John Maynard Keynes, Immoralist

This talk was delivered at the Mises Circle in Houston, Texas, on January 22, 2011.

John Maynard Keynes was born in 1883 and died in 1946. Henry Hazlitt was born in 1894, eleven years after Keynes, and lived much longer, until 1993. Their lives and loyalties are a study in contrast, and mostly of choices born of internal conviction, in Hazlitt's case, or lack thereof, Keynes's case.

Keynes became the most famous economist of the 20th century and the guru-crank whose work has inspired thousands of failed economic experiments and continues to inspire them today. He is the Svengali-like figure who implausibly convinced the world that saving is bad, inflation cures unemployment, investment can and should be socialized, consumers are fools whose interests should be dismissed, and capital can be made non-scarce by driving interest rates to zero � thereby turning the hard work of many hundreds of years by economists on its head.

Keynes had every privilege in life, and all the power and influence that an intellectual could have, and he used it all irresponsibly in service to the State.

Hazlitt was very nearly his foil. He did not come from privilege, did not enjoy a prestigious educational pedigree, and did not know any of the right people. He came from nowhere and worked his way up through sheer force of intellectual labor and moral determination.

Hazlitt eventually became one of the great public voices for free markets in the 20th century, writing in every popular venue he could and applying his enormous talents as a thinker and writer to defending and explaining free markets, showing how the classical economic wisdom was true and vastly improved by the Austrians, how sound money is essential for freedom, how market signaling works to achieve economic coordination, and how government policy is always and everywhere the enemy of freedom and prosperity.

Hazlitt's great book Economics in One Lesson, written the year that Keynes died, boils down all of economics to a single principle and applies it across the board to all the policies of government. It is crystal clear in its language, designed to be read by anyone in an effort to achieve Mises's dream of bringing economic wisdom to every citizen.

Keynes's major work is The General Theory and it has been read by relatively few, mainly because it is so incomprehensible as to be nearly written in code. But then it wasn't designed for everyone. It was written for the elites by a member of the most elite class of intellectuals on the planet. Even more effectively, it was written with an eye to impressing the elites in the one way they can be impressed: a book so convoluted and contradictory that it calls forth not comprehension but ascent through intimidation. Its success is a remarkable story of the bamboozlement of an entire profession, followed by the misleading of the entire world. If there are still believers in what Murray Rothbard called the Whig Theory of History � the idea that history is one long story of progress toward the truth � the success of The General Theory is the best case against it.

If I had to bet on which book will have greater longevity, however, I would go with Hazlitt. The same is true of Hazlitt's great legacy. He died without much fame. In fact, his days of fame were far behind him, arguably reaching their height when he was an editorial writer for the New York Times. When he was told that he needed to write in defense of Keynes's screwy plan for Bretton Woods, he balked and walked away. Thirteen years later, writing as a columnist for Newsweek, Hazlitt came out with a line-by-line refutation of Keynes's General Theory. It is arguably his great work, the one begging to be written. He alone had seen the need. It continues to teach us today, and serves as something of a manual for the errors of government.

Both Hazlitt and Keynes began their educations with an intense interest in literature and philosophy, but eventually settled on economics. Both were in a position to make a choice of theoretical paradigms given the intellectual and political content of their times. Both were major public intellectuals. Both considered themselves to be liberals in the way that term was used before the New Deal, meaning a general disposition toward favoring human rights, free trade, and open societies.

In this spirit, Keynes wrote in opposition to the Treaty of Versailles that imposed savage terms on Germany after the war. He favored free trade and generally allied himself with that cause. Sadly, that tendency, which derived from the old world's love of liberty, was incompatible with his life's agenda, which he believed to be his birthright. That agenda was to rule the world through intellectual means by virtue of connections to the powerful. That essential humility that was at the core of the economics profession of the 19th century - the humility to embrace laissez-faire as a principle - was completely missing from his mind.

