[This article is a selection from Where Keynes Went Wrong]
Paul Samuelson, professor of economics at MIT after World War II and author of a best-selling economics textbook, was one of Keynes’s most ardent American disciples. Here is what he has to say about the latter’s General Theory:
It is a badly written book, poorly organized. . . . It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds in mare’s nests and confusion….
In reading this, one recalls Keynes’s infatuation with paradox. Samuelson, the ardent disciple, is telling us that the master’s book is good because it is bad.
We do not, however, have to take Samuelson’s word about the bad writing, poor organization, and general confusion of The General Theory. Following publication in 1936, many leading economists pointed to the same problems, although some of them hesitated to criticize or quarrel with Keynes and thus chose their words carefully.
Frank H. Knight, a leading American economist, complained that it was “inordinately difficult to tell what the author means. . . . The direct contention of the work [also] seems to me quite unsubstantiated.”
Joseph Schumpeter noted Keynes’s “technique of skirting problems by artificial definitions which, tied up with highly specialized assumptions, produce paradoxical-looking tautologies. . . .”
British economist Hubert Henderson privately stated that: “I have allowed myself to be inhibited for many years . . . by a desire not to quarrel in public with Maynard . . . . But. . . I regard Maynard’s books as a farrago of confused sophistication.”
French economist Etienne Mantoux added that the whole thing simply appeared to be “rationalization of a policy … long known to be . . . dear to him.”
In The General Theory itself, Keynes has a good word to say about clarity, consistency, and logic.He is quick to pounce on what he considers the errors of others. But he then leads us down a rabbit hole of convolution, needless and misleading jargon, mis-statement, confusion, contradiction, unfactuality, and general illogic.
It is not that Keynes is entirely opaque. It is quite feasible to make out what he seems to be saying, but it is worth taking a moment to focus on the particular rhetorical devices and obfuscations that Keynes employed.
Device One: Obscurity
A typical sentence from The General Theory:
We have full employment when output has risen to a level at which the marginal return from a representative unit of the factors of production has fallen to the minimum figure at which a quantity of the factors sufficient to produce this output is available.
This means, in essence, that we have not reached full employment until all factors of production are fully employed. We will recall that, per Keynes, only at this point do we have to worry about inflation.
Keynes took exception when other economists wrote in this convoluted way. For example, in a 1931 letter to the editor of The New Statesman and Nation, he charged Lionel Robbins with the same sin, even though Robbins was, on the whole, a very clear writer:
Professor Robbins wants “increased elasticity of local wage costs” . . . which means in plain English, I suppose, a reduction of average wages.
Given this stab at Robbins, can we at least assume that Keynes will avoid the term “elasticity” in The General Theory? No, not at all, he uses (and misuses) it repeatedly.
Device Two: Misuse of Technical Language
In the example above, Lionel Robbins was at least using standard economist’s jargon. Keynes liked to make up his own jargon, or worse, use standard jargon in a non standard way. This led to a scolding by economist Frank H. Knight in the review of The General Theory that we have already cited: “Familiar terms and modes of expression seem to be shunned on principle.”
The only legitimate reason to use technical language is to make a sentence clearer, if not to the average reader, at least to the professional reader. Keynes habitually uses technical language to confuse, and as we shall shortly see, this may have been a deliberate strategy.
Device Three: Shifting Definitions
Keynes tells us in The General Theory that economists have not clearly defined the jargonish term “marginal efficiency of capital” (which roughly means return on capital). He then proceeds throughout the book to use the term in many different ways, at least seven by Henry Hazlitt’s count. Another slippery word in The General Theory is wages, which can mean an hourly rate or total employee pay or something else. Keynes does not seem to notice the difference, which leads him into serious logical errors.
Once again, Keynes criticized the same lapse in others. In a book review early in his career, he took an author to task for
us[ing] the [same] expression some thirty times in some apparently eight different senses.
Device Four: Misuse of Common Terms
In some cases, Keynes stretches the meaning of a commonly used word beyond recognition without explicitly redefining it. For example, he tells us that for every commodity there is an implicit rate of interest, a wheat rate of interest, a copper rate of interest, a steel plant rate of interest, and so on. This confuses commodity options and futures pricing with interest rates, a clear case of mixing apples and bananas. We have already seen that Keynes uses the word equilibrium to describe what is actually disequilibrium.
