Last Thursday, we were pleased to welcome Victor Claar, associate professor of economics in the Lutgert College of Business at Florida Gulf Coast University, to participate in the 2019 Acton Lecture Series with an address on the moral legacy of John Maynard Keynes. Keynes, of course, had a massive impact on the understanding, teaching of, and implementation of economic principles in the second half of the 20th century (and still today); In this lecture, Claar examines the broader cultural impact of Keynesian thinking. You can watch the lecture below; the full transcript of the address is available after the jump.
[00:00:00] Stephen Barrows: [00:00:00] Welcome to the Acton Institute and today’s Acton Lecture Series event. My name is Stephen Barrows, and I’m the managing director of programs here at Acton, where our mission is to promote a free and virtuous society characterized by individual liberty and sustained by religious principles. You may also be aware that one of the Acton Institute’s goals is to connect good intentions with sound economics, and so in light of that, I’m delighted that today’s speaker is a distinguished economics professor.
[00:00:27] So today’s format is approximately a 30, 40 minute lecture, followed by 20 minutes of questions and answers. We are recording, so please be sure to use the microphones when asking a question. So without further ado, let me introduce, introduce to you today our speaker, Dr. Victor Claar, an associate professor of economics in the Ledgard College of Business at Florida Gulf Coast University in Fort Myers, where he holds the BB&T distinguished professorship in free enterprise. Professor Claar is a former Fulbright scholar, having spent a year giving graduate [00:01:00] lecture lectures and conducting research at the American University of Armenia.
[00:01:03] He is also a member of the Mont Pelerin Society and the Philadelphia Society. Professor Claar has published several influential books, including Economics in Christian Perspective: Theory, Policy, and Life Choices, now in its 10th printing and recently translated into Chinese. His books also include Fair Trade: It’s Prospects as a Poverty Solution, and the Keynesian Revolution and Our Empty Economy: We’re All Dead Now, coauthored with Greg Forster. In addition, he has numerous scholarly publications and peer reviewed journals such as Applied Economics, Public Finance Review, Faith and Economics, and the Journal of Markets and Morality. Victor received his bachelor of arts degree from Houghton College in New York, majoring in both business administration and mathematics. He earned both his masters and PhD in economics from West Virginia University, and currently serves the Acton Institute as an affiliate [00:02:00] to scholar in economics. So please join me in welcoming Dr. Claar.
[00:02:11] Victor Claar: [00:02:11] Good afternoon everyone. I must confess that I have mixed feelings about being with you here today, but those mixed feelings aren’t about you. They’re about the weather. I left a balmy 70 degree day in Southwest Florida to come join you, and arrived yesterday on what I understand was the coldest day in the winter so far, and it’s not even winter really yet.
[00:02:35]so it’s bracing, invigorate, invigorating. I packed all of my winter clothes in my suitcase, and as soon as I was in the Gerald R. Ford airport, I immediately opened up my suitcase, put on everything, gloves, scarf, coat, hat, put it all on, and then called my ride share to go downtown.
[00:02:50]I’d like to say this, begin by saying this. A lot of the work that I do, I’m just an economist. I’m just one economist, and I’m definitely not a sociologist, [00:03:00] or a moral philosopher or a theologian. So I always try to seek out, and seek out proffer – profitably partners in the work that I do that I’m curious about. But I realize that I’m limited in terms of my knowledge and my expertise as an economist.
[00:03:14] So I always use one of the most powerful concepts from economics, comparative advantage, to seek out scholars like the Acton Institute, Institute’s Jordan Valor, to work on projects because the theologians know more about theological stuff than economists do. And also people like my coauthor Greg Forester in my new book, The Keynesian Revolution and Our Empty Economy: We’re All Dead.
[00:03:37]I’d like to begin with this disclaimer. I love economics. I love being an economist. And today I do not come to bury economics. In fact, I come to praise it. I think it’s useful. I think the mathematical modeling that economists do is valuable. Verbal arguments are important, but verbal arguments can [00:04:00] be subject to misinterpretation. And when you articulate a verbal argument, not only in words, but then also in the language of mathematics, it loses its ambiguity and everybody understands what each economist means and doesn’t mean when we’re speaking to each other.
[00:04:16] I also think we need to open the window and look outside, put our theories to the test, look at data, see whether or not the theories that we’ve arrived at inside ivory towers, whether or not they are in fact borne out in the real world. Because if they’re not, we need to refine the theory or do away with the theory altogether and replace it with something that seems to be more consistent with what’s happening in the real world.
[00:04:41]we do, however, economists like me, we do lament the shift of economics from its deep roots in moral theory historically, to something that now seems more utility maximization focused, consumption focused, focused on macro [00:05:00] economic variables like GDP or inflation or unemployment rates, and I think economics as a profession has lost a little something of what historically has made economics great.
[00:05:10] Because economics has always had a telos behind the study of economics. From the beginning, economics has always been concerned with human purpose, virtue, living the good life, and leaving things better than the way that we’ve found them. And I’ll sort of give a helicopter tour of this history.
[00:05:33] to begin, in the book we outline – and again, it’s a book, so you have to do some generalizing, but you may not be aware of it, but even paint stores sell fairly broad brushes. So I’m going to paint with one of those broad brushes today as I talk about these three paradigms. And the paradigms we organized the book around are three: one we call the nature paradigm; one we called the God paradigm; and then more recently, [00:06:00] one we call the reason paradigm. And if there’s a thread that all three of these paradigm share throughout human history and human inquiry into disciplines like economics, they all share a respect for and understanding of natural law, that there really are in fact, laws that govern us all. And if you go out and you study the world in which we live, you’ll be able to discern what these laws are that govern us.
[00:06:25] Now in the nature, God, and reason paradigms, the focus and the understanding of natural law and the ordered world was different. And let’s talk about the lenses that each of those paradigms viewed our world through.
[00:06:41] In the nature paradigm. Natural law existed. There were in fact, rules in place that govern the universe, and your job, if you were someone studying the world like Aristotle, was to go out and try to discern and uncover what these unwritten laws are that govern us all. And [00:07:00] once you understand those better, than you understand your place – human beings are also part of the natural creation – you understand your place better. You can make wise choices and gain wisdom from that understanding. And you can use that understanding and wisdom in the pursuit of a good and virtuous life.
[00:07:20] And people like Aristotle were very serious about this. They thought that not only was it important to make individual, virtuous right choices, making a series of individual virtuous right choices is a lot, a lot like making the decision to go to the gym. If you haven’t gone to the gym in a really long time, making the decision to get up early, go out into 17 degree Grand Rapids weather, do that hard thing and go to the gym, that’s a hard thing and it’s a virtuous act. But the more times that you perform that virtuous act, well, you wake up one day and all of a sudden you’re a virtuous person. This is how people who want to be great moms and dads eventually become great moms [00:08:00] and dads; every day they make the commitment to do the right thing, and eventually they’re the sort of person who, who is, who becomes, who does the right thing and becomes a virtuous person.
[00:08:10] In the God paradigm scholars like Thomas Aquinas, scholastics in the school of Salamanca, they took this natural law tradition from Aristotle, but they understood it more richly because they saw behind the ordered world a master designer, creator, who put these things in place. So in the God paradigm, human beings weren’t just part of nature, they were also over nature. God commanded Adam and Eve to fill the earth and subdue it. God gave Adam the charge of naming the animals, because God wanted Adam to be a co-creator, a co participant, a sub creator in what was going on in the world. So we’re animals, but we’re also God’s stewards in the world, because we sit above it as the highest part of God’s [00:09:00] creation. And the world works best when we conduct our affairs in line, not only with the created order, but also with God’s intentions for humanity. We make the world a better place through our good work, our virtuous acts, and wise choices.
[00:09:19] And finally in the reason paradigm, which I, which Greg and I associate most closely with the enlightenment period, there was, there continued to be a natural law tradition. There was order in the world, but the place of man’s intellect, his reason, his capacity to not only discover things that were true about the world, but extend those truths to other fields of economic and other disciplinary inquiry was very, very powerful. And also saw then every human choice, every human action, every human inaction, it saw those things through a rational lens. We weren’t mere animals doing whatever [00:10:00] our feelings and our senses told us to do. In fact, we had now a reasoned understanding of the world, and through ongoing inquiry we could discover things like, Oh, the sun really is in the center of our solar system, it’s not something else.
[00:10:15] And so the possibilities seem limitless in terms of what human beings might be able to accomplish using reason. And the reason paradigm didn’t necessarily do away with the God paradigm; there was still room for moral reasoning even within the reason paradigm. But in the book, Greg and I argue that we have moved into a fourth paradigm, and that paradigm we loosely describe as the consumption paradigm.
[00:10:46] And the argument we make is that we no longer, as human beings, have a shared sense of moral purpose. We no longer have a shared anthropological [00:11:00] understanding of what a human being is for. And as a consequence, politics in 2019 is a mess. Because we spend so much time arguing about what the right policy is, and we don’t take the time to discover what our shared understandings, whether we’re Bernie bros, whether we’re a tramp, Trump fans, whoever we are, we don’t invest the time to get to know each other and discover whether or not we have shared understandings about what a human being is for. And as a consequence, politics and economic policy recommendations in particular are extremely messy.
[00:11:36] Well, how did we get here? Now the book’s about 375 pages. I’ve got about half an hour with you, so I’m going to cut some corners here. I will say there’s an entire chapter about the history, this movement away from economics with deep roots and moral theory. In fact, decades ago, if you studied economics at Cambridge, your degree didn’t say [00:12:00] economics. Your degree program, the exams you sat for were in fact in moral sciences and your specialty happened to be economics. But beginning in the classical period of the classical economics, there started to be the beginnings of what economists referred to as the positive normative distinction in economics.
[00:12:20] More generally, lots of disciplines have this, and they refer to this as the fact-value distinction, and it tried to separate value judgments from more descriptive claims about how the world is or is not. So in my introductory textbook, Michael Parkin and Robin Bata lay out the positive normative distinction. And in the textbook that I use in my class at FGCU for introductory economics students, Bata and Parkin and are very clear; they say, and I quote, “economists generally try to steer clear of normative questions.”
[00:12:56] Now you and I know that’s not true. We talk about which tax policy [00:13:00] would be the more effective tax policy. we make all signs of ethical value judgements; we just don’t put them up front and talk about them openly and honestly. Instead, we try to sound fairly scientific, and in our efforts to sound scientific, we try to act as though there aren’t moral value judgements behind the scenes when in fact, there are.
[00:13:21] So you can begin to see this fracturing, this, this disconnection between normative considerations in economics and positive, more descriptive connections in economics, beginning with, beginning with David Ricardo, who’s most famous for giving us the, the, the theory of comparative advantage, using some simple numerical examples.
[00:13:41] But even with Ricardo – so, sort of early in the period of the classical economists – Ricardo says this: “it’s not the province of the economists to advise. He has to tell you how to become rich, but he is not to advise you to prefer [00:14:00] indolence to riches, to indolence or indolence to riches.”
[00:14:04] Now, there’s an entire chapter devoted to this fracturing and widening of the fracture in the book. But what you’ll see in the successive classical economists in the period is they had what might most conveniently be described as scientific envy. They saw the advances that were happening in hard sciences, and they really thought that if they had enough data and if they had theories that represented the world accurately enough, just like there are laws of planetary motion, it might be possible to design society and economic activity and economic institutions so that we could very precisely, surgically – like a plumber – we could go in and fix things where they needed to be fixed.
[00:14:47]the classical period ended with another famous economist, probably the last of the great economists in the classical period, John Stuart Mill, who was prolific. And one of the things that Mill gave us [00:15:00] is a construction called homo economicus. And he never uses that word; he never says he economic man or homo economicus. But it gives us a construct to try to help us understand that human beings are calculating, reasonable, rationally choosing individuals, but we’re also quite complex.
