Responses to The General Theory

From The HET Website. A typical revolution from below, led by the young who knew nothing but wished to make the presence felt. A conceptual disaster, along the lines of Aristotle’s arguments on the charging of interest.

The response to the publication of John Maynard Keynes‘s General Theory of Employment, Interest and Money (1936) was immediate and controversial – and a cleavage between young economists and their older counterparts was immediately carved.

From Cambridge, Keynes’s students rushed to publication to further explain his ideas: Joan Robinson (1937) and James E. Meade (1936, 1937), two of the members of Keynes’s “Circus”, produced particularly able “restatements” of the General Theory. The exposition of a third member of the Circus, Austin Robinson (1936, The Economist), reached a wider audience. Two of Keynes’s tutorial students also rushed to publish reviews:  W.B. Reddaway (1936, Economic Record) and D.G. Champernowne (1936, RES), with the latter being slightly more critical.

However, among the Cambridge professors, the consequences were grievously divisive (for an account, see Kahn, 1984; Skidelsky, 1992). J.M. Keynes almost completely ruptured his relationships with his old Cantabrigian colleagues – Arthur C. Pigou, Hubert D. Henderson, Dennis H. Robertson and Ralph G. Hawtrey. Although the strife was confined largely to personal exchanges within the Cambridge halls, some anger found its way into the printing presses. A.C. Pigou (1936, Economica), portrayed as the “villain” by the General Theory, tried to go immediately on the counterattack but his counterblast was feeble. H.D. Henderson (1936, Spectator) fired off an even more personally vindictive fusillade. In contrast, Dennis Robertson‘s (1936, QJE) reply had a bit more of substance and engendered a short journal debate with Keynes.

The generational differences in reception were also evident outside of Cambridge. Elsewhere in Britain, the youthful Abba Lerner (1936, Int Lab Rev),  John Hicks (1936, EJ) and Roy Harrod (1937, Econometrica) produced quite sympathetic reviews.

Surprisingly, neither of Keynes’s old rivals at the London School of Economics, Friedrich A. von Hayek and Lionel Robbins, reviewed or even responded to Keynes’s new book. But the damage was permanent: the enthusiasm for the General Theory by their most promising students – particularly  LernerHicks and, eventually, Kaldor – was the beginning of the end of the L.S.E.’s attempt to steal the crown of English economics from Cambridge.

From America, the initial response was cold: the main reviews by Jacob Viner (1936, QJE), Alvin Hansen (1936, JPE), Joseph Schumpeter (1936, JASA), Frank Taussig (1936, QJE), Wassily Leontief (1936, QJE), C.O. Hardy (1936, AER) and Frank Knight (1937, Canadian JE) were almost uniformly negative. Of all his reviewers, Keynes only deigned to respond to Viner’s in his now-famous article, “The General Theory of Employment” (Keynes, 1937, QJE).

With the unfortunate exception of Nazi Germany (where a translation was published “on paper rather better than usual and the price not much higher than usual”, as Keynes put it), Keynes’s General Theory was largely ignored on the European continent. The few reviews that emerged from there, particularly those by Gustav Cassel (1937, Int Lab Rev) from Sweden and Gottfried Haberler (1936, ZfN) from Austria, were quite hostile.  In France, the professional (and personal) hostility of influential conservative economists such as Jacques Rueff guaranteed that the book would not even be translated until 1948.

It’s official: NO collusion


It’s now official. There was never any collusion between Russia and the Trump Campaign. But everyone knew that, and has always known that. This was just a device to undo the election result. The most interesting outcome at this stage is to appreciate just how well PDT has played this out. He could have brought it to an end at any time, fired Mueller and taken the heat, but let it work itself through to the end.

The media and the left have shown that the media is the left. The Democrats have demonstrated their utter lack of morality. But for all that,there are still immense forces at work that might yet pull the US down, that would make it an ungovernable mess.

