Classical economic theory and employment

At the very core of the classical arguments against public spending as a means to raise employment is John Stuart Mill’s 1848 Fourth Proposition on Capital: “Demand for commodities is not demand for labour”. There is no relationship between the level of employment and the level of aggregate demand. Everything that matters happens on the supply side, with the only role of demand being what gets produced, but not how much or how many people are employed. It’s always been difficult to understand, but with macro now specifically stating that demand for commodities does raise the demand for labour, there is virtually no one who any longer even knows what Mill and the classics had said, never mind actually being able to explain why that might be. So with this in mind, there is a quite interesting story that just appeared the other day at Zero Hedge: Finland Abandons ‘Helicopter Money’ Experiment: No New Jobs Created. He’s the whole thing:

With socialists rising to the calls of the ‘free shit army’ and the ever-more-left-leaning liberal intelligentsia imagining ever-more-creative ways to pretend to fund their massive government interventions (Modern Monetary Theory), the topic of “QE for the people” or “helicopter money” or the more academic-sounding “Universal Basic Income” is becoming ever-more-prevalent.

Well, we have some more results in on the impact of Universal Basic Income (UBI) experiments – handing out free money to citizens with no strings attached.

As part of its experiment, in Finland 2,000 unemployed people aged 25-58 were paid a tax-free €560 (£490) monthly income. This was independent of any other income they had and not conditional on looking for work.

As Valuewalk reports, UBI-expert from the Institute for Policy Research at the University of Bath (UK), Dr Luke Martinellicomments:

“Universal basic income has ascended policy debates in recent years, motivated by the shortcomings of existing welfare systems, and our rapidly changing – and increasingly dysfunctional – labour markets.

“Yet despite the idea’s widespread appeal, there remain substantial and unanswered questions about its economic viability and political feasibility. This is why all eyes will be on Finland this Friday and why the results of its UBI experiment will be so revealing.

“We expect these results will provide us with the first really robust evidence on how UBI could affect changes in employment and people’s overall finances, as well as wider measures of wellbeing.”

So what were the results?

Simple (and Dr Martinelli – and the left – won’t like it):

1) People were happier, and

2) No new jobs were created.

As Yahoo reports, this was the widest such study to be conducted in recent years in Europe

“The recipients of a basic income had less stress symptoms as well as less difficulties to concentrate and less health problems than the control group,” Minna Ylikanno, lead researcher at Finland’s welfare authority Kela, said in a statement.

“They were also more confident in their future and in their ability to influence societal issues,” she added.

Results at this stage are preliminary and relate only to the first year of the study, meaning Friday’s findings are far from conclusive. But a hoped-for stimulus to levels of employment has not yet materialized, the project’s researchers said.

“The recipients of a basic income were no better or worse than the control group at finding employment in the open labour market”, Ohto Kanninen, research coordinator at the Labour Institute for Economic Research, said in a statement.

Shocker!!  Who could have seen that coming?

Give people free money for doing nothing, with no conditions, and they will be happier to sit around all day in non-productive utopia.

Finally, we note that, based on these results, Finland’s social affairs minister, Pirkko Mattila, conceded on Friday that the government has no plans to roll out the scheme across the whole country.

And let there be no doubt that whoever might have received this helicopter money would have spent it, to the last Euro.

Coming out conservative

It’s actually a quite to the left video since she accepts the left on every issue but the economy. I suppose you have to start somewhere.

Let me match that with something from Steve Hayward discussing a presentation he had made at Berkley!

although I identified myself proudly to the audience as a Fox News-watching, certified card-carrying member of the Vast Right-Wing Conspiracy, the most hostile questions from the audience were not directed at me, but rather at the new Chancellor, Carol Christ, who is an old-fashioned John Stuart Mill-quoting liberal. Just as in the 1960s, the far left hates liberals more than conservatives.

And JSM-quoting liberals are the worst, bless them.

