I have an article at Mises Daily today with the title, “The Errors of Keynes’s Critics”. I wrote it in reply to an article published a few weeks ago with the title, The Errors of Keynes. Goodness knows there are enough of such errors and it is a blessing to find someone else taking the Keynesian apparatus on. But if it is to be done, it needs to be done with care, and if you are going to invoke Say’s Law as this article did, it is essential in my view to get the central point right. The problem with this critque of Keynesian economics, which was a review of a book written in Spanish by Juan Ramón Rallo which had made the same points, was that it used Keynesian arguments as a means to refute Keynes. What I wrote was this:

Rallo thus attempts to controvert Keynes by confirming everything he wrote. People really do hoard, Rallo argues, and store money rather than spend. There really is a deficiency of demand in the short-to-medium term that may finally work itself out in the long run, in three-to-five years perhaps. Overproduction is impossible, but only ‘ultimately,’ and in the meantime it can occur. Involuntary unemployment does apparently occur because of some problem on the demand side of the economy due to hoarding. However, rather than this deficiency of demand being a bad thing, it’s a good thing, since the hoarding allows business to think about what to do next.

All very well, but as I pointed out, if you are Keynesian such as Krugman, once you agree that demand deficiency is a problem and people actually do hoard then it also licenses the government to come to the rescue with a stimulus package that will short-circuit the time period between income earned and income spent. Here is not the place to explain what’s wrong with the argument, but that there is something wrong with the theor is a conclusion that ought to have become more evident with each passing day as we bear witness to the immense damage the stimulus has caused. My conclusion:

If you want to get to the essence of Say’s Law you must never think in terms of aggregate demand and aggregate supply. Just drop it from all conceptual discussions of the economy and I think, although I can’t be sure, you will find yourself necessarily thinking about issues in the same way as the Classical economists. As I have argued in my Say’s Law and the Keynesian Revolution (Elgar 1998), if you want to defeat Keynesian economics, you need to wage war on the very notion of aggregate demand. Nothing else will do.

Really, nothing else will do. There are austerity packages in place but they are half-hearted and uncertain. There is little serious understanding of the economics that lies beneath the need to eliminate unproductive public spending if recovery is going to take hold. Maybe there is some other way to think it through and reach not just the right conclusions but also allow policy makers to explain with confidence why what they are doing needs to be done. Maybe. But to me unless you war on the very idea that demand for anything at all can help move an economy out of recession, I do not see how this Keynesian blight can ever be removed.

And let me finally express my gratitude to the editors at Mises Daily. Not everyone is as open to such discussions as they have very clearly shown themselves to be.