Free Market Economics vs Keynesian macro

I realise how tedious all this maundering on about Keynesian economics is for some people, which I do go on about. But the thing is, you will not find this discussed anywhere else in the world. This is said more in amazement than anything else, but there is virtually no one else anywhere that I can see who is as focused on the damage caused by modern macro, with the reality being that virtually no one, even among economists who think they are non-Keynesian, can see the problem with macroeconomic theory unless they also understand Say’s Law and the classical theory of the cycle.

All this has come to mind with the publication of The Elgar Companion to John Maynard Keynes for which I received notice just yesterday. This may be compared and contrasted with my own What’s Wrong with Keynesian Economic Theory? which was published in 2016.

With this in mind, let me again mention the article I did for the March Quadrant on The Dangerous Persistence of Keynesian Economics. It is in my view the best short statement I have ever managed to put together to contrast the classical approach to economic theory with the modern. If you are at all interested in these kinds of issues, you should read it. And let me emphasise that to understand classical economics properly you must understand Say’s Law in its true meaning, which you will not find by reading Keynes or any mainstream economist since the 1930s. One of those who does understand Say’s Law is Arthur Laffer – the Laffer of the Laffer curve – whose comment on my book is found below.

His comment is found in the advertising notice sent out just yesterday by Edward Elgar on my Free Market Economics. They describe the book as “Austrian”, which is accurate enough since Austrian economics is the last variant of classical theory that remains alive today. My approach, however, comes through a different line of descent, from the greatest economist who has ever lived, John Stuart Mill. That is why there is no other book in the world like mine. Don’t take my word for it; this is from just yesterday in the comments:


Steve I bought a copy of your book a few years back and thoroughly enjoyed it. It gave me clear lines of argument to use against the mob when they tell me how awesome the NBN is, or how 27 years without a recession is a great thing etc. great book, keep on fighting the good fight

This was the notice put up by Elgar.

It’s not too late to order your exam copies.

If you’re teaching Austrian or Public Choice Economics next semester and you’re planning the course reading list, take a look at the textbook offering below from Edward Elgar.

Email us to order your examination copies, or access the online version on Vitalsource.

Free Market Economics, Third Edition

An Introduction for the General Reader

Steven Kates, RMIT University, Australia

‘This book presents the very embodiment of supply-side economics. At its very core is the entrepreneur trying to work out what to do in a world of deep uncertainty in which the future cannot be known. Crucially, the book is entirely un-Keynesian, restoring Say’s Law to the centre of economic theory, with its focus on value-adding production as the source of demand. If you would like to understand how an economy actually works, this is one of the few places I know of where you can find out.’

– Arthur B. Laffer, Laffer Associates, US

In this thoroughly updated third edition of Free Market Economics, Steven Kates assesses economic principles based on classical economic theory. Rejecting mainstream Keynesian and neoclassical approaches even though they are thoroughly covered in the text, Kates instead looks at economics from the perspective of an entrepreneur making decisions in a world where the future is unknown, innovation is a continuous process and the future is being created before it can be understood.

The aim of this book is to redirect the attention of economists and policy makers towards the economic theories that prevailed in earlier times. Their problems were little different from ours but their way of understanding the operation of an economy and dealing with those problems was completely different.

Free Market Economics, Third Edition will help students and general readers understand classical economic theory, written by someone who believes that this now-discarded approach to economic thought was superior to what is found in most of our textbooks today.

Key features:

  • analysis derived from the theories of pre-Keynesian classical economists, as this is the only source available today that explains the classical pre-Keynesian theory of the business cycle
  • a focus on the entrepreneur as the driving force in economic activity rather than on anonymous ‘forces’ as found in most economic theory today
  • introduces a powerful though simplified model to explain the difference between modern theory of recession and classical theory of the business cycle
  • great emphasis is placed on the consequences of decision making under uncertainty
  • offers an introductory understanding, accessible to the non-specialist reader.

And if you would prefer a digital copy of the book you can locate one here.

If orangutangs can work it out why can’t socialists?