Keynes was born as a member of the ruling elite in Britain. His father, John Neville Keynes, and his father's good friend Alfred Marshall were very powerful figures at Cambridge University. They shepherded him and introduced him to the right people, and the time came when he was inducted into the secret, super-elite society of top intellectuals in the English-speaking world. The group was called The Apostles, and this was the group that would come to shape his ideas and his approach to life. The group had been formed in 1820 and included top members of the British ruling class. They met every Saturday evening without fail, and spent most of the rest of their time during the week with each other. Membership was for life.

It is impossible to overestimate the extraordinary intellectual arrogance of this group. They would refer themselves as the only thing that is truly real in a Kantian sense, whereas the rest of the world was an illusion. Keynes as an undergraduate wrote to a fellow member as follows: "Is it monomania - this colossal moral superiority that we feel? I get the feeling that most of the rest [of the world outside the Apostles] never see anything at all - too stupid or too wicked."

In the time of Keynes, according to those who have studied this carefully, the Apostles was dominated by an ethos that included two general traits: first, the bond that held the world together and would push it forward was the friendship and love that the Apostles had for each other, and that there were no other principles that really mattered, and, second, an intense disdain for religion and bourgeois values, institutions, ideas, and tastes.

It was in this period that Keynes met G.E. Moore, a philosopher at Trinity and Apostles member. His magnum opus was called Principia Ethica, published in 1903. It was a philosopher's attack on all fixed principles and a defense of immoralism. This was the book that changed Keynes's life completely. He called it "exciting, exhilarating, the beginning of a new renaissance, the opening of a new heaven on earth." It was this book that led him to believe that it was possible to completely reject morality, conventions, and all traditions. It might even be considered a kind of prototype of his later work.

These same values migrated to the famed Bloomsbury Group that Keynes joined after graduation. As many historians of the period have said, it was the most influential cultural and intellectual force in England in the 1910s and 1920s. The emphasis here was not on science but on art and the overthrow of Victorian standards in order to embrace the Avant-Garde. Keynes's contribution to their efforts was mainly financial, for he had made a fortune in speculation and spent lavishly on Bloomsbury causes. He also provided members with contacts in the world of finance and economics.

In discussing how immoralism and the rejection of principles applied to economics, Rothbard draws attention to Keynes's position on free trade. As a good Marshallian, he was a proponent during most of his early public life. Then suddenly in 1931, all that changed with a paper that loudly and aggressively called for protectionism and economic nationalism, a total reversal of what he had previously said. The press ridiculed him for his shift, but this never troubled Keynes, for as an Apostle and a champion of immoralism, he contended that there was no contradiction worthy of notice. He believed that he could take any position he wanted on an issue, and could live his life unhinged from any standards or rules. He was always ready to change his opinion given the new make-up of the political constellation and felt no burden to explain himself.

It was precisely because of this tendency to change his point of view on a dime that critics became tired of dealing with him. Hayek spent a great deal of time refuting him on various subjects, particularly Keynes's book on money, only to have Keynes dismiss the criticisms on grounds that he Keynes no longer held these views. He praised FDR and urged all governments to follow the New Deal. But when pressed on the details of programs such as the National Industrial Recovery Act, he would back away and grant that it was ill-conceived. His opportunism was palpable and infuriating.

As the Depression deepened, he began to see himself as the philosopher king of the world economics establishment, advising governments all over on their politics. His main target was the gold standard, which he regarded as a relic of a bygone era, the ultimate symbol of Victorianism, the monetary embodiment of morality and standards, a restraint on the ability of government to tinker with the economy, and therefore, from his point of view, the ultimate enemy of everything he hoped to accomplish. He had long ago written that "A preference for a tangible reserve currency a relic of a time when governments were less trustworthy in these matters than they are now." What he meant, of course, that with himself at the helm, gold would not only be unnecessary but an impediment to the ambitions of economists.

