What my book on classical economics is actually about

This was the start of the review of my book on Classical Economic Theory and the Modern Economy provided by EH.Net to the Societies for the History of Economics online list:

This book is about how little Steven Kates thinks of the “modern economy,” an umbrella term for all variants of Keynesian economics. Bold and pretentious statements abound. “Just about the whole of modern economic theory is perniciously wrong … there is virtually nothing useful one can learn from a modern economics text in how to manage an economy” (p. 1). “Economists know nothing whatsoever about the analytical depth of the classical economists” (p. 16). Kates aims “to explain why classical economics is vastly superior” (p. 17). Kates wants to convince us that he is “almost uniquely placed” to do so, though he acknowledges “how obscure [he is] within the world of economics” and notes that “virtually no one sees things as [he does]” (p. 17). This does not prevent him from boasting about how, as chief economist of Australia’s national employers’ association, he “never made a single wrong call on the economy or the effects of public policy” (p. 20). Unfortunately, the book is filled with errors. Relevant quotes and texts are omitted or distorted for the sole purpose of justifying his anti-Keynesian narrative.

As you may see, not a positive review. He describes my discussion of  my record of accurately predicting the harmful consequences of using Keynesian policies as “boastful”, but at least it’s accurate which you would think would count for something. Because economists are so convinced that their theories are right, they never, and I mean never, go back for a post mortem to see what went wrong. And what I point to is not just failures, but also to the phenomenal success of Peter Costello’s economic management from 1996 onwards where the economy ripped along not only with zero deficits year after year but also zero debt! Anyway, I have written my book and this chap speaks for almost the entire profession in his review. At least writing for an Australian audience here at Catallaxy, there will be at least some memory of much of what I write. Also, you should go to the article at Quadrant if you would like to see not just what I wrote but also how I wrote. The difficulty in cutting through their arrogant ignorance is just how it is.

_____________My reply to the review is found below

Suppose I believe, as I do believe, that economic theory reached its highest level of analytical power in the economic theory of the mid-to-late-nineteenth century, and especially with the economic theory presented by John Stuart Mill in his Principles of Political Economy first published in 1848, how would I go about saying so? Suppose going further, I had come to believe, based on having reached this conclusion, that virtually the whole of modern economic theory is vastly inferior to economic theory of the mid-to-late nineteenth century, how exactly should I go about trying to explain what I think to others? Suppose, as in fact is actually how things have turned out, that I had concluded that a student of modern economics, who studies modern macro and micro, is by that very fact, unable to read a nineteenth century economics text and understand what it says, how should I have tried to express those thoughts to others? This was the dilemma I faced and Classical Economic Theory and the Modern Economy is how I went about trying to resolve these problems.

The sad but for me not surprising part is that it would be very difficult for a modern economist to make sense of what I am saying, as Guy Numa in the review of my book has so clearly shown. Perhaps I should not be surprised to find such a negative review of my book, but none the less I find it very disappointing. But at least I can be grateful for his undertaking the review which has highlighted a number of important points although he has has missed the central point the book was trying to make. If you would like to understand what the book is about, I can only suggest you read this brief article of mine that was published at the start of this month, by the Australian magazine Quadrant, which is titled: “What Classical Economists Knew that Modern Economists Do Not”. If you go to the link, this is how the passage from my book starts:

“# My aim in writing this book is to explain why classical economics is vastly superior to modern economic theory. And in attempting to demonstrate that this is so, I will explain how a classical economist understood the operation of the economy. But in outlining the classical approach to economic analysis, I begin with the recognition that anyone who has already been taught modern economics will be virtually incapable of understanding classical economic theory.

“# I will therefore start with a personal explanation of why I believe I am almost uniquely placed to explain classical economic theory and why it is important that we do so. It will be argued that the disappearance of classical economic theory has led to an enormous loss in our ability to understand what needs to be understood if we are to make sense of how an economy works.

“# Modern economic theory is a labyrinth. Perhaps all theory is like that. Once one enters into its precincts it becomes virtually impossible to escape other than by accident. I will therefore explain how I accidentally found my way out as a possible way to assist others to attempt to do the same.

“# And even as I begin, I will acknowledge how obscure I am within the world of economics. I have published papers and books. I have attended conferences and meetings of economic societies around the world. And in all this time, I have come across virtually no one who sees things as I do. There are a handful of others, but our numbers are trivially small. So to my story.”

Guy describes my approach as “boastful”. I think of my attitude as exasperated, since if you go to the link, you will find the lengths that I have gone to in an attempt to get these points across in the past. There have been others who have tried to do this before me, with Henry Hazlitt and W.H. Hutt the most notable. In criticising Keynesian macro, I would not describe their attitude as “boastful”. I am merely following in their tradition.

I will just emphasise that the book is not about Say’s Law although Say’s Law naturally does come into it. It is about the classical economic theory that was the core of the profession between the 1840s and its complete disappearance with the publication of The General Theory in 1936. But the following discovery of mine is for the first time acknowledged by someone else and it is important where Numa wrote: “It is true that Taylor invented the term ‘Say’s Law.’” That is, it was the American economist Fred Taylor who invented the term “Say’s Law” in the twentieth century where it became a much discussed issue mostly in the US during the 1920s and 1930s. It is Taylor’s understanding of Say’s Law that ends up being refuted in The General Theory. J.B. Say’s Law of Markets, first stated in 1803, has virtually nothing to do with Say’s Law and to bring J.B. Say into it obscures the core issues. That too is discussed in my book, along with the also unknown fact that the phrase “supply creates its own demand” is also twentieth century American having been first stated by the American economist, Harlan McCracken in 1933. The origins of The General Theory cannot in my view be properly discussed without knowing these facts.

I will close by using the same quotes from my book used in the review by Numa since these do accurately describe what the book is about: “Just about the whole of modern economic theory is perniciously wrong … there is virtually nothing useful one can learn from a modern economics text in how to manage an economy” (p. 1) and “Economists know nothing whatsoever about the analytical depth of the classical economists” (p. 16). Both of these statements, so far as I am concerned, are absolutely true. If you want to know why I think so and why it matters, you really should read the book.