You know, that incentives are necessary to promote productive activity and that an economy must encourage the supply-side of the economy if output is to grow. The article is about how Orangutans make complex economic decisions. As they conclude:

“Optimality models suggest that orangutans should flexibly adapt their foraging decisions depending on the availability of high nutritional food sources, such as fruits,” said Josep Call, researcher at the University of St. Andrews. “Our study shows that orangutans can simultaneously consider multi-dimensional task components in order to maximize their gains and it is very likely that we haven’t even reached the full extent of their information processing capabilities.”

Meanwhile Alexandria O-C and her Green New Deal think this is a worthwhile idea: if you are “unwilling to work” they will still pay you an income.

Interestingly this particular proposal is unanimously rejected by the students in this video, once they are told what’s in the GND.

The students interviewed are big on buzz-word ideologies they know virtually nothing about, but still with a few elements of common sense if more is explained. There is hope for us after all, slim as it may be. Perhaps these kids are smarter than the average orangutang, but they would be a rare breed on the left.

Gary North’s Keynes Project

Not to be missed: The Keynes Project: A Critical Analysis of the Economics of John Maynard Keynes from an Austrian School Perspective.

John Maynard Keynes was the most influential economist of the twentieth century. This speaks poorly of the twentieth century. 

In October 2009, I wrote an article for Lew Rockwell in which I outlined a plan to refute Keynes, line by line. Austrian economists are not found on major university campuses. I wrote it for a younger, untenured academic economist at some private college or obscure university who is willing to devote his career to the task. I still hope such a person takes up my challenge. I am not optimistic, however.

I have shifted focus here. The Keynes Project is a model for a multimedia effort. It focuses on his 1936 book, The General Theory of Employment, Interest, and Money, but it is not limited to this volume. It considers his earlier writings as a prelude to The General Theory.

The Keynes Project project will be both offensive and defensive, as any comprehensive critique should be. It will show what was wrong with Keynes’ economic theory, but it will use these critiques to provide an introduction to what is correct in economics — specifically, Austrian School economics.

The project must be guided by a single principle, a single theme: to refute Keynes’ single theme. The project must ask two questions.

1. If the problem is insufficient demand, where does the state confiscate the resources necessary to increase demand?
2. What would the original resource owners have done with these resources?

Keynes made the mistake that Bastiat warned against: the fallacy of the thing not seen. It is the broken window fallacy.

It goes back to one source: Bernard Mandeville’s poem, The Grumbling Hive (1705). This is why Keynes in The General Theoryquotes from it. Refute it. Start here: //

Then go to J. B. Say. Defend him. Show that Keynes misrepresented Say’s law.

Then go to the classic refutation of Keynes: Henry Hazlitt’s The Failure of the “New Economics” (1959).

Always return to these two questions. Never let the reader forget these two questions.

This project is governed by this presupposition: You can’t beat something with nothing. It is not just that Keynes was wrong. It is that he was wrong in specific ways, violating specific insights of generations of previous economists, but especially those of Ludwig von Mises and F. A. Hayek, Keynes’ chief rival in 1935.

It’s no joke

From Paul Johnson’s wonderful Humourists: From Hogarth to Noël Coward. Having now flown from Budapest to London, where I finished the book on the flight, I find it both eerie and appropriate that this is how Johnson’s book ends.

In an attempt to put down ‘racism,’ the concept of ‘hate terms’ was introduced into English law for the first time. This makes many words and expressions unlawful, and punishable by fines and imprisonment. It is the most comprehensive system of censorship since the days of Hitler’s Germany and Stalin’s Russia, and means there are more restrictions on freedom of expression in England than at any other time since Hogarth’s days.