Now we come to The General Theory that made its appearance in 1936. Let me introduce this book with a question. What would we call a person who believed that government policy can completely eliminate the scarcity of capital? Most all economists in history and even today would call this person a nut. The whole economic problem that economic theory grapples with concerns the invincible reality of the scarcity of capital. The idea that we can somehow concoct a system in which there would be no scarcity amounts to the belief that government can create a permanent utopia by pushing a few buttons. It is no different in kind from a belief in some kind of magical land of fantasy. It represents a fundamental failure to grapple with reality.

And yet this is precisely what Keynes hoped to achieve through his policy prescriptions in The General Theory. His idea was to create this land of universal happiness by: 1) driving the interest rate to zero, and thereby 2) achieving his sought-after "euthanasia of the rentier class" � that is, the killing off of people who live on interest, and thereby, 3) eliminating what he considered to be the exploitative aspect of capitalism, that which rewards investors for their sacrifices.

As Keynes wrote, driving interest to zero would mean

the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital. Interest today rewards no genuine sacrifice, any more than does the rent of land., [T]here are no intrinsic reasons for the scarcity of capital. An intrinsic reason for such scarcity, in the sense of a genuine sacrifice which could only be called forth by the offer of a reward in the shape of interest, would not exist, in the long run.... I see, therefore, the rentier aspect of capitalism as a transitional phase which will disappear when it has done its work.

As you can see, Keynes was far more extreme in his views than the media generally presents him. And the ghastly situation in which we find ourselves today, where saving earns virtually nothing and the Fed holds rates down to zero in perpetuity, seems to be the fulfillment of the worst of the Keynesian dream.

As for the contribution of the book to theory, Rothbard writes that "The General Theory was not truly revolutionary at all, but merely old and oft-refuted mercantilist and inflationist fallacies dressed up in shiny new garb, replete with newly constructed and largely incomprehensible jargon."

Mises further pointed out that even Keynes's old and refuted ideas had already had a good run of it. "Keynes' General Theory of 1936 did not inaugurate a new age of economic policies," he writes, "rather it marked the end of a period. The policies which Keynes recommended were already then very close to the time when their inevitable consequences would be apparent and their continuation would be impossible."

What bad economic policies lacked was a prestigious economist to come to their defense, and this is precisely the role that The General Theory played. Governments all over the world welcomed and celebrated the book. As for the success of the book within economics itself, there are important sociological reasons to consider. Keynes's language was nearly impenetrable. He coined new terms on nearly every page. Rather than being a disadvantage, this is often an advantage in a profession that has lost its way.

Keynes set out to divide the world into two broad class of people: stupid consumers whose behavior is determined by external force, and savers who are a drag on economic growth. The job of government policy is to goad the first group into a different set of behaviors and pretty much destroy the second group. Everything else in the Keynesian system follows from those two general propositions. This accounts for his hatred of the gold standard, of traditional capitalism, and of the price system that functions as a signaling mechanism for the production and allocation of resources.

It also accounts for why Keynes was one of the world's most passionate advocates of the rise of the fascist impulse in the 1930s. He celebrated the "enterprising spirit" of Sir Oswald Mosley, the founder of British fascism. He joined the New York Times in praising the central planning of Mussolini. Thus it was not a surprise when Keynes wrote a foreword to the German edition of his book in 1936, after the Nazis had come to power. He said that his book is more easily "adapted to the conditions of a totalitarian state" than to free competition and laissez-faire. Nor should it be surprising that Keynes also dabbled in anti-Semitism, praising even openly anti-Jewish tirades of prime minister Lloyd George and his brutal and public attack on the Jewish French finance minister Louis-Lucien Kotz.

A puzzling aspect of academia is how a sector that lives on its reputation for objectivity and love of science can be so easily bamboozled by charlatans, and the success of this book is a great case in point. Most economists over the age of 50 dismissed the book, but the younger ones regarded it as a kind of revelation that gave them a career advantage over their elders. Keynes's personal prestige had a lot to do with this. As Rothbard wrote, "It is safe to say that if Keynes had been an obscure economics teacher at a small, Midwestern American college, his work, in the unlikely event that it even found a publisher, would have been totally ignored." But coming from a Cambridge professor and student of Marshall, Keynes had huge advantages.

