfections and an approach based on more fundamental defects in the market system: 'On the one side were those who believe that the existing economics system is, in the long run, a self-adjusting system though with creaks and groans and jerks, and interrupted by time-lags, outside interference and mistakes ... The strength of the self-adjusting school depends on its having behind it almost the whole body of organized thinking and doctrine of the last hundred years. If the heretics on the other side of the gulf [among whom Keynes included himself] are to demolish the forces of nineteenth century orthodoxy ... they must attack them in their citadel.

The slogan that ‘in the long run we are all dead’ is also a characteristic manifestation of an unwillingness to recognise that morals are concerned with effects in the long run – effects beyond our possible perception – and of a tendency to spurn the learnt discipline of the long view. Keynes also argued against the moral tradition of the ‘virtue of saving’, refusing, along with thousands of crank economists, to admit that a reduction of the demand for consumers’ goods is generally required to make an increase of the production of capital goods (i.e., investment) possible. And this in turn led him to devote his formidable intellectual powers to develop his ‘general’ theory of economics – to which we owe the unique world-wide inflation of the third quarter of our century and the inevitable consequence of severe unemployment that has followed it (Hayek, 1972/1978).

The Keynesian world is a world in which there are two distinct classes of actors: the skilled investor, ‘who, unperturbed by the prevailing pastime, continues to purchase investments on the best genuine long-term expectations he can frame’, and, on the other hand, the ignorant ‘game-player’. It does not seem to have occurred to Keynes that either of these two may learn from the other, and that, in particular, company directors and even the managers of investment trusts may be the wiser for learning from the market what it thinks about their actions. In this Keynesian world the managers and directors already know all about the future and have little to gain by devoting their attention to the misera plebs of the market. In fact, Keynes strongly feels that they should not! This pseudo-Platonic view of the world of high finance forms, we feel, an essential part of what Schumpeter called the ‘Keynesian vision’. This view ignores progress through exchange of knowledge because the ones know all there is to be known whilst the others never learn anything.

Treaty and the reparations Germany was obliged to pay were ‘malignant and silly to an extent that made them obviously futile’. This was the theme of the young economist Maynard Keynes in his philippic The Economic Consequences of the Peace, which began a myth which has never died. In reality, the real disaster wasn’t the way the war had begun or who was responsible, but how it had ended; not the claim that Germany had started the war, but the Germans’ belief that they hadn’t lost it, a belief encouraged by both German generals and politicians. When returning troops marched through Berlin in December, they were told, by Ebert of all people, the Social Democratic leader, ‘No army has overcome you.’ With that belief implanted, when the Treaty was published it was easy for demagogues to offer an answer. If the army had been ‘im Feld unbesiegt’, undefeated in battle, it must have been betrayed by the ‘November criminals’, the treacherous politicians who had taken over, and then betrayed Germany, and then ‘stabbed in the back’ by civilians, and Jews. Thus was the seed planted that would bring forth a frightful blossom.

In November 1914, the British government issued the first war bond, aiming to raise £350 million from private investors at an interest rate of 4.1% and a maturity of ten years. Surprisingly, the bond issue was undersubscribed, and the British public purchased less than a third of the targeted sum. To avoid publicizing this failure, the Bank of England granted funds to its chief cashier and his deputy to purchase the bonds under their own names. The Financial Times, ever the bank’s faithful mouthpiece, published an article proclaiming the loan was oversubscribed. John Maynard Keynes worked at the Treasury at the time, and in a secret memo to the bank, he praised them for what he called their “masterly manipulation.” Keynes’s fondness for surreptitious monetary arrangements would go on to inspire thousands of economic textbooks published worldwide. The Bank of England had set the tone for a century of central bank and government collusion behind the public’s back. The Financial Times would only issue a correction 103 years later,7 when this matter was finally uncovered after some sleuthing in the bank’s archives by some enterprising staff members and published on the bank’s blog.8

The German economic system as it existed before the war depended on three main factors: I. Overseas commerce as represented by her mercantile marine, her colonies, her foreign investments, her exports, and the overseas connections of her merchants; II. The exploitation of her coal and iron and the industries built upon them; III. Her transport and tariff system. Of these the first, while not the least important, was certainly the most vulnerable. The Treaty aims at the systematic destruction of all three, but principally of the first two. I (1) Germany has ceded to the Allies all the vessels of her mercantile marine exceeding 1600 tons gross, half the vessels between 1000 tons and 1600 tons, and one quarter of her trawlers and other fishing boats.[9] The cession is comprehensive, including not only vessels flying the German flag, but also all vessels owned by Germans but flying other flags, and all vessels under construction as well as those afloat.[10] Further, Germany undertakes, if required, to build for the Allies such types of ships as they may specify up to 200,000 tons[11] annually for five years, the value of these ships being credited to Germany against what is due from her for Reparation.[12]