It is, of course, fatal to humour, if enforced and persisted in. For one vital quality of humour is inequality, and striking visual, aural, and physical differences. Differences in sex, age, colour, race, religion, physical ability, and strength lie at the source of the majority of jokes since the beginning of human self-consciousness. And all jokes are likely to provoke discomfort if not positive misery among those laughed at. Hence any joke is liable to fall foul of those laws. The future for humourists thus looks bleak, at the time I write this [2010]. The ordinary people like jokes, often crude ones, as George Orwell pointed out in his perceptive essay on rude seaside picture postcards. But are ordinary people, as opposed to minor officials, in charge any more? Democracy doesn’t really seem to work, and people are insufficiently dismayed at its impotence. Noël Coward made the point more than half a century ago:

There are bad times just around the corner,
We can all look forward to despair.
It’s as clear as crystal
From Birmingham to Bristol
That we can’t save democracy
And we don’t much care.

We visited The House of Terror on our last full day in Budapest, which is a memorial museum about Nazis and Comms by people who know quite a bit about it first hand. It is sickening to find that the principles that once made England great are rapidly disappearing, and most truly don’t much care among “officials”, and it’s no longer just the minor ones.

And for more on the same, there is this today from Steve Hayward at Powerline: Liberals and the Death of Comedy. It’s about whether Monty Python could be produced by the BBC today. I won’t tell you his conclusion so you will have to read it yourself.

Evert Schoorl 1940-2018

Let me add to the reminiscences of Evert Schrool with whom I had corresponded but had met only a couple of times, the distance between Europe and Australia being as wide as it is. What I am however able to say is that he was an engaging person and wonderful company, as well as being a great scholar whose work I enjoyed, especially his biography of J.B. Say, my review having been published on these pages in 2013. You may find the review here.

I do not think I am giving away anything personal if I include his response to my review as well as my reply to him. He wrote:

Dear Steve,
Thank you for your extremely kind and positive review of my Say biography. I’ve been eagerly waiting for the first reviews,
and yours is the very first coming to my attention. As I am retired since 2005, I have to carefully consider which conferences to attend, but I hope we’ll meet again in the circuit.
Very best regards,

To which I replied:

Dear Evert

You know the only thing that I regret about the review was that I was constrained to 1000 words. There was more to say and I hope to say it elsewhere. Most economists, I suspect, specially in the modern world, have no seriously interesting personal biography. We graduated from X, took our PhD from Y and then taught for Z years at some place or another publishing this and that. Not so in days gone by where a Say, Mill, Ricardo or even a Schumpeter lived quite exotic lives with more to tell than a mere intellectual history. Just the map he drew that you mentioned at the start was quite extraordinary being as I understood a unique event and first of its kind. And I had even seen sacks of sugar with the name Say on it but had not realised that it was that Say and how J-B was instrumental in setting him on the right path. I do hope lots of people read it. Every word I wrote I meant. And I will only add that you may not get around as much as you used to but European conferences in these days of austerity are looking fewer and farther between for us Australians. But I do hope we catch up some time soon and if I am in your vicinity I will definitely let you know.

With kind regards


Happily we did catch up that one more time at the first J-B Say Conference at Auchy-les-Hésdin in 2014. And I do wish to add how much I agreed with him that one of the main purposes of studying the History of Economic Thought is to influence the economic theories of the present. The note by Prof Tieben states the following: “Evert wore a T-Shirt with Say’s portrait and the text: Set markets free. That, of course, was an example of how not to study the history of economic thought.” So I will say, if I might, that this is the way to study the history of economic thought. I will just take one excerpt from my review that might help emphasise the point.

I am compelled to note that Schoorl has brought me into the story but should you be concerned that my positive review is in return for his own positive discussion of my own work, let me first note this: where Schoorl has written ‘he has given the best explanation of the law of markets’ the ‘he’ referred to is Murray Rothbard. Well I might dispute this, but not here; all is forgiven since what we find is the most judicious short discussion of two centuries of debate over the law of markets to be found anywhere, with myself found at the extreme end of the pro-Say spectrum, which I fear is actually the case.

And my fear was and is that no one any longer understands the nature of Say’s Law properly and how great a misfortune it is to the study of economics that this pivotal principle has been all but totally suppressed.