A rare debate on Keynesian economics

You cannot imagine how rare a moment it was last night to be debating Stimulus versus Austerity. No one takes these things on, from the austerity side because hardly anyone actually understands what’s wrong with Keynesian economics as a theoretical issue, and from the Keynesian side because it is almost impossible to defend based on its theory. From the nature of the discussion, Keynesian theory is now defended only on sentiment and reflex. People want to do something, and raising government spending is in all the textbooks so we keep on doing it. Raising demand just seems obvious, which is why economics once explained why it was a terrible mistake. It is not obvious why public spending is bad for growth and jobs. And of course, infrastructure is a good thing so we should have more of it and therefore government spending is essential, whether you can afford it or not.

As for my own presentation, when in a public forum, you basically say what comes into your head, and you hope that what actually comes to mind is appropriate to the mood of the room and the case you wish to make. The one thing I told myself before I began is not to argue in the way it used to be done by John Stuart Mill, which was to point out how absolutely ridiculous the position held by other side was. He was particularly scathing on anyone who actually thought Keynesian economics had any merit at all – the carrier in his day being Malthus who had argued that demand deficiency (a general glut) was the cause of recessions, therefore requiring a stimulus to bring them to an end. But alas, in the midst of it, I found I was no better than JSM. The notion that we can wilfully waste our productive potential and that this will create jobs is so ridiculous that I just had to point it out just like that. What kind of a profession is economics if such obvious nonsense can sit at its very core?

But it’s not just theory we are dealing with. I have been on about this since the start of the stimulus packages in 2009, not one of which has brought recovery, and every one of which has had to be abandoned. They are economic poison, so why doesn’t our economic theory explain why they don’t work, rather than encouraging governments to try these experiments which inevitably fail? For me, I have no answer; you would have to go to a social psychologist to work it out.

But as I said at the start, it seems partly reflex, since this is all we have taught for 70 years, and partly sentiment, since we think we should do something. If it comes to that, I think we should do something too, but since lowering taxes on our businesses is so contrary to the anti-capitalist ethos that pervades more than just the left (but the left almost root and branch), the cure to many such people is worse than the disease. Better people should live in poverty, remain unemployed and individuals remain dependent on the government than that business profits should go up.

Anyway, a very interesting night demonstrating just how completely empty Keynesian economics is. Since the defence of the stimulus as presented was to show how the Greek economy had collapsed after international support had been removed, and that in Australia, although the data show that consumer demand ought to be rising by four percent but is only rising by two and a half percent – demonstrating apparently that we are being overly cautious and saving too much. It was also argued that capital spending is lower than expected given what it ought to be, and that real growth in incomes is flat! I can only say, that these seemed to be the kinds of things I wanted to get across. How that amounts to a defence of the stimulus I have still not been able to work out. What I do understand is that you need a heavy dose of classical economic theory to see why the economy remains flat. What will continue, I expect, is that we will teach what we teach in our economics classes, and governments will keep doing other kinds of things which are described as austerity. I just say again, that you won’t make sense of what is going on if you still think that Y=C+I+G gives you any insight at all into how an economy works.

My thanks to Joe Dimasi and the Economic Society for setting this up and to Alan Oster for his presentation of the other side.

Keynes vs the classics

A reminder that there will be a debate – more I suspect sequential talking points – between Alan Oster, the NAB’s Chief Economist, and myself on “Stimulus versus Austerity”. This is taking place on Wednesday August 19 @ 5:30 pm at the Imperial Hotel on the corner of Spring and Bourke Streets in Melbourne. If you are interested in coming, email joe.dimasi@monash.edu to let him know.

Of course, the reason I’m coming along is because I cannot actually think of how to defend the stimulus at this late stage. Back in 2008-09, even though a Keynesian stimulus had never worked anywhere else, not ever, we might have ended up lucky this time. It’s in all the texts, everyone learns Y=C+I+G, so how could every single economics text in the world have been wrong? But that was then. So I have been tossing around various thoughts on what Alan might say, what I might try to argue if I were defending the stimulus. This is kind of a Paul Krugman/Ken Henry version of all the lame things that might be part of such an argument. And I emphasise, the bailing out of financial institutions is not on the table. The financial crisis was over by May 2009. I am only interested in the public spending side of it. Here are my thoughts:

1) The stimulus worked a treat – we would have been back in the Great Depression if nothing had been done. As dismal as things seem, it is a better outcome than the alternative would have been had nothing at all been done.