[00:15:21] We have whims; what we went for lunch changes from 11:15 to 11:45. But Mill wanted some basic foundational constructions of how human beings make choices and decisions. How they take actions or inactions. And so he conceived a con of a construct that economists today always talk about, which is homo economicus or economic man.
[00:15:44] If you’re interested, I have a fellow WV, WVU PhD, a colleague named Josh Hall, who’s written an edited volume called “Homer Economicus,” and it’s what The Simpsons can tell you about economics. [00:16:00]
[00:16:01]John Stuart Mill – this is the famous passage. Again, he doesn’t come out and describe economic man, but he describes the concept. And Mill writes, “economics, political economy, makes entire abstraction of every other human passion or motive, except those which may be regarded as perpetually antagonizing to the desire of wealth, namely an aversion to labor and desire of the present enjoyment of costly indulgences.” This is a pretty severe reduction of a human person, right? This is quite a severe reduction of the human person to somebody who seeks wealth, prefers leisure to labor, and wants to consume costly indulgences during that leisure time.
[00:16:47] Now, Mill never meant for this to be the defining conception of the human person in economics. But in the book, we contend that Keynes took this pedagogical [00:17:00] construct of economic man that Mill gave us, Keynes took it and made it the defacto economic agent that we now study and talk about in 20th century and 21st century economics.
[00:17:14] Well, economists and people who studied economics were divided on just how significant theory was, and whether it was important to theorize about the world first and then look out the window, or look out the window first, see what history looks like, see what human institutions have looked like, see what cultural arrangements are, look like, and then sit down and begin the theorizing part.
[00:17:39] And this battle, which was rancorous in Germany and Vienna was called the methodenstreit, or the battle over methods. And the Austrian economists, they were convinced that theory needed to come first. And so they were content to sit inside, work out their theories, and then examine in the real world what was going on, and see whether those theories needed to be [00:18:00] augmented and added to.
[00:18:02] The historicists, so sociologists, historians. They were convinced that that’s not the way economics is done. What you need to do instead is go out into the world, see how we got here, understand the evolution of historic institutions, and if you understand that history better, then you’ll be better positioned to talk about and model and theorize about economics.
[00:18:25] There was a version of the methodenstreit in Britain also. It was not as rancourous as it was in Germany, but it was also rancorous. And the peace eventually between the theoretical economists at Cambridge and the historians and the associate sociologists who thought that an understanding of history mattered a lot, was settled by another Keynes, John Maynard Keynes’ father, John Neville Keynes.
[00:18:52] Neville Keynes, if you read his personal correspondence sympathetically, he really was [00:19:00] sad that the people who cared so much about economics at Cambridge were having what he perceived to be a family squabble, and it seemed like it might be a squabble from which the family would never recover.
[00:19:12] So he attempted to be a peacemaker, and in his 1891 book Scope and Method, he solved the British version of the methodenstreit, and he did it very creatively. He told the historians and the sociologists that what they’re doing is vitally important. But the first thing you need to do is be strong in economic theory, and once you’re strong in economic theory, then once you, once you’re qualified, to go out and take a more close assessment of the world, then there’ll be all kinds of fruits that follow from that.
[00:19:43] And that’s much the way that graduate economics is taught today. We have a year of two – two semesters of macro, two semesters of micro. Then we take comprehensive examinations. If we don’t pass those examinations, we’re no longer enrolled at that university anymore. So we have to be [00:20:00] qualified. And then we can go out and engage in more specific inquiries that are interesting to us.
[00:20:07] Well, without Neville Keynes having solved the British version of the methodenstreit, the success of Maynard Keynes’ book – and I’m one slide behind; I apologize for that – what, the success of Keynes wouldn’t have been possible, because Keynes ran with the theoretical mathematical version of economics that the Cambridge theorists had been working out.
[00:20:34] And so Keynes, for if you don’t know much about him, he was a British economist. He lived a relatively short life. In fact, his most famous book, the General Theory of Employment, Interest and Money, the one that all of modern macroeconomics is based upon, at least in part, was published in 1936; he passed away by 1946. So in the fifties and sixties when we had questions about how things were working out macroeconomically, it’s not like we couldn’t bring [00:21:00] Keynes onto a TV show and ask him what he thought about how the economy was going. It just wasn’t possible.