I join you in mourning his passing, but am happy to be able to contribute to his memory among our colleagues in HET.

Amadeus discussed at Ace of Spades

Probably my favourite movie of all time. This is a complete steal of TheJamesMadison’s discussion of Amadeus at Ace of Spades. If you don’t know the movie, it’s time you did yourself a favour. Reading what Madison wrote will not spoil a second of the actual film.


65. Amadeus 01.jpgI’ve revisited the first six films in my personal Top Ten of all time chronologically from The Passion of Joan of Arc to Apocalypse Now, so now we get to the 80s, the single most represented decade in my list. And the first movie in that decade is Milos Forman’s Amadeus.

Re-Introductions and Introductions

When I first discovered Amadeus, I loved it, and I showed it to my father. We watched it together (one very nice thing about him was that he’s willing to watch almost whatever I try to put in front of him), and his reaction was much more tempered than mine. He said, “You’ll like it less as you get older.” Not that he didn’t like the film, but he just didn’t love it like I did.

I didn’t watch this movie for at least seven years until this week when I finally revisited it. I was a bit terrified. Was my dad right? Would I finally rewatch the film and decide that it’s simply not as good as my younger self had determined?

Thankfully, I loved the film as much as before, and that started with one particular moment about ten minutes into the film. Salieri, having attempted suicide, is sitting alone in a cell in a sanitarium playing some small tunes on a harpsicord. A priest comes to hear his confession. Salieri wants nothing to do with the priest until the priest insists that all men are equal in God’s eyes. That attracts Salieri’s attention.

He starts by trying to draw the priest into his story by playing some of Salieri’s old tunes, music that the priest should be familiar with because he studied music in Vienna in his youth. The first tune passes over the priest’s head, much to Salieri’s distaste. And then we see this:

It’s a simple cut to a tracking shot, and it completely pulls me into the film.

Salieri plays the first few bars of the music. He takes his fingers off the keys to revel in the sound in his head. We, of course, hear it, but the priest does not. The cut takes us to a live performance of the music sung by a woman, gaudily dressed, on stage. The camera pulls back to reveal a man conducting an orchestra. As this man turns, the camera changes focus from the woman to him, revealing Salieri, decades younger, and at the height of his influence and power.

It’s such a simple cut and dolly, and it sells two things. The first is the basic structure of the movie. We’re going to see what he’s talking about. The other is character based. His telling of his story really starts with Salieri at the height of his influence and popularity. He’s adored by music lovers, and he’s firm in his commitment to his art. That simple cut and dolly puts such a smile on my face every time.


65. Amadeus 02.jpgAntonio Salieri is the protagonist of the film, and Mozart is the antagonist. Not to say good guy and bad guy, but Salieri is obviously the one driving the plot in the film. He hinders and helps Mozart, driving him from success to failure.

Mozart, though, is a delight and played by Tom Hulce (who lost the Best Actor Oscar to F. Murray Abraham for his performance as Salieri). He’s an effortless genius who’s been spoiled to the point that he can usually get away with any manner of vulgarity. This is evident when he first approaches the Emperor Joseph II and admits that his idea for an opera (in German!) he will set in a harem. The courtiers around the emperor gasp at the mere thought, but the emperor hides a small smile. He’s obviously entertained by Mozart’s brashness, eventually giving in to every wish Mozart has in terms of his art.

The scene that that plays out in is where Salieri begins to truly hate Mozart. Not only is Mozart vulgar, as opposed to Salieri’s own reserved modesty (which he offers up to God, along with his chastity, in order to praise Him through music), but Mozart is also effortlessly gifted. The second scene that I want to highlight is below (the clip is chopped up from a larger scene, but it contains everything necessary for this discussion):

Salieri worked hard on that little march of his. He played with the harpsicord for every note, trying to craft something as an appropriate welcome to the wunderkind. Then, presented with the music sheet, Mozart waves it off. He’s already memorized it after one hearing. Not only does he then prove that he can recreate Salieri’s simple tune perfectly, but he, on the fly, improves it tremendously (eventually turning it into something that actually comes from The Marriage of Figaro). Salieri had worked diligently and reverentially to produce the piece that this creature (as Salieri calls Mozart) instantly turns into something so much better.

