Pedro Schwartz is the President of the Mont Pelerin Society so you will not be surprised to find that he has just written an article criticising Keynes, with the lurid title, Keynes as Lucifer. But what we also have in common is our interest in John Stuart Mill. In 1973, he wrote one of the few books ever written on Mill’s economics, The New Economics of John Stuart Mill, which I am now re-reading. That I had read it perhaps two decades ago is why it feels so fresh. Everything had fallen from my mind about the book, but I have in the meantime re-discovered Mill for myself. But here we are discussing Schwartz on Keynes, and he begins by trying to explain what cannot be doubted, the grip that Keynes continues to hold over the economics profession.

A number of circumstances and coincidences explain this everlasting fascination with Keynes. First and foremost is the failure to foresee, account for, and remedy the Great Depression of the 1930s—and the same with the Great Recession of 2007-11. Secondly, his own seductive personality fits in supremely with the new morality of the progressive elites. Thirdly, people of progressive intent feel a crying need to find some excuse for continued government intervention in society, after Marxism, socialism, economic planning, imposed egalitarianism, public schooling, and state welfare have signally failed to fulfil their promises or are threatened with impending failure.

Keynes’s rejection of the classical model opened a door to the many who were unhappy with the orthodox belief that supply created its own demand; that unemployment was self-righting; that the gold standard was the best monetary system; that investment could be left in private hands; that the stock market, despite temporary episodes, reflected the fundamental values and trends of the productive system; and in general, that laissez-faire was the best possible social arrangement.

And yet, I fear, I will have to disagree with him when he comes to discuss Say’s Law. Here he writes:

Say’s Law, which holds that supply always find its demand, was the bugbear of Keynes. The classicists founded on it their belief that full employment was the natural state of a free economy and there could be no involuntary unemployment in a competitive labor market, barring the frictional unemployment of people changing jobs. On the contrary, for Keynes, the engine of growth was aggregate demand (the sum of consumption and new investment): and the normal situation of a free economy was one where that aggregate demand was insufficient to guarantee the full employment of resources. This shortcoming was due to the tendency of consumption always to lag behind income, leading to excessive saving; and investment depending capriciously on the animal spirits of entrepreneurs. It was necessary for the state to use those excessive savings to top up flagging investment. Laissez-faire was not the best policy.

This is not Say’s Law as explained by Mill. The very reason for this issue even entering into economic discourse at the time was because economists in the 1820s were debating whether demand deficiency was the cause of the recessions they were observing and came to the virtually unanimous view that demand deficiency did not cause recessions even while many other factors did. It is with a heavy heart I see that even someone who has studied Mill as intensively as Pedro Schwartz does not get Mill’s point. Keynes’s ability to beguile and mislead is extraordinary and apparently never-ending.