The Failure of the New Economics by Henry Hazlitt

The Failure of the New Economics: An Analysis of the Keynesian FallaciesThe Failure of the New Economics: An Analysis of the Keynesian Fallacies by Henry Hazlitt
My rating: 4 of 5 stars

This detailed critique of John Maynard Keynes’s The General Theory of Employment, Interest, and Money is much better written and more cogent than the book it examines.

As I mentioned in my review of Keynes’s work, I learned about Hazlitt’s book from an Amazon review of the General Theory and felt inspired to take the reviewer’s advice and read the two books together, in tandem. I would read a little bit of General Theory, then I would read Hazlitt’s commentary on the text. This made Keynes’s impenetrable book understandable, and enabled me to read the whole thing (skimming certain portions).

Hazlitt admits that he himself has difficulty understanding what Keynes is saying in many places, and offers his best guess at a translation into plain language. As a reader of both books, I was grateful that Hazlitt had both the training and the patience to tackle this task, for I have neither, even though I realize that Keynes’s work has been and continues to be a major influence on the world of economics, which is to say, on the lives of each of us. On the other hand I would not want to lend too much credence to Keynes’s own assertion near the beginning of his book that it is addressed mainly to his fellow economists, and that therefore laymen may find it heavy going. For I doubt that Keynes’s ideas are recondite; rather, the problem is that they are, by him, so poorly expressed.

Hazlitt’s own stance is that of classical economics, or anyway is descended from that line. In chapter 1 of his excellent primer, Economics In One Lesson, Hazlitt sums up all of economics in not just one lesson but in a single sentence:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

In contrast, Keynes is famous for his response to the question about the long-term consequences of his suggestions: “In the long run run we’re all dead.” Maybe this flippant remark was not meant to be taken seriously, but in fact his ideas have been applied and implemented with a willful blindness to their long-term effects.

In this book Hazlitt does his best to distill the meaning from Keynes’s thickets of words. Flipping open Keynes’s book at random, I arrive at this on page 163, where Keynes is trying to summarize the thinking of those mainstream economists with whom he differs:

In any given industry we have a demand schedule for the product relating the quantities which can be sold to the prices asked; we have a series of supply schedules relating the prices which will be asked for the sale of different quantities on various bases of cost; and these schedules between them lead up to a further schedule which, on the assumption that other costs are unchanged (except as a result of the change in output), gives us the demand schedule for labor in the industry relating the quantity of employment to different levels of wages, the shape of the curve at any point furnishing the elasticity of demand for labor.

A point that Hazlitt makes again and again is that Keynes sets out to refute positions that no one actually holds. That is, much of his book is an instance of the “straw man” fallacy. Would any economist, much less all of them, assuming that he could unpack the meaning of the above sentence, agree that it represents his understanding of how things work? It’s most unlikely. Keynes would have been more convincing if he had quoted some authority verbatim and then set out to refute him. But Keynes quotes few other authors, and these are mainly those he approves of.

Another serious recurring problem is the slipperiness of Keynes’s own definitions. Hazlitt points out repeatedly how these implicitly change from chapter to chapter, rendering them meaningless. Beyond this, some of his definitions are meaningless as stated. One of these is the notion of the labor unit. About this Keynes writes:

Insofar as different grades and kinds of labor and salaried assistance enjoy a more or less fixed relative remuneration, the quantity of employment can be sufficiently defined by taking an hour’s employment of ordinary labor as our unit and weighting an hour’s employment of special labor in proportion to its remuneration.

If you’ve read Capital by Karl Marx then you will recognize this definition, for it is essentially the same, as Hazlitt points out. Hazlitt continues:

Keynes’s “quantity of employment” is not a quantity of employment. It is the quantity of money received by laborers who are employed.

Keynes is measuring labor in units of dollars.

Not that it makes much difference, for the definition does not play much part in his argument. But it is a sign of intellectual carelessness. It’s as though Keynes’s reputation was already so great when he wrote his book that he felt no need for consistency or even evidence——a lack that Hazlitt takes him to task for. Instead of providing evidence, here and there Keynes will say something like, “statistics could be found to show this.” Hazlitt actually looks for statistics and other data to try to substantiate Keynes’s assertions; in each case the data goes against the assertions.

In Hazlitt’s book Keynes appears in a poor light. Not only are his thinking and writing shown to be inadequate, but Hazlitt draws attention to Keynes’s patronizing and authoritarian digressions. Keynes has contempt for capitalists, rentiers, landlords, and even for regular working people insofar as they perversely try to save some of their earnings. For their own good, all of these people need to be brought under the control of the state and its wise officials.

Indeed, in reading Hazlitt’s book, which is clear, understandable, and sensible, it is hard to believe that whole generations of economists and politicians have been enthralled with Keynes’s ideas. As Hazlitt points out at the end, there have been barely a handful of works written in criticism of Keynes, while whole libraries have been filled with laudatory and enthusiastic exegeses. I’m left with the impression that his obscurity has been mistaken for brilliance.

Based on my own experience, I don’t think you should attempt Keynes’s General Theory without a copy of Hazlitt’s book by your side. I would go further: if you want to find out what Keynes’s ideas are, just read Hazlitt and forget about the General Theory. In it you will learn everything about Keynes that you could ever need to know, while also enjoying a clear, fluent read.

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