Is the Market a Test of Truth and Beauty?

Chapter ǻ: Ļe Keynesian Heritage in Economics ȀȅȄ

for some years trivialised the confrontation between Keynesians and mon-
etarists into supposed differences of opinion about interest elasticities. I
confess that personal experience has made me even more weary of such
concepts. While a visiting professor at George Mason University in the
fall ofȀȈȇȂ, I not only had to clean the blackboard after my classes, as a
professor should; I also had to clear away what the inconsiderate professor
before me had left on the board. Ļrough the entire semester, more often
than not, it seemed to me, what was left was the Keynesian cross diagram
illustrating the simple-minded Keynesian multiplier.
I blame the Keynesians for lingering notions that government bud-
get deficits, apart from how they are financed, unequivocally “stimulate”
the economy. Examples of taking this for granted are Abrams and oth-
ers (ȀȈȇȂ) and Eisner and Pieper (ȀȈȇȃ). Ļe latter authors even argue, in
effect, that partial repudiation of the U.S. government debt through its
decline in nominal market value as interest rates rise, and then through
erosion of the dollar itself, should count as a kind of government revenue,
making therealbudget deficit and its real stimulatory effect slighter than
they superficially appear to be.
Buchanan and Wagner (ȀȈȆȆ) argue that the Keynesian justification of
budget deficits in specific circumstances has been illegitimately extended
by politicians into a reason for complacency about deficits even in a much-
widened range of circumstances.

Although Keynes advocated government deficits to boost total spending

in a slack economy, he also called for government surpluses to restrain

inflation during booms. But politicians have selectively recalled their

Keynesian theory, perennially invoking the spending rationale while con-

veniently ignoring the restraint Keynes envisioned. (BendtȀȈȇȃ, p.Ȅ)

Perhaps, as is often said, Keynes was over-confident of his ability to
turn public opinion and policy choices around when his own assessments
changed.ȃ

śŢőŞŞőōŏŠŕśŚ ōŚŐ ŘōŎőŘ-şŔŕŒŠŕŚœ

I conjecture that Keynesianism, followed by disillusionment with it, has
provoked an intellectual overreaction. I refer to doctrines of “equilibrium

ȃProfessor Hayek recounted just such an expression by Keynes of his belief in his
powers of persuasion in a conversation they had “a few weeks before his [Keynes’s] death.”
In HayekȀȈȅȅ/ȀȈȆȇ, p.ȀǿȂ.