Where Keynes Went Wrong
I would like to begin with a few words for the students who were attending when I first offered these remarks.
I will be focusing on John Maynard Keynes. He died in 1946—it might seem long ago. But he remains immensely influential. I would argue that he is the most influential person of the last century, with Winston Churchill, another Englishman, perhaps a close second.
Virtually all world governments today may be described as Keynesian in their approach to managing economies. In particular, almost all the responses to the Crash of 2008 have come out of Keynes’s playbook. One person’s ideas have never before so thoroughly dominated the world.
I will offer a critique of Keynes and of Keynesian policies. It is a negative critique. This puts me in a very small minority of anti-Keynesians. It is not that I am alone. The world’s biggest and busiest economic website reflects the ideas of economist Friedrich Hayek and Hayek’s teacher Ludwig von Mises, which ideas are decidedly anti-Keynesian. But even so I am in a small minority worldwide. Thus any conclusions I reach today will be highly controversial. It is important that students understand this context.
If I am offering a heretical view, ironically this might not have displeased Keynes. He described himself as a “rebel and heretic.” He spoke in his General Theory of the brave army of rebels and heretics down through the ages, and certainly included himself. I think Keynes was quite surprised when he and his ideas were so thoroughly embraced by the establishment.
Keynes was also someone who lived in the moment. He developed policy recommendations and then theory to back them up. All his friends agreed about this. It was policy first and then theory. Keynes’s last book was written during the Great Depression and reflected the conditions of