2) The imperative was to use up those unused savings. No one was investing. The bottom was falling out of our economies. Savings were going to waste. This is still a problem as can be seen from all those unused bank accounts. People still aren’t spending so the government must do it for us.*

3) The theory was all right but the execution was badly done. A stimulus could have worked but the money was poured into the wrong kinds of activities.

4) We didn’t spend enough. A half-hearted stimulus would not only fail to solve the problem but would discredit the very idea of a stimulus.

5) The problems run even deeper than we originally thought. We are into a secular stagnation, not just a temporary fall off in demand.

6) Let me show you the stats to prove how fantastic things turned out relative to our forecasts at the time.

7) Fiscal policy might have been relatively weak but monetary policy has made a major difference by keeping rates low and encouraging investment.

Have I left anything out? Anyway, come along on Wednesday. For my part, I am going to present a short version of my Liberty Fund postings on “Reassessing the Political Economy of John Stuart Mill”, that is, real classical economics versus Keynesian inanities. We each get twenty minutes and then it is thrown open to the floor. And being Policy in the Pub, there is alcohol as well if that’s your sort of thing.

* Just today, in the AFR, Saul Eslake was arguing more spending is needed to put “idle” capital and labour back to work.

John Stuart Mill and the market economy

I have posted my own final note on the Liberty Fund website where I have had the great honour of writing the lead article and in which I have been joined by three great scholars: Richard Ebeling, Nicholas Capaldi and Sandra Peart. The entire discussion may be found here. One seldom has the opportunity of having one’s own work put before such an informed group and I cannot tell you how privileged I feel in having had such an intense discussion about issues that for the most part hardly anyone has any genuine understanding of. It has also given me an opportunity to focus wider attention on Mill, who is still to my mind the greatest economist who has ever lived.

And what may be the most astonishing thing I may have learned during this last month is that one of the greatest Mill scholars is now president of the Mont Pelerin Society. I read Pedro Schwartz’s New Economics of John Stuart Mill (1973) quite a while back and then Nicholas Capaldi’s intellectual biography of Mill (2005) when it came out. I felt I was dealing with kindred spirits with each yet never thought there was much else to it other than a similar regard. A a result of this symposium I appreciate that Nicholas and I have a similar understanding of the economics of Mill in much the same way for many of the same reasons. But I have also just found out, only yesterday in fact, that Pedro Schwartz is the recently elected President of the Mont Pelerin Society. I cannot tell you how astonished I am.

My assumption had always been that those with free market beliefs would shun Mill because of his promotion of economic experiment and his willingness to see “socialism” of some kind or other in a positive light. I would say to others that Mill has provided the best defence of the free market and the deepest understanding amongst anyone I have ever read. No one is exactly right about everything, or even if they were, since no two people see everything the same way, there will be differences that must come up. I only now feel an ability to insist even more than before, because of the example they have set, that if you would like to understand the nature of the market system, it is to John Stuart Mill you must go. Go through the posts on the Liberty Fund first to get you familiar with what you will find. But it is with Mill that you will find the best appreciation of the way an economy works and how it can be made to grow, than from any other of the great economists of the past. And for my own pale understanding of what he wrote, the second edition of my Free Market Economics is the closest attempt there is to bring the economics of Mill into the twenty-first century.

John Stuart Mill explaining what is wrong with Keynesian theory

I have just posted an article on “Mill’s Defence of Say’s Law and Refutation of Keynes” as part of the Liberty Fund discussion on “Reassessing the Political Economy of John Stuart Mill”. If you are interested in knowing how far economic theory has gone wrong since the Keynesian Revolution, you ought to have a look at this thread which includes not just me, but also Richard Ebeling, Nicholas Capaldi and Sandra Peart. However, my latest post is due to the editor at the Liberty Fund picking up an offhand comment of mine and asking me to expand. Why this did not occur to me on my own, I cannot say, but this is the first time in which I have written a condensed version of what is wrong with Keynesian macro using Mill’s Principles as the basis for understanding pre-Keynesian theory. This is the final para but I do encourage you to read it all.

Reading the three sections of the Principles together we find Mill arguing:

  • recessions do occur and when they do the effect on the labor market is prolonged and devastating;
  • recessions are not caused by oversaving and demand deficiency;
  • recessions cannot be brought to an end by trying to increase aggregate demand.

That is as complete a rejection of Keynesian economics as one is likely to find, and it was stated in 1848. These propositions and their supporting arguments were with near unanimity accepted by the entire mainstream of the economics profession through until the publication of The General Theory in 1936. Since then they have almost entirely disappeared resulting in a loss in our ability to understand the nature of recessions or what needs to be done to bring recessions to a timely end.

Mill is not hard to understand unless you have learned Keynesian macro first. And then it is very difficult indeed. But if your interest is in understanding things such as why the stimulus was such a catastrophe, I cannot think where better to go to find out than from Mill. And if you are interested in Mill, then you should read this Liberty Fund discussion first.

Still more on Say’s Law and Austrian economics

The debate on the Coordination Problem website continues but see here, here and here for the prior discussion. Personally, but what do I know, those on the attack have ground to a halt, with these the latest posts:

Oh, my. Where to begin?

Kates says that Say’s Law emerged out of the general glut debate. A debate requires two sides. So there were economists who advocated “Keynesian-type solutions.” Sismondi, to name just one.

Kates fails to distinguish between long-run (equilibrium) and short-run (dynamic) propositions in classical political economy. JS Mill and many other classicals had a dynamic theory of economic crises. Barkley’s characterization is on the mark.

Then there is the problem of fifty years of missing economic history. Economists on the eve of the Keynesian Revolution were not classical economists, but neoclassicals. They were Austrians, Walrasians, Marsahllians, etc. so, Haberler was an Austrian, not a classical economist.

By the time of the GT, Keynes had an embarrassingly large number of precursors for Stimulative fiscal policy. Indeed, Keynes was a latecomer. The Chicago School was a hotbed of such policies. Friedman explains that Chicago was inoculated to Keynesian economics because of that.

In The New Economics and the Old Economists, J. Ronnie Davis details the pre-Keynesian origins of what we call Keynesian policy. Rothbard details how many economists supported pump-priming under Hoover and later under FDR. All before the General Theory. Ditto Steve Horwitz’s work on Hoover.

Fisher represented another strand of thought. His debt deflation theory of the cycle is one in which a fall in nominal values has real effects. The obvious solution is reflation. The issue is not whether Fisher was correct, but that there were many, many demand-driven policies to cure recessions before Keynes.

Kates seems to just leave out any ideas that do not fit his thesis. Other ideas are simply fitted onto his Procustean bed.

Posted by: Jerry O’Driscoll | July 19, 2015 at 09:51 PM

First let me thank Jerry O’Driscoll for dealing with some matters I would have otherwise. I agree in full with his remarks.

On Steve’s post before that, two things. One is that he is like Keynes in way overstating the importance of Say’s Law. It was never the “foundation of economic theory,” although maybe J.S. Mill thought it was.

The second is that Steve embarrassingly botches his discussion of Smith’s view. I think one can indeed find a variation of Say’s Law in WoN, but this is a joke. Productive versus unproductive labor has nothing to do with the idea of value added, beyong the trivial point that if something does not add value it does not add value, duh. In fact, Smith’s focus on material production was later carried over by Marx, and one could find this distinction between productive and unproductive labor in Soviet income and product accounts, although it might be useful in regard to rent seeking. As it is, one can easily imagine a “menial servant” providing valuable input even into a material production process. This whole thing is silly and has Kates making Smith look silly. Yikes!

On the later post, sorry, Steve, you do not remember your history. We debated this matter on the internet before your first book was out, and I told you then about Say’s views. But, this is just trivial and boring.

You continue to avoid the main arguments by both Mill and Keynes about the sources of macro fluctuations, which focused on financial crises and collapses of capital investment, not shortfalls of consumption. While Keynes ridiculed what he called Say’s Law and defended the possibility of general gluts, that was not really the focus of his theory, which had more to do with the collapse of animal spirits of business people.

Your efforts to dismiss Say simply look ridiculous. In fact, his examples against the law were already in his first edition. You have trouble reading, don’t you, for such a great scholar of Say. But we already know how worthless Say was and can ignore him, especially given that he actually supported government spending on public works projects during the downturn after the end of the Napoleonic wars.

