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What did Mises think of the General Theory?

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fegeldolfy Posted: Tue, Dec 11 2012 7:26 PM

So, I know Mises made some comments about Keynes (Lord Keynes and Say's Law, Stones into Bread:The Keynesian Miracle), and he mentioned him a few times in Human Action. I also know that Guido Hulsmann notes in "Mises:The Last Knight of Liberalism" that Mises was unimpressed by the General Theory. But Hulsmann doesn't really go into it much farther.

Is there more information on Mises's reaction to The General Theory and to Keynes in general?

Did he ever speak to, or write to Keynes?

What did he think of the Keynes-Hayek debate?

I assume he read the General Theory, since it is in the footnotes of Human Action a few times.

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Wheylous replied on Tue, Dec 11 2012 8:28 PM

Have you tried searching "Mises on Keynes"?

I got this:

http://mises.org/daily/1702

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I haven't read that, but I do remember reading about it in Mises:The Last Knight of Liberalism

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Mises laid it all out right here: http://mises.org/daily/1803

Keynes' General Theory is a "pseudo scientific...fabrication", a "rationalization" of what govts were already doing for years.

"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...."

"He was at a complete loss..."

"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... 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."

That should get you started.

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Cool thanks.

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Conza88 replied on Sat, Dec 15 2012 6:44 AM
A dictum of Lord Keynes: “In the long run we are all dead.” I do not question the truth of this statement; I even consider it as the only correct declaration of the neo-British Cambridge school.
— Ludwig von Mises, Planning for Freedom, p. 7.
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I plan on reading it one day, along with Das Kapital. The problem is that most modern Keynesians (or indeed, Marxians) rely on very diluted, hybridised forms of the ideology, so although the basics are underpinned in the GT, a lot of the later "innovations" were adapted from other theories. I don't think Mises really devoted much time to GT because it is abject nonsense. Perhaps he thought that socialism along the lines of Taylor and Lange were more pressing issues. I think he addressed Keynes and his various fallacies throughout his works, and therefore felt little need to issue a unified refutation. He also wrote a lot on how middle of the road interventionism doesn't endure. This too addresses Keynes and his Quixotian fantasy of "saving" capitalism from itself.

To me, Keynesianism is intellectual wankery. I don't really take it very seriously. Sadly, it remains one of the unjustified darlings of modern economics. Everything from how they measure national income, to the multiplier (I mean seriously?), to the way they study the loan market, to the concept of aggregate demand is flawed. It is voodoo applied to economics.

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OK. What about Hayek? I know he was friends with Keynes, but did he think he was a serious challenge or just a joke? I remember watching an interview with him in the 70s in which he says Keynes had a very limited education in economics.

Mises-thought he was a joke

Rothbard-despised him, thought he was a joke

Hayek-???

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Hayek was friends with Keynes. Very early in his academic career, Hayek saw Keynes as an intellectual role model. Then Hayek attended Mises' lectures in New York and changed his perspective (socialist to capitalist- although, some have argued that Hayek was really a Social Democrat).

Anyway, Hayek has said in interviews that he never considered Keynes' theory to be an intellectual threat. He never thought that people would take Keynes' new work seriously. Earlier in his career, Hayek devoted a lot of time refuting an earlier work of Keynes only to have Keynes reply "Oh, I no longer believe all that." Hayek thought that, if he were to spend time addressing Keynes' General Theory that Keynes would change his mind again. Nonetheless, Hayek took some time to refute some of Keynes' claims in various essays, which are collected in this book.

If I had a cake and ate it, it can be concluded that I do not have it anymore. HHH

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It's worth remembering that socialism was still all the rage back then, and in comparison to Keynesianism, which sells itself as middle-of-the-road interventionism to "save" capitalism, socialism proposed its wholesale replacement. If one is historically well-read, they are likely to have encountered fragments of Keynesian thought e.g. a distrust of interest in other sources, which were dealt with by later economists. The paradigm shift from classical econ to what came after left a bit of a void to fill.

In the throes of the Depression people believed what they wanted to hear, rather than the Austrian proscription to let the market correct itself.

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Neodoxy replied on Sun, Dec 16 2012 1:27 AM

I find it deeply disturbing that it doesn't look like Keynes nor Mises ever did any sort of real critique of the General Theory or really of Keynesianism at all. while Hayek certainly did more of this, he never did something very in-depth. Even the article of mises' "Stones into bread" does little to actually criticize Keyens. It does a lot of things surrounding the implications of Keynes' work and the context of his writings, but the article appears mostly economics-less. I think that this is especially ridiculous since it would appear that most of Keynes' work is in many ways the application of Mises' teaching in terms of the non-neutrality of money and the imperfection/constantly striving nature of markets.