Device Five: Reversing Cause and Effect
Keynes says that entrepreneurs calculate how much revenue they will earn from x employees. But they do not. They calculate how many employees they can afford from x revenue. Keynes says that prices are low if production is low. In actuality, it is the reverse: production is low if prices are low. Keynes seems to like these reversals, perhaps because they dress up the ordinary with a gloss of novelty, even of profundity. But it is really no more than a parlor trick, and just piles error on error.
Device Six: False Determinism
Keynesian economist Alvin H. Hansen, whose book A Guide to Keynes attempted to de-mystify the master, tells us that “Keynes’s most notable contribution was his consumption function.” The so-called marginal propensity to consume (consumption function) tells us that people tend to save more as their income rises. Stated as such, it is a commonplace, certainly nothing new. But Keynes calls it a “fundamental psychological law,” which it certainly is not. We can neither predict with certainty that people will always save more as their income rises, nor can we work out a forecastable schedule of increased saving, as Keynes assumed.
In the Keynesian model, the marginal propensity to consume is also treated as an independent variable. (It is supposed to determine other variables, not be determined by them.) This is clearly false. As Benjamin Anderson, economist and early Keynes critic, pointed out, “The so-called independent Keynesian variables (1. The marginal propensity to consume, 2. The schedule of the marginal efficiency of capital, and, 3. The rate of interest) are all influenced by each other. They are interdependent, not independent. Keynes even forgets himself and admits at one point that #2 is influenced by #1.”
Device Seven: Slipping Back and Forth between Mutually Inconsistent Categories
Keynes uses the word “wages” to mean either a wage rate or total wages. He is also prone to move back and forth between physical commodities and services and money prices for commodities and services, another case of mixing up apples and bananas.
Device Eight: Unsupported Assertion
In the entirety of The General Theory, there are only two references to statistical studies, one of which Keynes partly dismisses as improbable:
Mr. Kuznet’s method must surely lead to too low an estimate.
Even when he discusses a subject that especially lends itself to statistical analysis, such as a suggested relationship between agricultural harvests and the business cycle, he simply takes a position without bothering to search for relevant data.
Device Nine: Misstatement
Keynes mischaracterizes the purpose of corporate sinking funds. How could he make such an elementary error? Probably because he had said the same thing many times when speaking on his feet, and, being busy, did not take sufficient time to check his written work.
Sometimes Keynes seems too busy even to think. He says that if a lender lends money to a business owner, this doubles the risk of a business owner using his own money, which doubled risk is reflected in the interest rate. This makes no sense, as Henry Hazlitt noted. Risk is not doubled when a lender enters the picture. The lender and the business owner share what is still the same risk of failure.
Device Ten: Macro or Aggregative Economics
Keynes is usually credited with “inventing” macroeconomics, which looks at economy-wide flows rather than the micro-economics of specific firms or industries. This is not entirely accurate. Other economists adopted an economy-wide perspective, although they often extrapolated from the firm or industry to the economy as a whole, which Keynes wrongly criticized. Ironically, Keynes attacked Say’s Law which is, itself, an example of macroeconomics. It is certainly fair to say that Keynes developed his own type of macroeconomics, which his followers developed into the macroeconomics of today. It is also true that a macroeconomic viewpoint makes it easier for a skilled casuist to mislead and confuse, and that Keynes fully exploited this opening.
Device Eleven: Misuse of Math
Keynes refers to sales in one of his equations, but it is expected sales, not actual sales. Expectations by definition are not verifiable and thus do not belong in an equation.
As Henry Hazlitt has pointed out,
A mathematical statement, to be scientifically useful, must, like a verbal statement, at least be verifiable, even when it is not verified. If I say, for example (and am not merely joking), that John’s love of Alice varies in an exact and determinable relationship with Mary’s love of John, I ought to be able to prove that this is so. I do not prove my statement—in fact, I do not make it a whit more plausible or “scientific”—if I write, solemnly,
- let X equal Mary’s love of John,
- and Y equal John’s love of Alice,
- then Y = f (X)
—and go on triumphantly from there. Yet this is the kind of assertion constantly being made by mathematical economists, and especially by Keynes.
