Books: The Failure of The “New Economics” An Analysis of the Keynesian Fallacies by Henry Hazlitt

by | Feb 20, 2002 | Books

Hazlitt's book remains the supreme debunker of the Keynesian system.

The economic doctrines of John Maynard Keynes are, unfortunately, still very much alive. Washington officials widely believe that deficit spending stimulates economic growth. And a recent poll in the Wall Street Journal reveals that more than 60 percent of all economics professors still claim allegiance to this school.

Hence, the enduring need for Henry Hazlitt’s expert debunking of Keynesian mythology in his classic work The Failure of the “New Economics.” Hazlitt was the first to stand up publicly and refute the rash of fallacies engendered by Keynes.

And while other critics have arisen over the years, none smashes the Keynesian errors as convincingly and uncompromisingly as does Hazlitt.

Keynes is famous for advocating a number of bizarre tenets. He believed that wealth and prosperity come not from saving and production—but from spending and consumption. He thought unemployment resulted not from wages obtained by government-protected labor unions in excess of market-clearing levels—but from a reluctance by government to inflate the money supply and raise the price of every product in the economy. He believed investment was impeded by the existence of interest rates—and urged that government print money to bring rates down to zero. He believed in the “socialization of investment and credit” as the best means to ensure that the right economic projects were pursued, citing the Soviet Union as the most promising illustration of such a system. He said that free trade and the international gold standard caused conflict and war—and that protectionism and trade barriers promoted peace and harmony. He viewed Wall Street 6 as a casino. He said that “pyramid building, war and earthquakes” added to the wealth and productive capacity of nations. Hazlitt patiently, often humorously, but always thoroughly, digests each of these sophisms (and more) and refutes them all.

Keynes, says Hazlitt, was a throwback to the pre-Classical Mercantilists (Keynes often admitted this himself). Hazlitt constantly catches Keynes in blatant errors: reversing cause and effect, using aggregates (floating abstractions) while losing sight of the individual components, switching terms and definitions, using unnecessary and fraudulent math, etc. The most illuminating aspect of this book, though, is Hazlitt’s demonstration that Keynes was not a serious economist but, variously, a propagandist for labor unions, a demagogic advocate of Marx’s exploitation theory and a hater of businessmen and capitalism. You might be surprised by the explicitness of some of Keynes’ quotes cited in the book as evidence for Hazlitt’s conclusions.

Thirty years after its publication, Hazlitt’s book remains the supreme debunker of the Keynesian system—a system not of rational economics but of rationalizations to accommodate the whims of economic interventionists and dictators. You will find yourself referring to the pages of this superb work time and again.

This review is made available by the Ayn Rand Bookstore (formerly Second Renaissance Books)

The Ayn Rand Bookstore (formerly Second Renaissance Books) is your source for books and lectures for those interested in Ayn Rand's philosophy of Objectivism.

The views expressed above represent those of the author and do not necessarily represent the views of the editors and publishers of Capitalism Magazine. Capitalism Magazine sometimes publishes articles we disagree with because we think the article provides information, or a contrasting point of view, that may be of value to our readers.

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