[00:21:05]I’ve also never run into any book ever outside of the Bible where the word exegetics is used regarding trying to figure out what Keynes himself meant in the 380 pages of the general theory. And today we continue to debate that.
[00:21:25]Keynes was quite a celebrity in Britain. He was widely known in lots of popular circles, including intellectual circles, and also social circles. He ran with a celebrity crowd. he was married to a famous ballerina named Lydia Lopokova. And he first became famous writing a book in 1921 called the – or, sorry, 1919, called The Economic Consequences of the Peace, and it was about what went on during the peace talks following World War One.
[00:21:55]it became a bestseller and it was very popular, this Economic Consequences of the Peace, [00:22:00] because it was part gossip book where he told inside secrets about the major players in the peace talks following World War One. So it was a sensation in that regard. He also forecast the economic challenges that Germany would find themselves in in the wake of the steep reparations that the allies demanded following World War One.
[00:22:25] So he seemed quite prescient in terms of understanding what by the mid 1930s was a coming economic collapse in Germany following World War One.
[00:22:35] Okay. He was a celebrity. He moved in great circles. He kept company with people like Virginia Wolfe and E.M. Forrester, in a group known as the Bloomsbury group. And it wasn’t a formal group. They didn’t have a membership cards. But it was an intellectual elite in Cambridge who were interested in talking about what might be possible for hu – for [00:23:00] humanity, especially if humanity could get over its historic moralizing. Moralizing constrained humanity.
[00:23:10] And so the focus of the Bloomsbury group was things like really great theater, really great art, really great literature. What could you do if you weren’t constrained by centuries of moralizing? What if you were able to break the shackles of the Victorian sensibility? And also what if you could do that in your personal life, and your romantic life, and your sexual life? What if you could be free of all of those considerations, what might be possible for humanity?
[00:23:40] So the Bloomsbury group was a group of likeminded intellectual pleasure seekers. They abhored traditional values. For them, wealth and consumerism also got in the way of the sorts of nobler pursuits that human beings might pursue, and they were a distraction.
[00:24:00] [00:24:00] So Keynes and his fellow members of the Bloomsbury group, they thought that there was a life higher, greater, more pleasurable things that could be attained, but only certain people like his friends in the Bloomsbury group or his fellow members in the apostles at Cambridge, they were the only ones who would be able to fully enjoy it. The rest of us, the rest of us, would still be focused on consumerism, materialism, our faith, and all of those things would hold us back from the true enjoyment we could derive from life together.
[00:24:41] Well in the general theory, Keynes takes Mill’s economic man, Keynes’ homo economicus, and puts him center stage. In fact, the best example of that, and this is a direct quote from the general theory, Keynes writes [00:25:00] “consumption, to repeat the obvious, is the sole end object of all economic activity.” And we see this elsewhere in the general theory, he refers to not rational decision making, not planning for the future. The reason that we fall into recessions is because of whimsy; animal spirits, sort of a mass hysteria about where the economy might be headed. And as a consequence, he’s not thinking at all about not only what could we be doing today, but what are we in fact leaving for our future generations.
[00:25:33] In fact, Keynes’ response when critics would say, well, if you do a lot of government spending or you increase the money supply, that’s going to be terrible for the economy, and in the long run, it will be disaster. And Keynes famously said, a decade earlier. Yeah, I know. But in the long run, we’re all dead. So it’ll be somebody else’s problem to deal with in the future.
[00:25:53] Well, the book wasn’t widely read. There were a lot of very important people who knew that Keynes was a very important guy, and the book [00:26:00] sold well. But it’s not exactly a book that a lot of people read from cover to cover. A modern modern parallel might be Thomas Pickety. Oh, it’s a very important book. It’s very tough going. It’s really long. I’ve got it on my bookshelf, but if somebody asked me what I thought about it, well I don’t know what that R versus G business really is cause I haven’t taken a close look. I’m, I’m, I’m glad that went over with some people in the room; I know I’m in the right crowd.