The Keynesian magnetism was so powerful that it even drew most of the former followers of F.A. Hayek, who was then teaching in London too. Most tragic of all was the conversion of Lord Robbins to the Keynesian cause. Robbins had written a great book on the Great Depression, one that the Mises Institute publishes to this day. It is written entirely in the Misesian spirit. But after having worked with Keynes on economic planning during the war, Robbins fell victim to his personal charisma, later writing of Keynes "unearthly" brilliance and "godlike" personal stature. He wrote that Keynes "must be one of the most remarkable men that has ever lived." Robbins ended up repudiating his best work, and only coming back to his senses late in life.

Hayek wrote many times that Keynes himself before his death was on the verge of repudiating what had become of the Keynesian system. This is based on Keynes's positive review of Hayek's Road to Serfdom as well as Keynes's own private words to Hayek himself.

In analyzing the evidence, Rothbard concludes that no such conversion was oncoming but rather that this was Keynes doing the Keynesian thing: shifting, moving, dodging, and changing, with no attachment to standards or principles or morality. He would believe anything and say anything and do anything to advance himself and put his class of technicians in charge of the world economy. It is remarkable that after a lifetime of writing, his views would still be so difficult to pin down that even Hayek could believe, however briefly, that there was a modicum of sincerity in this man's words or actions.

Comparing his life and works to Henry Hazlitt is like night and day. Hazlitt never held an academic position, had no family connections, and was never formally schooled in economics, but he was an extremely hard worker who read passionately and extensively, making an extraordinary career for himself, given that he was forced to drop out of school to support his widowed mother. He read in all his spare time: Mill, Aristotle, Nietzsche, Gibbon, and anyone else he could get his hands on, and kept extensive diaries of all his thoughts on their work. In all his studies, he presumed an old-fashioned view of his goal: to discover what is true, as a means to guiding his life and judgments.

All the while, he was also working. His first series of jobs followed in quick succession lasting only a few days. At each job, he would acquire a bit more knowledge than he had previously before getting fired for not having enough skills. Keep in mind that this was long before the minimum wage and other interventions. So his average salary grew a bit at each position: $5 per week, $8 per week, $10 and $12 per week. He finally worked his way up to become a reporter at the Wall Street Journal. He was paid 75 cents for every story, and he soon became invaluable to the staff.

It was in 1910 that he received his first real exposure to economics in Philip Wicksteed's great book The Common Sense of Political Economy. This is the book that would firmly embed him in a classical and marginalist perspective on economic issues and prevent him from ever falling away. He was also trying his skills as a writer. Sure enough, he managed to get his first book published at the age of 22: Thinking as a Science. The Mises Institute keeps this book in print and it remains one of the most inspirational and instructive books ever written on self-education and the obligation to learn.

He opens the book as follows:

Every man knows there are evils in the world which need setting right. Every man has pretty definite ideas as to what these evils are. But to most men one in particular stands out vividly. To some, in fact, this stands out with such startling vividness that they lose sight of other evils, or look upon them as the natural consequences of their own particular evil-in-chief. ...I, too, have a pet little evil, to which in more passionate moments I am apt to attribute all the others. This evil is the neglect of thinking. And when I say thinking I mean real thinking, independent thinking, hard thinking.

Here we have the tone and approach of a man with integrity, intellectual integrity, a man who is determined to find his way to what is true. The entire book reads this way. I'm particularly struck by his analysis of why some people attach themselves to error and will not let go. He might as well have been describing the seduction of the economics profession by Keynes:

In this passage, from this book he wrote at the age of 22, he is speaking of the prejudice that in particular affects intellectuals: their propensity to imitate the ideas that seem fashionable at the moment.

