“Critics of John Maynard Keynes were so determined his economics were wrong that they allowed Keynes to dictate the terms of the debate,” says Victor Claar, professor of economics at Henderson State University, in his Acton University lecture. He continues to describe Keynes flawed anthropology with respect to classical economists and the Great Depression. Key observations of human nature include the principles of work, property, exchange, and division of labor. We can survive and prosper, take ownership of our work, support and rely on each other through exchange, and specialize in exchange at an opportunity cost. Furthermore, these observations are linked to moral imperatives.
Work allows us to combat sloth, we can practice good stewardship, serve other people, and provide richer options for all. Keynes, who was focused on how consumption worked rather than what human life looked like, did not understand these things. Maynard, like his father, Neville, was a large proponent of the Cambridge method, and the distinctions between positive and normative economics laid out by John Stuart Mills. The great legacy and wide scope of this method still exists today, as most economists continue to try and steer clear of normative statements, and try to stick to descriptive value judgments. However, by the nature of the problems we face, dealing with poverty, unemployment, and development, we inherently deal with positive statements and issues.
Supporters of Keynes’ theories use The Great Depression and post-World War eras as evidence of their effectiveness. Claar grants insight into the attractiveness of such policies, saying that such a recession created pessimism about the ability of market forces to self-correct, and since government management worked “reasonably well” after World War I, state management became tempting again. There is fault in this, since Keynes “focuses on the inherent instability of the market and the need for active policy intervention to achieve full employment of resources and sustained growth.” Keynes maintains that recessions and high unemployment are due to the fact that firms and consumers in the private sector do not spend enough on new capital and equipment and goods and services due to insecurity and nervousness about the future. As such, the remedy lies in the public sector, with the government spending using deficit financing if necessary. Ideally, after people get back to work, revenues will increase and the budget will balance once more. The obvious downside to this thought is that reducing pain in the short run, putting a band aid on the problem, leads to inflation and slower rates of long-term growth. Claar draws students’ attention to a revealing quote from Keynes that creates a moral dilemma: “In the long run, we’re all dead.” Keynes is perfectly happy to allow future generations pay off the debt that his creates.
Claar concludes there are three keys to understanding Keynes: The classical model’s predicted equilibria are mere special cases and are rarely satisfied in practice; hubris, or that the State is more capable of managing the economy that we ourselves are; and consumption is the purpose of all economic activity. This “flawed anthropology leads to flawed economics,” and “caught hold in the same period that men and women of science began to believe that systematic management of human beings was both possible and useful in all areas of society.” Keynes himself declared eugenics to be “the most important, significant and, I would add, genuine branch of sociology which exists.” Claar leaves students with a hopeful message that we can combat this dangerous line of thinking with well-functioning markets that let prices send strong signals to all of us regarding where our services may be needed most by others; clearly defined and enforced property rights that lead to good stewardship; and influential institutions, such as churches and families, to share wisdom.