[00:26:26] so how did the general theory become so influential? It became influential simultaneously in academic circles, and also in popular circles. I’ll start with the academic circles first. There’s a gentleman named sir John Hicks, who is an Nobel, economics Nobel Laureate, and one year after the publication of the general theory, he gave us a diagram that is not included anywhere in the general theory, but it’s a really great pedagogical tool. I teach intermediate macro this semester, and I use [00:27:00] Hicks’ diagram. So for people who hadn’t read, gotten around to reading the general theory, this was like CliffsNotes. This is like spark notes for the general theory, because it was a short article that had been published in an academic outlet and it had a diagram.
[00:27:17] It had a diagram that seemed to be pretty useful and convenient, and that diagram today is referred to as the I S L M diagram. So in many ways it wasn’t Keynes that communicated to the next generation of academics what the general theory was about; it was the marketing that Hicks did on behalf of Keynes to translate a really big book that most people would never read cover to cover into something that was just a couple of pages. In fact, we read Hicks article together in my undergraduate intermediate macro class.
[00:27:48] The other way that Keynes became extremely influential is through another, follower of Keynes named Paul Samuelson, Paul Samuelson, taught at MIT, and Samuelson [00:28:00] loved Keynes; loved the general theory. And in fact, Samuelson wrote the first really truly modern principles of economics textbook.
[00:28:11]I’m just curious if you took an econ course in college, did you use Samuelson? Do you remember? Oh, I see several hands that went up right away. This was the first book. The first book was published in 1948 and for decades it was the leading textbook that included a macro half and a micro half. There had been textbooks before that, but they weren’t divided into a macro half and a micro half. So if you were in college and you were forced in your business major to take both a micro and macro course, you have Keynes and also Samuelson to thank for this.
[00:28:46] Samuelson gave us another diagram; it’s called the aggregate expenditure model, or the Keynesian cross. that was the new diagram that was in his 1948 textbook. It’s also interesting to note that in the 1948 textbook, Samuelson had [00:29:00] one econ, famous economist biography. And the biography? John Maynard Keynes. So the only person worth profiling in the 1948 first edition of Samuelson was John Maynard Keynes. And again, this is a decade or so after the general theory is published.
[00:29:19] Tremendously influential, 19 different editions. Economists estimate they’re are, there have been about 4 million copies of Samuelson’s textbook in print. So whether the economics was communicated by Hicks to the economists, or through Samuelson to a generation of college kids in the 1950s and sixties and seventies and eighties – I used Samuelson when I was an undergrad in the mid 1980s. Samuelson communicated in a more popular way these ideas that would leak eventually outside of academia.
[00:29:52] But economics that was Keynesian wasn’t being, wasn’t being relayed just to academic economists and just to college [00:30:00] students. It was also being conveyed to the public at large. This is John Kenneth Galbraith, and his 1958 The Affluent Society communicated to a popular audience Keynesian ideas. And if you’re familiar with The Affluent Society at all, you know that it led to two successor books that John Kenneth Galbraith published. And if you’ve ever heard an expression, I’ve heard this expression: “well, the conventional wisdom is…”, that’s the impact that The Affluent Society had. That’s a catchphrase that Galbreath uses, and that’s an evidence of how widely read the book was during the period. It was critical.
[00:30:38] The book, The Affluent Society was critical of matter – modern Madison Avenue marketing. And Galbreath believed that we had become little automatons in the economy, and whatever Madison Avenue told us we should want, told us we wanted to buy, told us we needed, we would just do it. [00:31:00] Galbraith was really frustrated with that. His solution was a more Keynesian approach, in which policy makers who had better sense, would take a greater hand in deciding what got produced, how it got produced, and for whom it was produced. So the American public started to get to see economists, a lot of economists, over a couple of decades, and those economists got a lot of face time.
[00:31:26] Here are Samuelson and Friedman; from 1966 to 1982 they wrote roughly every three weeks. They wrote dualing columns in Newsweek magazine. We used to have weekly news magazines in the United States. If you’re old enough, you remember those. Some of you may not realize this, but we had to buy magazines, or have them sent to our house, because there weren’t other good ways to find out what was happening.
