Demythologising the Keynesian revolution: Pigou, wage-cuts, and The General Theory
Revolutions depend upon and create their own myths. Sometimes the leader is responsible, or partly so, for starting such myths, and sometimes the followers build them up further in order to maintain revolutionary momentum and exclusiveness. An important part of revolutionary myths is the unmasking and condemnation of heinous fallacies perpetrated by the 'old' regime, and the demonstration that before the revolution all had been darkness and error. The young J. S. Mill, for example, maintained that before Adam Smith 'the ideas universally entertained both by theorists and by practical men, on the causes of national wealth' had been 'completely erroneous' ( 1844, p. 47). To its credit, the Jevonian revolution did not generate so much in the way of myth-making. But the Keynesian revolution has been, and still is, fertile in the creation of myth and mystique. One of its typical myths, for which Keynes himself bears some measure of responsibility, but which was largely blown up by followers and PROs, concerns the subject of Pigou and wage-cuts. According to this myth Pigou's one definite policy proposal during the slump of 1929-33 was that of wage reductions. But this particular myth was simply part of a comprehensive revolutionary mystique regarding the publication of Keynes General Theory, which is held to have exercised a major or revolutionary influence in transforming economic policies. Although initially Keynes himself may have had some slight responsibility for inspiring these myths, already by October 1937 he had admitted that they were hollow by asserting that, regarding policy or 'practical matters', there was 'really extremely little' between himself and those cast as the leading anti-revolutionary defenders of orthodoxy ( 1973, vol. XIV, p. 259). But these myths have maintained their hold and have been propagated for decades by economists and historians.
A survey, down to the fateful year of 1929, of economists' views on the unemployment problem, concluded: