The Essence of Keynesian Thinking

By Henry Hazlitt|

This article originally appeared as “Keynesian Thinking” in Newsweek, August 11, 1954.

Arthur F. Burns, now chairman of the Council of Economic Advisers, is one of the country’s outstanding statisticians. Yet there is in his implied economic philosophy much to cause misgivings. He has, it is true, several times criticized “Keynesian thinking” (see “The Frontiers of Economic Knowledge,” Princeton University Press). Yet in this very criticism he seems to me to accept the four principal assumptions, so far as practical policy is concerned, of Keynesian doctrine:

  1. That “full employment” is the paramount economic goal;
  2. that a private competitive economy, left to itself, tends to generate from mysterious inner forces a perpetual cycle of boom and bust;
  3. that it is the “responsibility” of government — tacitly assumed to be wise, disinterested, and benevolent — to pursue “contracyclical” policies to eliminate or mitigate these otherwise inherent booms and slumps; and
  4. that the basic contracyclical policy is deficit spending.

Let us look at these assumptions more closely.

The Goal of Full Employment

In “The Frontiers of Economic Knowledge,” Dr. Burns declares,

The principal practical problem of our own generation is the maintenance of employment, and it has now become — as it long should have been — the principal problem of economic theory. This transformation of economic theory is due in large part to the writings of John Maynard Keynes.

This surely sums up present fashionable doctrine. But is it true?

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