KEYNESIAN ECONOMICS AND STIMULUS Keynesian economics is based on the notion that unemployment arises when total or aggregate demand in an economy falls short of the economy’s ability to supply goods and services. When products go unsold, jobs are lost. Aggregate demand, in turn, comes from two sources: the private sector (which is the majority) and the government. At times, aggregate demand is too buoyant—goods fly off the shelves and labor is in great demand—and we get rising inflation. At other times, aggregate demand is inadequate—goods are hard to sell and jobs are hard to find. In those cases, Keynes argued in the 1930s, governments can boost employment by cutting interest rates (what we now call looser monetary policy), raising their own spending, or cutting people’s taxes (what we now call looser fiscal policy). By the same logic, when there is too much demand, governments can fight actual or incipient inflation by raising interest rates (tightening monetary policy), increasing taxes, or reducing its own spending (thus tightening fiscal policy). That’s part of standard Keynesian economics, too, although Keynes, writing during the Great Depression, did not emphasize it. Setting aside the underlying theory, the central Keynesian policy idea is that the government can—and, Keynes argued, should—act as a kind of balance wheel, stimulating aggregate demand when it’s too weak and restraining aggregate demand when it’s too strong. For decades, American economists took for granted that most of that job should and would be done by monetary policy. Fiscal policy, they thought, was too slow, too cumbersome, and too political. And in the months after the Lehman Brothers failure, the Federal Reserve did, indeed, pull out all the stops—while fiscal policy did nothing. But what happens when, as was more or less the case by December 2008, the central bank has done almost everything it can, and yet the economy is still sinking? That’s why eyes started turning toward Congress and the president—that is, toward fiscal stimulus—after the 2008 election.

Government is a contrivance of human wisdom to provide for human wants," wrote Edmund Burke in his Reflections on the Revolution in France. In the original and primary sense of lacks or needs, wants tend to structure our vision of government's responsibilities. The quest for security - whether economic, physical, psychological, or military - brings a sense of urgency to politics and is one of the enduring sources of passion in policy controversies. Need is probably the most fundamental political claim. Even toddlers know that need carries more weight than desire or deservingness. They learn early to counter a rejected request by pleading, "I need it." To claim need is to claim that one should be given the resources or help because they are essential. Of course, this raises the question "essential for what?" In conflicts over security, the central issues are what kind of security government should attempt to provide; what kinds of needs it should attempt to meet; and how the burdens of making security a collective responsibility should be distributed. Just as most people are all for equity and efficiency in the abstract, most people believe that society should help individuals and families when they are in dire need. But beneath this consensus is a turbulent and intense conflict over how to distinguish need from mere desire, and how to preserve a work - or - merit based system of economic distribution in the face of distribution according to need. Defining need for purposes of public programs become much an exercise like defining equity and efficiency. People try to portray their needs as being objective, and policymakers seek to portray their program criteria as objective, in order to put programs beyond political dispute. As with equity and efficiency, there are certain recurring strategies of argument that can be used to expand or contract a needs claim. In defense policy, relative need is far more important than absolute. Our sense of national security (and hence our need for weapons) depends entirely on comparison with the countries we perceive as enemies. And here Keynes is probably right: The need for weapons can only be satisfied by feeling superior to "them." Thus, it doesn't matter how many people our warheads can kill or how many cities they can destroy. What matters is what retaliatory capacity we have left after an attack by the other side, or whether our capacity to sustain an offense is greater than their capacity to destroy it. The paradox of nuclear weapons is that the more security we gain in terms of absolute capability (i.e., kill potential), the more insecure we make ourselves with respect to the consequences of nuclear explosions. We gain superiority only by producing weapons we ourselves are terrified to use.

The economic theory propounded by John Maynard Keynes in the 1930s dwelled heavily on the role of governments vis-à-vis cycles. Keynesian economics focuses on the role of aggregate demand in determining the level of GDP, in contrast with earlier approaches that emphasized the role of the supply of goods. Keynes said governments should manage the economic cycle by influencing demand. This, in turn, could be accomplished through the use of fiscal tools, including deficits. Keynes urged governments to aid a weak economy by stimulating demand by running deficits. When a government’s outgo—its spending—exceeds its income—primarily from taxes—on balance it puts funds into the economy. This encourages buying and investing. Deficits are stimulative, and thus Keynes considered them helpful in dealing with a weak economy. On the other hand, when economies are strong, Keynes said governments should run surpluses, spending less than they take in. This removes funds from the economy, discouraging spending and investment. Surpluses are contractionary and thus an appropriate response to booms. However, the use of surpluses to cool a thriving economy is little seen these days. No one wants to be a wet blanket when the party is going strong. And spending less than you bring in attracts fewer votes than do generous spending programs. Thus surpluses have become as rare as buggy whips.