Salieri’s dismissive attitude towards the priest’s contention that all men are equal in God’s eyes comes into full view in an instant. Salieri isn’t equal to Mozart. God obviously prefers Mozart considering the difference in talent and perceived holiness between the two men.


65. Amadeus 03.jpgThe last scene I want to highlight is the writing of the requiem mass as Salieri assists Mozart after the production of The Magic Flute (quick aside, Ingmar Bergman made an absolutely marvelous production of The Magic Flute, and you should find a copy at your local library).

Salieri, a lover of music who understands the stark contrast between his ability and Mozart’s, wants Mozart to write his own Requiem mass and then to take credit for it. Left alone with him, Mozart’s wife having left Vienna in disgust at Mozart’s inability to focus on making money in favor of potentially empty promises, Salieri dictates Mozart’s work. Together, they compose a few bars of music for every instrument in the piece. They build it layer by layer. Voices, horns of different types, strings. It all comes together, sometimes just sounding like noise, but once it all comes together the audience can hear the confluence of the different pieces to create the harmonious music in its entirety.

The fact that Salieri is behind and can’t understand until it’s spelled out for him is marvelous. He knows enough to aid Mozart, but he’s obviously completely out of his depth. Mozart seems to speak in a different language the deeper into the composition they get. Let’s take a look!

The Movie Entire

65. Amadeus 04.jpgThe movie itself is obviously much more than the three scenes I’ve highlighted, and what really carries it is Salieri himself. He’s such a wonderfully complex character who balances his hatred of Mozart the person with his love of Mozart the artist.

He often lies to Mozart. He lies about trying to help Mozart at court, only to be thwarted by circumstance. He lies about how he’ll try to help him with an appointment. But he can never lie about how he feels regarding Mozart’s music. Whenever Mozart asks Salieri what he thought of Mozart’s newest work, all pretense falls from Salieri and he tells the honest truth, that it was magnificent.

In addition to Salieri, Constanze, Mozart’s wife, looks like someone who would be completely out of her depth in regards to anything serious, but the fact that she’s the one who sees things clearly offers Mozart a firm base from which to operate. When she leaves, Mozart loses all of the support she offered and falls into the hands of Schikaneder and Salieri.

The court is a joyful little comic delight. Most of them are as opposed to Mozart as Salieri. They use every ounce of their power to keep Mozart in check, but the Emperor Joseph will walk in and completely overturn anything with the smallest of suggestions (“Let me hear the scene with the music.”) that put Mozart back on top.

The movie really is not what one would expect from a three hour film about a classical composer (side note: The Director’s Cut really is a Director’s Cut and probably is the superior version of the film). It’s light and joyful where it needs to be. It’s got surprising contemporary touches like Mozart’s pink wig which evokes mid-80s punk rock. The movie really does fly by, never feeling like three hours, and is one of the most fun times I ever have had at the movies, so to speak.

A Small Note on Historical (In)Accuracy

Thank you, Lisa. If I didn’t think of you as a joyless scold before, I certainly do now.

Some may remember, but I don’t insist much on historical accuracy from films. I don’t expect history lessons from movies, but I do expect to be entertained.

Amadeus is bad history. Mozart had six kids, not one. Salieri didn’t help Mozart write the Requiem. Salieri wasn’t a celibate. There’s so much in this film that’s not historically accurate.

And yet, the movie is filtered through Salieri the character. It’s a telling of the events through an unreliable narrator. It really gives the film credence to be as historically inaccurate as it wants to be. And, probably because of its complete disregard for actual history, the movie is a fantastic entertainment and explores what it means to be an artist.