No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Eight: Market Structure: From competition to monopoly 193 GREAT ECONOMISTS IN HISTORY J. M. KEYNES 1883-1946 “We’re all Keynesians now!” This quote is attributed to both free market economist Milton Friedman and President Richard Nixon. Why would a republican president and a libertarian free market economist say that? John Maynard Keynes is a giant in the economics profession, widely loved by many and hated by others. In the depths of the depression, Keynes wrote his major work The General Theory of Employment, Interest, and Money , which turned classical economics on its head. While the book was (and is) a very difficult read due to Keynes’ terminology, Keynes’ “macroeconomic” focus on effective demand made government spending essential to reduce unemployment. Providing politicians a theoretical reason they ought to spend money on constituents was not a hard sell and even the brightest young economists were swayed by the witty Keynes. While the classical system may work in the long run, Keynes said “in the long run we’re all dead.” Classical economics was deemed to have had its opportunity to fix the Great Depression, but failed. Economists in America (like Paul Samuelson) and England (Sir John Hicks) developed his theory into a modern mathematical masterpiece. Within a generation, Keynesianism had conquered the economic profession. Keynes was a witty and brilliant man, but was actually schooled in mathematics at Cambridge. He did take an economics course from Alfred Marshall, who was at that time the world’s most noted economist. His lack of formal economic training seemingly did not limit his rise in the profession, and Keynes made several important contributions on war reparations and monetary theory that raised his professional stature prior to the General Theory . Keynes’ brilliance was matched by his lack of humility. It may be apocryphal, but when Keynes was asked how to pronounce his name, it was “Keynes rhymes with brains.” Keynes acknowledged no moral authority save himself. As a member of the Cambridge secret society group called the Apostles, he said this: “We entirely repudiated a personal liability on us to obey general rules. We claimed the right to judge every individual case on its own merits, and the wisdom, experience and self-control to do so successfully. This was a very important part of our faith, violently and aggressively held. We repudiated entirely customarymorals, conventions and traditional wisdoms.Wewere, that is to say, in the strict sense of the term immoralists. We recognized no moral obligation upon us, no inner sanction to conform or obey. Before heaven we claimed to be our own judge in our own case.” While Keynesianism was in retreat after the 1970s, with the recent financial crisis it is back with a vengeance. Will government spending save the day or will it bankrupt us? Photograph of J.M. Keynes (public domain) 5