Pre-analytic vision. Worldview. Paradigm. Frame. These are cousin concepts. What matters more than the one you choose to use is to realise that you have one in the first place, because then you have the power to question and change it. In economics, that’s an open invitation to look afresh at the mental models we employ in describing and understanding the economy. But it is no easy thing to do, as Keynes discovered. Coming up with his groundbreaking theory in the 1930s was, he admitted, ‘a struggle of escape from habitual modes of thought and expression . . . The difficulty lies not in the new ideas, but in the old ones which ramify, for those of us brought up as most of us have been, into every corner of our minds.

Technological innovation has indeed relieved the working and middle classes of much of the old burden of labor. Childhood and retirement take up larger shares of life than they used to, and participation in the labor force has fallen among adults of prime working age. Jobs themselves also require fewer hours than they used to, at least outside of the elite. The sixty-plus-hour weeks that dominated working-class life in 1900 are therefore almost unheard of today, and even forty-hour weeks are rarer for middle-class workers than they were at midcentury. Moreover, unskilled and even mid-skilled labor has become almost incomparably less physically strenuous and less dangerous than it once was. At the same time, middle- and working-class Americans are wealthier than ever before. Overall, the bottom two-thirds of the economic distribution today expends massively less labor effort than its predecessors did, under less arduous work conditions, even as it enjoys material comforts that they could hardly have imagined. These developments do not perhaps go quite as far as Keynes and others imagined, but they make considerable strides in the utopian direction. If utopia remains far out of reach, then, this is because Keynes and others got their predictions about values—about how the future would measure honor—almost totally wrong.

The economic fuel for the rise of Hitler had been the suffering and despair generated by deflation—not the social welfare policies Hayek decried as “socialism

The years 1880–1913 constitute the great era of laissez-faire in world economic history—the reign of the classical gold standard, in which governments around the globe had allowed an unprecedented degree of economic activity within and between their nations to be regulated by the market-driven transfer of gold claims across borders (the physical stuff itself just shifted around in central bank vaults). The year 1933, in stark contrast, saw the world mired in the Great Depression, with the gold standard in tatters, trade decimated, and unemployment at previously unimagined levels.

full century on, John Maynard Keynes echoed Mill’s sentiments, asserting (rather wishfully) that ‘the day is not far off when the economic problem will take the back seat where it belongs, and the arena of the heart and the head will be occupied or reoccupied, by our real problems—the problems of life and of human relations, of creation and behaviour and religion’.

The real struggle of today…is between that view of the world, termed liberalism or radicalism, for which the primary object of government and of foreign policy is peace, freedom of trade and intercourse, and economic wealth, and that other view, militarist, or, rather, diplomatic, which thinks in terms of power, prestige, national or personal glory, the imposition of a culture, and hereditary or racial prejudice.

If the European Civil War is to end with France and Italy abusing their momentary victorious power to destroy Germany and Austria-Hungary now prostrate, they invite their own destruction also, being so deeply and inextricably intertwined with their victims by hidden psychic and economic bonds.

The great events of history are often due to secular changes in the growth of population and other fundamental economic causes, which, escaping by their gradual character the notice of contemporary observers, are attributed to the follies of statesmen or the fanaticism of atheists.

The Treaty of Versailles and Saint-Germain were seen by liberals, from Keynes's Economic Consequences of the Peace onwards, as the malign progeny of the Great War. The bellicose passions of the war had been translated into the vengeful and unjust strictures of the Peace. A 'guilty conscience' over the treatment of Germany was born. By the end of the twenties most educated Britons had been persuaded of the co-responsibility of all the great Powers in unleashing the catastrophe. Hence, the attribution of sole guilt to Germany was deemed unjust and inexpedient; the treaties' anti-German provisions appeared indefensible and in need of revision. Reparations, territorial penalties, even the discriminatory disarmament — all had to go. From the liberal perspective, the uncompromising, unpragmatic strictures of the Peace seemed to perpetuate the grip of irrationality in world affairs; they promised a new epic of blood-letting. The consensus which arose in Britain in the wake of the Great War opposing the Versailles settlement — and it encompassed Liberals, Socialists and many Conservatives — affords an overwhelming proof of liberalism's sway over British political thinking.

