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William L. Anderson
THE GHOST OF KEYNES: PART I
The Issue at Hand
Since the financial meltdown on Wall Street
five years ago, economies throughout the
world have been in crisis. Central banks – and
especially the U.S. Federal Reserve System –
have poured trillions of dollars into keeping
banks, businesses, and governments “liquid.”
Yet, the crises continue. Why? What can be
done? What should be done?
The Keynesian “Solution”
Governments and central banks have followed
the original financial crisis with Keynesian
“solutions,” beginning with the massive bailouts
of banks and other entities in 2008 and 2009.
Yet, with the economic gloom that continues,
has the Keynesian Kool-Aide energized world
economies, saving them from a worse fate, or is
Keynesianism the problem?
Is this a Keynesian Crisis?
Keynesian economics is touted as an antidote to
crises created by capitalism, with an all-wise
government led by “Progressive” and educated
people cleaning up the messes left by the “animal
spirits” of the capitalists.
Yet, we ask this simple question: Is the present crisis
being solved by Keynesian actions, or is Keynesian
economics the reason that the crisis occurred in
the first place, and do the Keynesian “solutions”
make things worse?
Our Position: Keynes is the Problem
Over the next six weeks, we will take a hard look
at Keynesianism from the viewpoint of Austrian
Economics. We will deal with the following
points, using Where Keynes Went Wrong by
Hunter Lewis as our chief guide.
In the next 10 slides, we lay out what we will do
in this course, doing so by asking questions that I
will answer through the course.
1. Who Was John Marynard Keynes?
The life of John Maynard Keynes gives us a
window into his economic thinking, which is
described as follows by Henry Hazlitt: What is
true is not original, and what is original is not
We take a look at the intellectual climate of
Great Britain during the time when Keynes
ruled economic thinking and tie that climate
to the Keynesian conclusions.
2. What Did Keynes Really Say?
Is “Keynesian” economics even from Keynes,
or is it a product of the man’s followers?
We answer that question and clear up any
confusion between real Keynesian thinking
and what might be urban legend.
3. Can We Separate Keynes the Man
from Keynes the Economist?
Murray Rothbard did not think so. In this
course, we look at how Keynes lived to see if
his personal outlooks and lifestyle might have
affected his approach to economic thinking.
4. What are the “fundamentals” of
What is the Keynesian paradigm and how do
we explain it? What are its weaknesses and
why is it so immensely popular, especially
5. Are Keynesian “solutions” actual solutions,
or do they create more problems?
What happens when we apply Keynesian
economics? What are the results, and what
are the consequences?
In this course, we take a hard look at what is
done in the name of Keynes and how it
effects the economy.
6. Why did the 2008 Crash Occur?
I contend that the 2008 crash happened because
the government and Federal Reserve System
had helped created a huge financial boom that
led to an inevitable bubble, and the policies that
led to the crisis were expressly Keynesian.
Far from “solving” the problem allegedly created
by free markets, Keynesian economics was at
the heart of the crisis.
7. What Were the Keynesian Policies that
created the crisis?
We look at what actions the government and
the Federal Reserve System took in order to
create this set of crises in the first place.
8. What do Austrians Have Against
Austrians are among the fiercest critics of the
Keynesian paradigm, and we look at a
number of Austrian writers who are highly
critical of this type of economic thinking.
Critics include Ludwig von Mises, Henry
Hazlitt, Murray Rothbard, and others.
9. Is the Keynesian Challenge
Intellectual or Political?
The ghost of John Maynard Keynes lingers for
a reason. Why do politicians and intellectuals
tend to gravitate toward Keynesian thinking?
It is because, as Paul Krugman claims, it
accurately predicts and explains the
economy, or is it because Keynesian
economics offers political “solutions.”
Krugman himself will give a surprising
10. Why Hunter Lewis?
Hunter Lewis has written an easy-to-read
critique of Keynes and his system. While
Henry Hazlitt wrote a detailed critique of
Keynes and his work, The General Theory, in
the late 1950s, Where Keynes Went Wrong is
ideal for a class like this.
Lewis brings a perspective that depends
heavily upon Austrian thinking, so the book
essentially is an Austrian critique. And it is
clear and easy-to-read.
The Path this Course Takes
I will follow the general path that Lewis lays
out in Where Keynes Went Wrong. The
2. What Keynes Really Said
3. Why Keynes was Wrong
4. More on Keynes
6. Envoi: Saying Goodbye to Keynes
Common Sense Economics
Once upon a time, economists had a rather
simple view of the economy. An economy
was an entity in which people produced and
exchanged goods. Money was a good that
Capital goods came about because people
saved and invested, and as long as
entrepreneurs followed the path to profit, an
economy could sustain itself.
Problems in Common Sense Land
But what happened when things ran
aground? Economists then usually blamed
government entities like central banks for
creating conditions that rewarded reckless
risk-taking and for creating situations in
which economic excess was obvious.
The “solution” was for government to pull
back, allow the markets to readjust, and then
permit the markets to work again.
Keynes to the Rescue?
During the Great Depression, however,
Keynes gave different counsel. Thrift was not
the solution; thrift was the problem.
Allowing markets to adjust only would hasten
a downward spiral in which an economy
would be stuck in a miserable “equilibrium” in
which unemployment would be high and
economic opportunity a thing of the past.
Keynes and His “Solution”
Instead of allowing markets to readjust,
Keynes argued that governments needed to
intervene, and intervene often. The problem
was not intervention; the problem was that
free markets were irrational, operating on
“animal spirits” that led investors and
capitalists down a path of destruction.
Instead, “Progressive” intellectuals and
administrators should take over and guide
the economy over a better path.
What Was Keynes’ Method?
That is the question we will answer next