The Keynesian Revolution Essay

The greateconomists were harbingers of new ideas. The economic policies they recommended were at variance with the policies practiced by contemporary governments and political parties. As a rule many years, even decades, passed before public opinion accepted the new ideas as propagated by the economists, and before the required corresponding changes in policies were effected.

It was different with the "new economics" of Lord Keynes. The policies he advocated were precisely those which almost all governments, including the British, had already adopted many years before his "General Theory" was published. Keynes was not an innovator and champion of new methods of managing economic affairs. His contribution consisted rather in providing an apparent justification for the policies which were popular with those in power in spite of the fact that all economists viewed them as disastrous. His achievement was a rationalization of the policies already practiced. He was not a "revolutionary," as some of his adepts called him. The "Keynesian revolution" took place long before Keynes approved of it and fabricated a pseudo-scientific justification for it. What he really did was to write an apology for the prevailing policies of governments.

This explains the quick success of his book. It was greetedenthusiastically by the governments and the ruling political parties. Especially enraptured were a new type of intellectuals, the "government economists." They had had a badconscience. They were aware of the fact that they were carrying out policies which all economists condemned as contrary to purpose and disastrous. Now they felt relieved. The "new economics" reestablished their moral equilibrium. Today they are no longer ashamed of being the handymen of bad policies. They glorify themselves. They are the prophets of the new creed.

  • Ludwig von Mises, §II of "Lord Keynes and Say's Law," ch. 5 of Planning for Freedom and twelve other essays and addresses, Memorial Edition (3rd), (South Holland, Illinois: Libertarian Press, 1952, 1962, 1974; essay originally published in The Freeman (30 October 1950)), pp. 69–70.

"I believe myself to be writing a book on economic theory which will largely revolutionize -- not, I suppose, at once, but in the course of the next ten years -- the way the world thinks about economic problems"

(John Maynard Keynes, Letter to G.B. Shaw, January 1, 1935)

"Those, who are strongly wedded to what I shall call "the classical theory", will fluctuate, I expect, between a belief that I am quite wrong and a belief that I am saying nothing new. It is for others to determine if either of these or the third alternative is right."

"There are also, I should admit, forces which one might fairly well call automatic which operate under any normal monetary system in the direction of restoring a long-run equilibrium between saving and investment. The point which I cast into doubt - though the contrary is generally believed - is whether these `automatic' forces will... tend to bring about not only an equilibrium between saving and investment but also an optimum level of production."

(John Maynard Keynes, Collected Writings, Vol. 13, 1973: p.395)

"The impression of Keynes that one gains [from the Keynesians] is that of a Delphic oracle, half-hidden in billowing fumes, mouthing earth-shattering profundities whilst in a senseless trance -- an oracle revered for his powers, to be sure, but not worthy of the same respect as that accorded to the High Priests whose function it is to interpret the revelations."

(Axel Leijonhufvud, On Keynesian Economics and the Economics of Keynes, 1968: p.35)

"After the war, Keynes's theory was accepted as a new orthodoxy without the old one being rethought. In modern text-books, the pendulum still swings, tending toward its equilibrium point. Market forces allocate given factors of production between different uses, investment is a sacrifice of present consumption, and the rate of interest measures society's discount of the future. All the slogans are repeated unchanged. How has this trick been worked?"

(Joan Robinson, 1979, Collected Economic Papers, Vol. V, p.172)

"The "Keynesian revolution" went off at half-cock...The equilibrists, therefore, did not know they were beaten; or rather...they did not know that they had been challenged. They thought that what Keynes had said could be absorbed into their equilibrium systems; all that was needed was that the scope of their equilibrium systems should be extended. As we know, there has been a lot of extension, a vast amount of extension; what I am saying is that it has never quite got to the point....I must say that that diagram [IS-LM] is now much less popular with me than I think it still is with many other people. It reduces the General Theory to equilibrium economics; it is not really in time. That, of course, is why it has done so well."

(John Hicks, "Time in Economics", in Evolution, Welfare and Time in Economics, 1976: p,289-90)


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