[00:31:49]Samuelson and Friedman, they talked about macro economics, they talked about unemployment, they talked about recessions, they talked about GDP. They talked a lot in the 70s and [00:32:00] 80s about inflation. And for a typical curious newsreader in the United States in the 60s, 70s and 80s, this is what economics came to mean to you.
[00:32:11] It wasn’t about individual human choice and action. It wasn’t about making plans for the future. Heck, it wasn’t even personal finance in this period. It was about what do we need to do to “get the economy going again?” And so between Samuelson in his textbook, Galbreath in the en – The Affluent Society, and Samuelson and Friedman, most Americans growing up in this period got a sense of economics is about the economy.
[00:32:41] So when I talk to my students about all of the cool economics research that doesn’t have anything at all to do with the macro economy, they often want to say, well, that’s not economics, right? Talking about orchestra auditions, what does that have to do with economics? Well, the answer is it has everything to do with economics.
[00:32:57] It’s also worth mentioning some numbers here. [00:33:00] It won’t surprise you that Milton Friedman, Chicago School champion of the free market, he used the word economist a total of 82 times across all of his columns. Samuelson used the word economist 221 times in the same period. Friedman used the word economics 49 times. Samuelson, the Keynesian disciple, 207 times. This is what the conversation was like for Americans where economics was concerned. During this period, economists actually made lots of magazine covers. In fact, these are three different Time Magazine covers. The first one at the top at the top is John Maynard Keynes. Remember, Keynes died in ’46. Yet he was on the cover of Time Magazine in 1965, because Keynes had won the day. Keynesian planning, fiscal policy, monetary policy – they had [00:34:00] won the day, and that is the way that political economy should be organized.
[00:34:04] In the same period. Jonathan Kenneth Galbraith was on the cover. In fact, Galbreath was on the cover of Time twice in the same decade, and then also Milton Friedman as well, appeared on the cover of Time. So what were the responses like? The free marketers, ’cause they were always there – there are always people who thought that individual planning, planning by the few is better than planning by the many, more local decision making – where the knowledge is more readily available – trumps more distant planning by others who are very far removed from the man on the spot who’s trying to have a nice life.
[00:34:42] The Chicago response: Milton Friedman was a free market guy, but he was also a clever free market guy. So you’ve probably heard Friedman famously misquoted saying, well, we’re all Keynesians now, and then later [00:35:00] Richard Nixon used that language also.
[00:35:02] When Friedman said we’re all Keynesians now, he didn’t mean, yep, John Maynard Keynes, fiscal policy, monetary policy, liquidity trap, multiple marginal propensity to consume, Keynes was right about everything. What, in fact, Freedman meant was in the 1960s if you want to be taken seriously as a macro economist, you’ve got to use math, you’ve got to use the language that Keynes used. Because otherwise you’ll be dismissed and not taken seriously.
[00:35:32] So with some of Friedman’s earliest economic models, like the permanent income hypothesis, he had a free market message behind it, but he articulated it using the language of math and the apparatuses that good Keynesians were using, so that he would have the similar respect that other people using more theoretical, more mathematical, and more quantitative methods would have.
[00:35:58] Austrians also [00:36:00] didn’t muster a response that was significant, significantly timed. In order to overcome the influence that Keynes was having in a lot of political circles. I’ll talk about Henry Hazlitt, the larger picture there. Friedrich Von Hayek and the top right, and then Murray Rothbard quickly in the bottom right.
[00:36:22] Henry Hazlitt wrote a book that responded to Keynes, but he wrote it in, it was published in 1959, and it was called The Failure of the New Economics. He published it in 1959. It was too late. Keynes had already won the day, and it was a book that was very important, but in order to profitably read Haslett’s book, you also needed to have read Keynes’ book and understood it very well also. And that’s a pretty small subset. People who had actually read the general theory, and then also 20 years later, wanted to make an investment to read Hazlett’s [00:37:00] response. Hayek didn’t respond immediately for a couple of reasons. He was working on his own two volume masterpiece called The Pure Theory of Capital, which was published eventually in 1944 two years before Keynes passed away.