Nowhere have I seen Mises take on price-flexibility or effective demand; both of which are the linchpins of the Keynesian system.

While I'm not fully qualified to speak on this until I read all of the General Theory and Hazlitt's remarks on it, the General Theory does make a fair deal of sense. This is especailly true if you're coming from a non-Austrian point of view where the production structure is more or less overlooked. I don't know how much of what Keynes says about the classical school is true. I feel like what Keynes and modern economics presents the classical school as is entirely a strawman since I can't picture any economic school bein so idealistic. The Keynesian presentation of the classical is basically that they thought the economy would almost immediately progress to a final state of equilibrium and that alterations in spending have no immediate effect on output and all prices would adjust instantly.

From this perspective Keynes' work is really just about introducing some realities into an idealistic system. Prices are not perfectly flexible, labor probably will be predisposed to respond to nominal wages, there may well be notable amounts of savings which are not invested in the economy.

I'm starting to end up in a modified position of where I was in August. While Keynesian clearly overestimate the knowledge which the government/statistics have, overlook the production structure, misunderstand investment, and don't properly understand entrepreneurship, I think that the traditional Austrian bias towards simply bashing Keynes (especially Keynes, not some of the shit which Keynesians later did to Keynes) is utterly unfounded. Indeed from an Austrian perspective Keynes appears to have done a good job of explaining why it is that recessions are as long as they are and why it takes time for an economy to really adjust out of a recession.

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Conza88 replied on Sun, Dec 16 2012 1:44 AM

Oh seriously, EAD. He was kind of busy writing Nationalökonomie: Theorie des Handelns und Wirtschaftens. As for the numerous addressings of Keynes that litter later analysis, and even earlier ones, go & find them - http://mises.org/misesbib/m1950.asp

  • "Keynes did not add any new idea to the body of inflationist fallacies, a thousand times refuted by economists… He merely knew how to cloak the plea for inflation and credit expansion in the sophisticated terminology of mathematical economics."    Human Action, p.787
  • "The fallacies implied in the Keynesian full-employment doctrine are, in a new attire, essentially the same errors which [Adam] Smith and [Jean Baptiste] Say long since demolished."    The Theory of Money and Credit , p. 464
  • "Keynes did not refute Says Law. He rejected it emotionally, but he did not advance a single tenable argument to invalidate its rationale."  Planning for Freedom  
  • "Keynes proposes nothing more than what for decades, especially in German lands, has been promoted by official science and by all of public opinion as the "solution to the social question." There would be no occasion to bother with this little pamphlet, for everything that it brings forth has already been carried out in the German language a hundred times over, and, if perhaps not any better, still no worse, and in any case more thoroughly. But the title, which Keynes has given his work, and its epigrammatic irritations call for a critical note from here." Planning for Freedom 
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I find it deeply disturbing that it doesn't look like Keynes nor Mises ever did any sort of real critique of the General Theory or really of Keynesianism at all. while Hayek certainly did more of this, he never did something very in-depth. Even the article of mises' "Stones into bread" does little to actually criticize Keyens. It does a lot of things surrounding the implications of Keynes' work and the context of his writings, but the article appears mostly economics-less. I think that this is especially ridiculous since it would appear that most of Keynes' work is in many ways the application of Mises' teaching in terms of the non-neutrality of money and the imperfection/constantly striving nature of markets.

What exactly do you want critiqued? Price stickiness isn't a very difficult argument to dislodge. Inflationary biases, government controls and sometimes, the convenience of predictable future prices and the efficiency that brings with it cause it.

As for "effective" demand, what of it? I've seen Austrians utilise the same phraseology.

How do Keynesians do a decent job of explaining why the recession has been so long? I don't see any of them evoking regime uncertainty or highlighting that the shortfalls in demand are largely an outgrowth of over-regulation of various markets, including the labour market, and a severe misallocation of capital goods and durable consumer goods.

Mises had his hands full with the socialists. He probably considered them to be a bigger threat, in part at least because of the Austrian School's prior run ins with Marxism. Perhaps because some of what Keynes said made sense and some of it was sheer contrived nonsense, Mises felt no need to deal with it. So what? Hazlitt and others took pains to do so. Was Mises meant to take on the whole world by himself? My view is both Hayek and he underestimated Keynes's appeal to fashionable intellectuals at the time, and more importantly, politicians.