Again, I am not going to bother arguing with you about the many cases where most economists would say that there was an increase in aggregate demand that pulled the economy out of a slump as we have already seen what you will say, which is simply to declare everything that happened that had any effect to be supply side.

I am glad, I guess, to see that you thought maybe something might be done by government to help get out of the Great Recession, although it would appear that you wish to get all worked up again about public spending that involves “value added” versus that which is not. Yeah, sure, pretty much everybody would prefer to see productive public spending on useful infrastructure or whatever rather than the old joke Keynes digging holes in the ground and filling them up again, although I suspect you have either forgotten or did not know what that famously repeated-out-of-context quote was really about.

And as for your big final question, why should anybody care and of what importance is it? Sorry, none, although I am not going to argue with your claim that it was Fred Taylor who first coined it, woo woo woo.

Posted by: Barkley Rosser | July 20, 2015 at 02:14 AM

BTW, I shall agree with Steve Kates that Ricardo’s discussion in the general glut debate does look somewhat Austrian in his emphasis on misdirected production that needs to be reallocated, and I have said that in a forthcoming paper on “History of Economic Dyhamics” to appear in the Handbook of the History of Economic Analysis and currently available on my website.

I should also say that while Jerry identifies Haberler as an Austrian, he is sort of as Schumpeter was. His great book is very eclectic and even handed in its accounting of many views, many of which have been forgotten even though quite interesting and worthy of reconsideration.
Posted by: Barkley Rosser | July 20, 2015 at 02:20 AM

It is hard to gauge where I stand since no neutral has bought in to indicate what they think themselves. Anyway, here is my reply to Barkely. I will reply to Jerry after.

Essentially, Barkley, what you have done is call the classical theory of the cycle “Keynesian” and declared victory. If I really do have to demonstrate that Keynes was trying to show that demand deficiency was the cause of recession, we are at such a primitive level of debate that it is almost impossible for me to work out where we can find some kind of solid ground on which we can agree so that we can work out between us where our differences lie.

This making it up as you go along version of Keynes is quite astonishing. Do you really believe that “while Keynes ridiculed what he called Say’s Law and defended the possibility of general gluts, that was not really the focus of his theory, which had more to do with the collapse of animal spirits of business people”? Here is what Keynes actually argued and right at the start of the book as he is trying to give an overview of what is to come:

“The idea that we can safely neglect the aggregate demand function is fundamental to the Ricardian economics, which underlie what we have been taught for more than a century. Malthus, indeed, had vehemently opposed Ricardo’s doctrine that it was impossible for effective demand to be deficient; but vainly. For, since Malthus was unable to explain clearly (apart from an appeal to the facts of common observation) how and why effective demand could be deficient or excessive, he failed to furnish an alternative construction; and Ricardo conquered England as completely as the Holy Inquisition conquered Spain. Not only was his theory accepted by the city, by statesmen and by the academic world. But controversy ceased; the other point of view completely disappeared; it ceased to be discussed. The great puzzle of Effective Demand with which Malthus had wrestled vanished from economic literature. You will not find it mentioned even once in the whole works of Marshall, Edgeworth and Professor Pigou, from whose hands the classical theory has received its most mature embodiment. It could only live on furtively, below the surface, in the underworlds of Karl Marx, Silvio Gesell or Major Douglas.” (GT: 32)

I think Keynes in this instance is absolutely right about the nature of economic theory right up to his own time. The General Theory is about deficient aggregate demand and designed to refute Say’s Law. For you not to know this you must somehow have avoided the Keynesian-cross diagram, leakages and injections, IS-LM, AS-AD along with Y=C+I+G, versions of which may be found in every single Samuelson clone and which are still taught to just about everyone. If what you call “Keynesian” is some package of inferences from the later chapters of The General Theory that ignore what you can find at the front, well feel free to go on with your private understanding of what Keynes really meant, but it is not the Keynesian theory that now disfigures virtually every first-year macro text in the world, nor the one that informs policy.

And as for ignoring what Keynes thought was the cause of the recession of his own time, he is perfectly clear about it in the GT:

“The post-war experiences of Great Britain and the United States are, indeed, actual examples of how an accumulation of wealth, so large that its marginal efficiency has fallen more rapidly than the rate of interest can fall in the face of the prevailing institutional and psychological factors, can interfere, in conditions mainly of laissez-faire, with a reasonable level of employment and with the standard of life which the technical conditions of production are capable of furnishing.