Perhaps it is historically true that no order of society ever perishes save by its own hand.

Those who controlled the Conference may bow before the gusts of popular opinion, but they will never lead us out of our troubles.

I wanted to talk about the problem of translation, how an idea clear in concept never remains so in practice, how social and economic forces remake ideas in their own image, how it’s not just capitalism that does this, it’s any system at all, and how Keynes and his ideas were a poignant example precisely because, even though he was in his own way radically optimistic, he wasn’t some dippy idealist.

Spirit of the Years Observe that all wide sight and self-command Deserts these throngs now driven to demonry By the Immanent Unrecking. Nought remains But vindictiveness here amid the strong, And there amid the weak an impotent rage.

But the principles of laissez-faire have had other allies besides economic textbooks. It must be admitted that they have been confirmed in the minds of sound thinkers and the reasonable public by the poor quality of the opponent proposals - protectionism on one hand, and Marxian socialism on the other. Yet these doctrines are both characterised, not only or chiefly by their infringing the general presumption in favour of laissez-faire, but by mere logical fallacy. Both are examples of poor thinking, of inability to analyse a process and follow it out to its conclusion. The arguments against them, though reinforced by the principle of laissez-faire, do not strictly require it. Of the two, protectionism is at least plausible, and the forces making for its popularity are nothing to wonder at. But Marxian socialism must always remain a portent to the historians of opinion - how a doctrine so illogical and so dull can have exercised so powerful and enduring an influence over the minds of men and, through them, the events of history. At any rate, the obvious scientific deficiencies of these two schools greatly contributed to the prestige and authority of nineteenth-century laissez-faire.

The policy of reducing Germany to servitude for a generation, of degrading the lives of millions of human beings, and of depriving a whole nation of happiness should be abhorrent and detestable,—abhorrent and detestable, even if it were possible, even if it enriched ourselves, even if it did not sow the decay of the whole civilized life of Europe.

In the great events of man's history, in the unwinding of the complex fates of nations Justice is not so simple. And if it were, nations are not authorized, by religion or by natural morals, to visit on the children of their enemies the misdoings of parents or of rulers.

It is, however, generally supposed that if the whole of a man's surplus production is taken from him, his efficiency and his industry are diminished, The entrepreneur and the inventor will not contrive, the trader and the shopkeeper will not save, the laborer will not toil, if the fruits of their industry are set aside, not for the benefit of their children, their old age, their pride, or their position, but for the enjoyment of a foreign conqueror.

We have been moved already beyond endurance, and need rest. Never in the lifetime of men now living has the universal element in the soul of man burnt so dimly. For these reasons the true voice of the new generation has not yet spoken, and silent opinion is not yet formed. To the formation of the general opinion of the future I dedicate this book.

It was obvious to all who knew him that Friedman loved being the smartest guy in the room. It was also clear he loved to smash idols. Pigou, Keynes, Samuelson—his whole life, names others worshipped were his targets. But underneath all this, imperceptibly running through the years, was a contrapuntal desire for a wise man, a counselor, a superior, someone to admire and esteem. Burns, arriving in the fatherless Friedman’s life just as he considered his professional future, had played this role for decades. “Arthur, there remains no one whom I so admire + feel so close to—Rose only excepted—and so hate to hurt,” Friedman told him in his closing lines.34 As a fellow Jewish man with immigrant roots who had risen fast and far, Burns was in some ways a natural father figure, but in other ways he never quite fit the role. Friedman’s closest relationships were always with those who shared his fundamental orientation to economics and politics. True, he retained cordial relationships with his opponents. But friendship, as it developed in his life, was rarely about the simple joy of companionship. From his student days in Chicago to his marriage with Rose, Friedman had always blended ideological, professional, and personal ties. Burns’s speech, with its reference to cost-push inflation, revealed a truth that was perhaps the most painful of all: Burns did not accept Friedman’s theory of inflation.

John Maynard Keynes, writing in his “Economic Possibilities for Our Grandchildren” (1930) suggests that “We are suffering . . . from the growing-pains of over-rapid changes, from the painfulness of readjustment between one economic period and another. The increase of technical efficiency has been taking place faster than we can deal with the problem of labour absorption.

Keynes was concerned that rapid change would be incompatible with social equality: “What can we reasonably expect the level of our economic life to be a hundred years hence? What are the economic possibilities for our grandchildren?” And he concluded that the future for the mass of humanity might surprise us: “The course of affairs will simply be that there will be ever larger and larger classes and groups of people from whom problems of economic necessity have been practically removed.” This would transpire as long as we showed a greater willingness “to entrust to science the direction of those matters which are properly the concern of science