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...the traditional Austrian bias towards simply bashing Keynes...
...from an Austrian perspective Keynes appears to have done a good job...
 
 

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Neodoxy replied on Mon, Dec 17 2012 3:02 PM

Conza,

No U.

Jon,

"the convenience of predictable future prices and the efficiency that brings with it cause it."

What do you mean by this?

As for price stickiness, I think that it's true that in a society which is more prone to deflation that people will more readily accept lower nominal wages. But with this said i think that any belief in perfectly sticky prices is foolish. My entire point here is that while Keynes takes his own argument too far and ignores essential aspects of the production structure, he does indeed do a good job of rebuking many of the "classical" arguments which seemed to indicate perfect price flexibility. Once again I think it all comes down to whether or not Keynes' view and corresponding modern mainstream view of the classical economists is generally a straw man or not. If it is (I'm not talking about Say's law although this is a good example of an argument of Keynes' which was a straw man)  then Keynes did a good job of introducing some realistic assumptions about price flexibility, investment (to a much lesser extent), and demand. 

For instance I think that it is easy to see why wages would be particularly sticky downwards over a short period of time and why this would have negative repercussions in short term adjustments. While this may be better in the free market society, I still believe that it does a good job of explaining the economy under certain circumstances, particularly those of our day.

"Mises had his hands full with the socialists. He probably considered them to be a bigger threat, in part at least because of the Austrian School's prior run ins with Marxism. Perhaps because some of what Keynes said made sense and some of it was sheer contrived nonsense, Mises felt no need to deal with it. So what? Hazlitt and others took pains to do so. Was Mises meant to take on the whole world by himself? My view is both Hayek and he underestimated Keynes's appeal to fashionable intellectuals at the time, and more importantly, politicians."

No, I don't understand why neither Mises nor Hayek ever dealt in depth with the Keynesian system after it became clear that it had dominated policy and the economics profession. Mises was alive long enough to see this happen and Hayek was alive long enough to see it subside slightly and be replaced with... Other forms of Keynesianism ><

Yet neither of them did an indepth critique. I agree fully that both of them totally underestimated the influence of Keynes, but it would seem that both of them would have seen it as a great evil which needed to be slain.

Dave,

I have no idea what happened to your post, but I read it before whatever happened happened. I have little gripe with Mises' article. My biggest complaint is that he doesn't deal with the essence of Keynes' framework. while his claims about inflation are true, they do not deal with the essence of Keynes' model. He is perfectly right that Keynes misunderstood the real implications of Say's law, but I would argue that this isn't by itself a death knell for Keynes' system. Mises is on the right track but he doesn't go far enough in depth.

Edit

Also, did anyone know that according Samuelson Henry Hazlitt was one of the writers who convinced him to become an economist?

Epic fail :(

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For instance I think that it is easy to see why wages would be particularly sticky downwards over a short period of time and why this would have negative repercussions in short term adjustments. While this may be better in the free market society, I still believe that it does a good job of explaining the economy under certain circumstances, particularly those of our day.

.

They're sticky downards because the expectation is that prices overall will increase. Again, regarding Mises, what do you want of him? I sometimes do not understand people. No, it's not sufficient that the man wrote a treatise on economics and countless other subjects, he had to have stuck his nose in every single debate under the moon. Perhaps he thought Hazlitt did a good enough job disposing of Keynes. Who knows. I don't think you need to deal with the Keynesian system on its own terms if you reject its premises. Friedman did try to refute it based on its own premises but he didn't really need to do so, however it's another way of attacking Keynesianism, though I consider monetarism false too.

Regarding convenience, think of a restaurant menu. Prices for it are not perfectly flexible. Nor would there necessarily be any efficiency gains in establishing perfectly flexible prices on such a menu. Energy providers also try and ensure price stability for their customers via futures contracts. There's plenty of scenarios where individuals trade-off flexibility for predictability, and this is to them an efficient allocation of resources. I do not consider wages to be a good example of this. To the extent that they're contractually determined with no reference to inflation or deflation, they might remain where they were for a period of time. However, if people knew there were a trend for the economy to continue propelling towards lower prices, that bias would have to be disputed.

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Neodoxy replied on Mon, Dec 17 2012 6:26 PM

1. I'm not asking for Mises to have write on every topic under the sun. I'm saying that it would have been highly beneficial if he wrote anything substantial criticizing the third most influential economic doctrine to have ever existed rather than just denouncing it without providing much of a substantial criticism.