“It follows that of two equal communities, having the same technique but different stocks of capital, the community with the smaller stock of capital may be able for the time being to enjoy a higher standard of life than the community with the larger stock; though when the poorer community has caught up the rich — as, presumably, it eventually will — then both alike will suffer the fate of Midas.” (GT: 219)

I know this is dead set stupid, and not at all like the sophisticated arguments of Mill, but if you are going to defend Keynes, this is what you must defend. “The fate of Midas” is, of course, a situation where everyone is so wealthy that they stop buying and save instead. This is why Keynes thought the world had gone into depression, because he sure wasn’t discussing the 1920s, or at least not the “roaring ‘20s” of the United States.

That you disdain the need for spending to be value adding is quite clarifying so far as this exchange of views is concerned. You do represent a modern view of what Keynesian policy makers believe. You do not think that such expenditure has to be value adding to lead to faster growth and employment. Economists have, indeed, been taught that spending on anything at all will add to growth and employment. And you say this even with the labour market in the US as moribund as it is, where the only reason for the fall in the unemployment rate is the even faster fall in the participation rate.

The economics of John Stuart Mill is so superior to this unbelievable nonsense that you make every effort you can to associate your views with Mill’s while disassociating yourself from what Keynes really wrote. And it is no wonder why, because what Keynes wrote is such nonsense. But it is this Keynesian theory that has informed the Keynesian policies that were tried 2009-2011, which are now being abandoned. There is a need for policy guidance that will explain to policy makers what needs to be done, since they certainly cannot find any such thing in our modern Keynesian-saturated texts. But they could find it in Mill, if they only knew enough to look.

At this stage, all I can hope is that some of those who pay attention can see the point, or at least that there is a point. It is beyond me how anyone can continue to defend modern textbook theory when it never delivers what it promises. But in this instance, the notion that Keynes was really arguing some dynamic theory of adjustment, that is, arguing what Mill had been arguing, and not trying to overturn Say’s Law is just ludicrous. But since no one knows any history any more, what someone might end up believing is anyone’s guess.

Say’s Law and Austrian economics

Peter Boettke at Coordination Problem links to the Liberty Fund discussion on the economics of John Stuart Mill under the heading, Mill > Keynes, so says Steven Kates. Very pleasing, but more pleasing are the two comments, very critical of what I wrote, that have been sent in by Barkley Rosser.

Kates is obsessed with Say’s Law, how it is true basically by definition. Mill’s view of macroeconomics is very sophisticated indeed, and Keynes notoriously undervalued the knowledge of his predecessors. But one very big difference is indeed over Say’s Law, which Mill accepted and Keynes did not. Given Kates’s strong views on this, of course he says Mill > Keynes, but, in fact, Say’s Law is not true in general, and Say himself knew it, as Kates has had pointed out to him on numerous occasions, but…
Posted by: Barkley Rosser | July 16, 2015 at 04:45 PM

BTW, now that it seems I can post here again after a long period of not being able to, let me add that I do not see anything particularly Austrian about Say’s Law. I just scanned a few books by Hayek and von Mises I have here in my office, and there was not a single mention of Say’s Law in any of them. I did find a mention of Say in Mises’s Socialism, but about whether or not Ricardo was right about gross versus net product. No Say’s Law.

I would suggest you all should not get yourselves too worked up about hanging your hats on Kates’s obsession, which he shares with the even more fanatical James Ahiakpor, whom those who follow HET know of. What is in it for you guys other than another way to bash Keynes?
Posted by: Barkley Rosser | July 16, 2015 at 04:53 PM

It’s as if criticising Keynes is some kind of thing in itself, and not one of the paramount economic issues of our time. Or that Say’s Law is not absolutely embedded in Austrian theory even if seldom mentioned. This is what I have replied:

It pleases me to see that Barkley Rosser has opened a second front on the issue of Say’s Law. And let me begin by noting where we agree, which is the absence of much discussion on Say’s Law among Austrian economists. But while there is not a lot, there is some, the most important one unfortunately going all the way back to 1950, in an article by Ludwig von Mises in The Freeman, “Lord Keynes and Say’s Law”. You can read the whole lot at this link but I will quote you the most relevant passage:

“The exuberant epithets which these admirers have bestowed upon his work cannot obscure the fact that Keynes did not refute Say’s Law. He rejected it emotionally, but he did not advance a single tenable argument to invalidate its rationale.