We agree with others, we adopt the same opinions of the people around us, because we fear to disagree. We fear to differ with them in thought in the same way that we fear to differ with them in dress. In fact this parallel between style in thought and style in clothing seems to hold throughout. Just as we fear to look different from the people around us because we will be considered freakish, so we fear to think differently because we know we will be looked upon as weird.

He recalls a conversation he had with an intellectual in which he raised a point made by Herbert Spencer. The person recoiled and said that surely Spencer's ideas had been superseded. Hazlitt discovered that this person had never read Spencer and had absolutely no idea what Spencer actually believed about anything. Clearly Hazlitt, like most nonacademics, had a tendency to have higher expectations of the integrity of the intellectual classes than they merited then or now.

Nonetheless, he condemns the tendency to absorb prevailing ideas uncritically as completely foolhardy, as a pathway toward making life meaningless.

I am willing to wager that most of these same people now so dithyrambic in their praise of James, Bergson, Eucken and Russell will twenty-five years hence be ashamed to mention those names, and will be devoting themselves solely to Post-neofuturism, or whatever else happens to be the passing fadosophy of the moment.

He goes on to speak what might have been the credo of his life.

If this is the most prevalent form of prejudice it is also the most difficult to get rid of. This requires moral courage. It requires the rarest kind of moral courage. It requires just as much courage for a man to state and defend an idea opposed to the one in fashion as it would for a city man to dress coolly on a sweltering day, or for a young society woman to attend a smart affair in one of last year's gowns. The man who possesses this moral courage is blessed beyond kings, but he must pay the fearful price of ridicule or contempt.

After downtime during the war, he went back to work at the Journal and resumed his reading, tracing footnotes to ever greater books. He followed the notes in a Benjamin Anderson book all the way to discover Mises's Theory of Money and Credit. He had fallen in love with economics in the same way that most of us did. He loved its elegance, explanatory power, its implicit love of liberty, and its central role in the rise of civilization. But it was not his only love. He read widely in literature and art as well, and found a market for his talents in this area. He moved from paper to paper until he eventually took a position as the literary editor at The Nation, which was then known as a liberal but not statist publication.

It was a high-prestige job for him, accepted at a period that would turn out to be a major turning point in our nation's history and also in his own life. In 1932, after FDR's election, the weekly would start to weigh in on various aspects of New Deal policy. It was Hazlitt's internal constitution, that belief in truth, that led him to write in these pages what he believed about FDR's policy. He wrote about the real cause of the Great Depression, which he saw not as a failure of capitalism but as correction from a credit-fueled bubble. The Nation itself was not yet firmly entrenched as a propaganda paper for economic central planners, and so the editors let Hazlitt have his say.

He warned of the results of protectionism, price controls, subsidies, and economic planning in general. Not only would these methods not work to dig us out of Depression, he wrote, but they were contrary to the spirit of human liberty that liberals embrace as a matter of their creed. In saying these things, he was saying pretty much what any economist would have said a few decades earlier, but he also knew full well that he was going against the existing Zietgeist that Keynes himself was helping to craft.

Sure enough, Hazlitt won the debate but lost his job at The Nation. This was the first of many such events in his life, and it was something to which he would become accustomed. He had worked too hard for too long, and believed too much in the power of truth, to turn away from it. He had established a dictum early in life that he would not go along with an opinion simply because powerful and influential people around him held to it. He would have courage now and always.

It was not only his writing ability that attracted H.L. Mencken but also this quality of moral determination. Mencken named Hazlitt as his successor in what was the greatest American publication in those years, The American Mercury. He was there for three years until he moved to the position he held for the next ten years. He became the lead editorialist for the New York Times. There he wrote several editorials per day, plus book reviews for the Sunday paper. It was a stunning display of productivity. It was also probably the last time that the New York Times was correct on the issues of the day.