2. Even if the price level was perfectly static wages would have some trouble falling quickly. In a world of fallible individuals there will always be a predisposition towards higher money wages instead of real wages. I agree that a deflationary economy would experience less of this tendency.

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I wonder if Mises and Keynes ever met.

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Neodoxy replied on Mon, Dec 17 2012 7:50 PM

Doubt it. I have a distinct suspicion that Keynes would've gotten capped...

Anyway, Mises spent pretty much all of his time, to my knowledge, in either Austria or in America. Both of these are places that Keynes spent very little time since I don't believe he left the island much, although I do know that he met with Roosevelt and took part in Bretton Woods, but I don't think that Mises was in that neck of the woods much of the time. And then Keynes died :P

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Wheylous replied on Mon, Dec 17 2012 8:30 PM

They're sticky downards because the expectation is that prices overall will increase.

I had never considered that before.

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2. Even if the price level was perfectly static wages would have some trouble falling quickly. In a world of fallible individuals there will always be a predisposition towards higher money wages instead of real wages. I agree that a deflationary economy would experience less of this tendency.

Yes, this is correct, however remember that wages are currently inflation-adjusted. They cannot be reviewed daily or even monthly but medium-term intervals, like quarterly (well they can actually, especially if utilising contractos), could certainly work. In the opposite scenario, where prices steadily decrease employers will have to formulate deflation-adjusted contracts to ensure they remain profitable operators. There may not even be deflationary adjustments since gold's purchasing power increasing due to heightened productivity isn't deflation per se but obviously this depends on wage-earner (since I consider the word "worker" to be nonsense) productivity.

Bear in mind that things like unemployment insurance increase the reluctance of employees to accept lower wages when unemployed. For some people this might be acceptable but at the moment this insurance is both compulsory and provided at highly subsidised costs. This alone should suffice to curtail a tendency to sacrifice earnings even when though nominally lower, they are really identical or higher to what they were before.

Again, I don't think Mises felt the need to bother with Keynes. It may be disappointing that he didn't, but he left enough knowledge behind to counter Keynesian postulates.

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Raoul replied on Tue, Dec 18 2012 7:29 AM

Rothbard on Keynes:

 

While the Keynesian system is a tissue of fallacies, it is a mistake to dismiss it brusquely, as many conservative economists have done, as nonsense. It is nonsense, in the last resort; but failure to deal with its fallacies in detail and in depth has left the field of ideas open for Keynesianism to conquer.

Not a native speaker - you may correct my spelling errors.
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To be honest, Keynesianism has been taken apart by numerous people, including Austrians. It still persists. It isn't for its academic soundness that it survives.

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In Mises:The Last Knight of Liberalism, Jorg Guido Hulsmann says Mises was present at Keynes's speech that became The End of Laissez-Faire.

In his Notes and Recollections, Mises talks about Keynes "reviewing" The Theory of Money and Credit and then later revealing that his German was inadequate.

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Conza88 replied on Wed, Dec 19 2012 3:36 AM

"To be honest, Keynesianism has been taken apart by numerous people, including Austrians. It still persists. It isn't for its academic soundness that it survives."

Spot on. Hoppe on that point...

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fegeldolfy replied on Fri, Dec 28 2012 12:02 AM

Bringing this thread back because of something I saw in a review of Human Action at Goodreads.

" Although people often view this book as a refutation of macro-economic theories such as that of John Maynard Keynes, the book in its original version and ultimately what we read today are primarily focused on more traditional kinds of socialism and Marxism. The Majority of Mises economic writings were aimed at bringing down that view of economic thinking. Keynes tried to have a correspondence with Mises when he was still a somewhat respected professor in Austria and he didn't even bother replying if I remember correctly. Mises didn't think such economic theories would ever be mainstream or seen as important, so he didn't bother refuting them."

 

Has anyone heard anything about Keynes's supposed attempt to correspond with Mises?

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Raoul replied on Fri, Dec 28 2012 3:13 AM

Interesting (if it's true). I have never heard of it. I only know that Keynes reviewed the Theory of Money and Credit in 1914. He wrote the book was unoriginal. 

Not a native speaker - you may correct my spelling errors.
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excel replied on Fri, Dec 28 2012 4:06 AM

Interesting (if it's true). I have never heard of it. I only know that Keynes reviewed the Theory of Money and Credit in 1914. He wrote the book was unoriginal. 

That's the one he read in german, right?

 

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Raoul replied on Fri, Dec 28 2012 6:01 AM

Yes, it's this one. But I'm just realizing Fegeldolfy had already mentioned it above.

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