“Neither did Keynes try to refute by discursive reasoning the teachings of modern economics. He chose to ignore them, that was all. He never found any word of serious criticism against the theorem that increasing the quantity of money cannot effect anything else than, on the one hand, to favor some groups at the expense of other groups, and, on the other hand, to foster capital malinvestment and capital decumulation. He was at a complete loss when it came to advancing any sound argument to demolish the monetary theory of the trade cycle. All he did was to revive the self-contradictory dogmas of the various sects of inflationism. He did not add anything to the empty presumptions of his predecessors, from the old Birmingham School of Little Shilling Men down to Silvio Gesell. He merely translated their sophisms—a hundred times refuted—into the questionable language of mathematical economics. He passed over in silence all the objections which such men as Jevons, Walras and Wicksell—to name only a few—opposed to the effusions of the inflationists. . . .

“In fact, inflationism is the oldest of all fallacies. It was very popular long before the days of Smith, Say and Ricardo, against whose teachings the Keynesians cannot advance any other objection than that they are old.”

Say’s Law is at the heart of Austrian theory without most Austrians being fully aware of it. I have spent a good deal of effort trying to get Austrians more interested in Say’s Law as a means to explain the fallacies of Keynesian economics. I will merely here provide a link to my “Ludwig von Mises Lecture” of 2010, where I tried to show just how important Say’s Law is if classical economic theory – of which Austrian economics is the only modern manifestation – is ever again to become central to our understanding of the way in which an economy works. Just let me apologise in advance for the way in which I pronounce Mises’s name; at the time I had read much of what Mises had written, but by the nature of things, had never actually heard his name said by anyone else. It’s one of the problems being a lonely scholar way off on the other side of the globe. But as you will see, there is no denying my extremely high regard for both Mises and Hayek which I discuss early on.

To identify with the left ought to be a mark of great shame

I will merely link to this story, but won’t quote from it since it is so disheartening. The title tells you what it’s about and you can read it for yourself: ISIS’S SEX SLAVES COMMIT SUICIDE: WESTERN FEMINISTS SILENT.

They of the progressive label, the members of the left, think of themselves as the best the world has produced and they are amongst the worst. The civilisation that grew out of the Judeo-Christian tradition is now dying, inherited by an anti-Christian horde who do not deserve the great good fortune they live in but are bringing to ruin.

My lead article on John Stuart Mill at the Liberty Fund

It has been a great honour for me to have been asked to write the lead article for the Liberty Fund online discussion forum for July 2015, which is on the economics of John Stuart Mill. The article has now been published and may be found here. It will be followed by commentaries from three of the world’s great scholars on Mill, after which there will then be open discussion thread from readers. The following is the Liberty Fund’s introduction to my article and the three commentaries:

In this month’s Liberty Matters online discussion we reassess the economic ideas of John Stuart Mill as found in his classic work Principles of Political Economy (1st ed. 1848, 7th ed. 1871) and other writings. In the Lead Essay by Steven Kates of the Royal Melbourne Institute of Technology it is argued that in the light of the evident failures of Keynesian economics to solve the problems of the boom and bust cycle, and that of ongoing high unemployment and economic stagnation, that we should go back to Mill’s “Four Propositions on Capital” for enlightenment. In Kates’s view there is “more insight into the operation of an economy than any of the Samuelson clones that have been published to explain what Keynes meant in trying to raise aggregate demand.” The commentators are Nick Capaldi, the Legendre-Soulé Distinguished Chair in Business Ethics at Loyola University New Orleans; Richard M. Ebeling, the BB&T Distinguished Professor of Ethics and Free Enterprise Leadership at The Citadel in Charleston, South Carolina; and Sandra J. Peart, who is dean of the Jepson School of Leadership Studies at the University of Richmond.

If nothing else, this article and the three commentaries should alert you to the virtual certainty that modern economic theory is not even near being the best economics there has ever been.