Given the Alice in Wonderland quality of The General Theory, it should not surprise us that Keynes interrupts his own misuse of math to tell us that he (apparently) agrees with Hazlitt:
To say that Queen Victoria was a better queen but not a happier woman than Queen Elizabeth [is] a proposition not without meaning and not without interest, but unsuitable as material for the differential calculus. Our precision will be a mock precision if we try to use such partly vague and nonquantitative concepts as the basis of a quantitative analysis.28
He also warns of
symbolic pseudo-mathematical methods . . . of economic analysis.
After some of his own algebra he adds that:
I do not myself attach much value to manipulations of this kind.
It is quite typical of Keynes now to attack, now to disarm, now to shout, now to whisper, now to qualify his mathematical claims, now to ignore, even blatantly ignore, the same qualifications. On occasion, Keynes was even capable of a crude bluff. Writing a private letter to Montagu Norman, Governor of the Bank of England, he said that his theories (the same theories that would later appear in The General Theory) were a
mathematical certainty, [not] open to dispute.
Keynes certainly knew better. Some of his disciples did not. Economist Wilhelm Röpke noted in 1952 that
The [Keynesian] revolutionaries [take a stance of] . . . vehement self-assertion and barely veiled contempt, such as are habitual to the “enlightened” in dealing with those who remain in the dark. They seem to regard themselves as all the more superior in that they can point with obvious pride to the difficulty of their literature and to the use of mathematics, which lifts the “new economics” almost to the lofty heights of physics.
One could go on, almost indefinitely, citing Keynes’s obscurities, convolutions, inconsistencies, factual or logical lapses,and so on, but it is time to ask the obvious question: why did he write The General Theory this way? Keynes could be orderly, organized, consistent, relevant, clear, complete, and factual, in addition to being playful and witty, when he wanted to be. This is apparent from the earlier books and many of the shorter pieces. There are some snippets from The General Theory that also reflect these characteristics. So why is most of The General Theory so different?
There are many possible answers. Historian Paul Johnson has said, unrelated to Keynes, that “In financial matters, the object of complexity is all too often to conceal the truth, to deceive.” The French economist Étienne Mantoux, reviewing The General Theory shortly after publication, quoted an earlier English economist, Samuel Bailey, from 1825: “An author’s reputation for the profundity of his ideas often gains by a small admixture of the unintelligible.”
This may be part of the explanation, that Keynes intended to deceive or impress. But we must bear in mind that Keynes was a salesman. He was trying to sell a particular type of economic policy, and he was prepared to utilize any rhetorical device, from crystal clarity and wit all the way to complete unintelligibility, in order to make the sale.
Why would unintelligibility help to make the sale? Not just because it can be used to impress. Equally important, it can be used to intimidate. Keynes liked to make people feel, as his very intelligent friend Bob Brand said, like “the bottom boy in the class.”
Keynes probably developed obscurity as one of his speaking styles. He obscured, confused, and scrambled the mental “chessboard,” because he felt confident that he could always keep the position of the “chess pieces” in mind, and combine them as he saw fit for an attack in any direction, whereas his opponents could not. This is a very impressive skill indeed, especially when one is speaking extemporaneously. No wonder that Sir Josiah Stamp, a very respected economist who often partnered with Keynes on BBC broadcasts, said on the air that “I can never answer you when you are [verbally] theorizing.”
Whether this was a deliberate style on Keynes’s part, or just a habit, we cannot know. But it was natural for him to fall into the same scrambling, intimidating style when writing The General Theory. The problem is that it does not work as well in print as in conversation or debate. When confined to print, it can be examined, and all the myriad flaws, the errors of fact or reasoning, the rhetorical tricks, the pseudo originality, may be revealed.
A few prominent economists, notably Ludwig von Mises, Friedrich Hayek, Wilhelm Röpke, Jacques Rueff, and Henry Hazlitt, among others, saw through it completely. Others perceived that something was wrong, but hesitated to say so out of fear of Keynes’s position and powers of retaliation. Regrettably, no major economist published an immediate book-length refutation, so that the influence of The General Theory spread and spread, notwithstanding its all too apparent flaws.
Today many people – economists, financiers, investors, business owners, and managers – say that Keynes is their intellectual hero. Have they actually read The General Theory? Have they read more than the few clear and witty passages so widely quoted?