In 1946, this job came to an end in a dispute over the Bretton Woods monetary agreement. Hazlitt was relentless in attacking its fallacies and in predicting its defeat. The publisher came to him and explained that the paper could not continue to oppose what everyone else seemed to support. Hazlitt knew this routine rather well, and so he left without bitterness or acrimony. He simply packed up and walked away, and proceeded to write what would become the best-selling economics book of all time.

In these years, too, he had met Ludwig von Mises who had come to our shores in 1940. Hazlitt recognized in Mises one of those men with moral courage, a man who, as Hazlitt put it in his early book, is "blessed beyond kings" for his willingness to stick up for truth even at great personal cost. He used his position at the Times to alert readers to Mises's books and ideas. He helped Mises find a publisher for English translations of his books, and became a promoter and champion of the Misesian worldview. As we look back on it, it seems clear that Mises's life would have been very different without the help of Hazlitt. In some ways, Henry Hazlitt became a one-man Mises Institute.

But let's return to Hazlitt's succession of jobs. He went from The Times to Newsweek, where his BusinessTides column educated a full generation or two in economic theory and policy, me along with them. These were remarkable columns, beautifully written and spot on topic every week. I'm pleased to announce that the Mises Institute is publishing all of these columns in a single volume this year. I'm expecting this book to help reestablish Hazlitt's rightful place in the intellectual history of the 20th century.

Now it was time for Hazlitt to take after the man whose ideas had dogged him for decades: John Maynard Keynes himself. Hazlitt was the first and still the only economist who has ever taken on the General Theory in a line-by-line analysis. He did this in a book published in 1959 which he called The Failure of the "New Economics." He writes in the introduction that he was warned not to do this since Keynes's ideas were already unfashionable but he decided to go ahead, based on an insight of Santayana that ideas aren't usually abandoned because they have been refuted; they are abandoned when they become unfashionable. And so far as Hazlitt could tell, there was no stepping away from the Keynesian fashionableness. And note too that this was written fully 52 years ago, and Keynes is fashionable all over again.

What Hazlitt discovered was that the book was much worse than he imagined. He found no ideas in the book that were both true and original. He patiently goes through the book to explain what he means, taking Keynes apart piece by piece through 450 pages of thrilling analysis and prose, finishing up with a great concluding chapter that summarizes all the errors in the book.

I've not mentioned many of Hazlitt's other fantastic books, including his two books on monetary economics. On this matter, he was the perfect foil for Keynes. Whereas Keynes believed that the most important single step to destroying the laissez-faire of the old world was to demolish the gold standard, Hazlitt believed that there would never be a lasting regime of freedom restored without addressing the money problem. What Keynes wanted to destroy, Hazlitt wanted to restore and firmly entrench as part of the market order. They both agreed on the centrality of the issue in achieving their dreams and in this they were both right.

But note where each ended up at the end of their lives. Keynes died famous and rich and beloved, heralded by one and all for his brilliance. He was never asked to do anything courageous. He was never asked to make a sacrifice for what he believed. It would never have occurred to him to do so, for the very idea of a moral commitment or an intellectual responsibility was either unknown to him or totally rejected by him.

Hazlitt, in contrast, died at what was arguably a low point in his career. He had climbed to the top, but then was pushed back down again, eventually writing for and working with a small and largely embattled group of defenders of free enterprise.

We have in these two approaches contrasting images of the role of the public intellectual. Is this role to defend the freedom of the individual and to promote the development of civilization? Or is the goal to enrich oneself, get as close to power as possible, to become as famous and influential as one can be? It all comes down to one's moral commitments and personal integrity. In the end, this is the core issue, one that is arguably more important than economic theory.

Hazlitt made his choice and left us with great words of wisdom on the duty to support freedom.

We have a duty to speak even more clearly and courageously, to work hard, and to keep fighting this battle while the strength is still in us.... Even those of us who have reached and passed our 70th birthdays cannot afford to rest on our oars and spend the rest of our lives dozing in the Florida sun. The times call for courage. The times call for hard work. But if the demands are high, it is because the stakes are even higher. They are nothing less than the future of liberty, which means the future of civilization.