[00:37:15] Hayek also struggled like most people reading the book, and in one personal letter from Hyatt to Godfried Haberler he confessed that, “…you know, haven’t really finished reading the general theory yet. I’m working on pure theory of capital. the book’s really hard to get through and I’m not sure by the time I’ve done it, and I’ve written a book review, whether Keynes might’ve already changed his mind by then.”
[00:37:39] So Hayek was well positioned to refute what Keynes was saying, but he did it too late, and didn’t address the criticism head on when it needed to be addressed. And then Murray Rothbard, he wasn’t at a university, he wasn’t at UNLV yet. He didn’t have an academic post at the time. He was at a think tank. And he published books in the [00:38:00] 1960s that tried to fight back against Keynes. But again, those came in the 1960s by the time that Keynes had already won the day, and we were all Keynesians now.
[00:38:10] So what’s the legacy of Keynes? The legacy of Keynes is that Keynesian thinking. Human beings, at least most human beings, not the Bloomsbury group necessarily, but the rest of us, we need to be fed. We need to be watered. We need to have material prosperity. We need to have consumption options in the marketplace. But we’re really living for today. And we’re not thinking about the fact that, you know, if we do some glass work in a cathedral, that glasswork in a cathedral is significant in ways that extend beyond us and in lifetimes that last beyond our own.
[00:38:45] So I would criticize Keynes as having an empty anthropology altogether. Flawed anthropologies lead to flawed economic policy, and you can see this flawed anthropology [00:39:00] today in the Fed’s dual mandate. If you read what Congress has charged the fed with doing and not doing when the open market committee meets, it has two jobs, full employment and price stability.
[00:39:12] This isn’t economics as deep moral theory anymore; this is economics is a video game. How can we tinker with the federal funds rate in order to manipulate the scoreboard with all the macro economic variables on it to get the outcomes that we like, and that make us look good, and help presidents get elected or re-elected, when we forget about the individuals who are trying to make plans. And sometimes those top-down policy actions frustrate the individual decision making that happens at the more personal level.
[00:39:46] It’s also interesting to know that Keynes pop – Keynes’ ideas became very popular in a period when systematic management of society, it was very popular in other areas too. Dewey was influent- influential in terms of how we did top down [00:40:00] education. It’s also chilling to know that Keynes was a key advocate of eugenics in this same period. In fact, later in his life from 1937 to 1944 he was the director of the British Eugenic Society. You can’t make this stuff up. There was actually a dinner club called the Malthusian League, and the Malthusian League include people like Keynes, H.G. Wells, and a lady named Margaret Sanger. They were all champions of eugenics, but if you go read Sanger’s papers in the NYU, NYU archives, Sanger says this, and I’m paraphrasing: “eugenics is fine as far as it goes, but birth control would be even more helpful in planning the direction of society.” So it wasn’t about you planning your family; Sanger wanted to plan your family.
[00:40:57] But economics has never been and will never be about [00:41:00] systematic management of anything. In fact, even the expression, the economy, that language that we throw around today, it only turns up one time in the entire general theory. When Keynes refers to the concept, he most of the time uses language like economic society. But the economy comes up on, I think it’s on page three in the general theory, because people didn’t talk about the economy as a reified entity on its own, because up until that point, the classicals and their predecessors understood that you and I, we together, individually and corporately, are the economy. In fact, in his book, Rule of Experts to Timothy Mitchell traces the history of the use of this word, the economy.
[00:41:44] So I’m at 40 minutes and I’m on the last slide, which is great. I’ll end with this note. Death is not the end of life. Our lives today, and the choices we make and what we leave for future generations, [00:42:00] those things live on after you and I literally are all dead. But we’ll never be able to return to any of these historic paradigms that I’ve talked about. The reason paradigm, the nature paradigm, the God paradigm: we are an increasingly diverse society when it comes to religion, when it comes to ideas, when it comes to cultures.
[00:42:23] So what we need to begin to try to make a way forward is have a conversation about the fundamental things most human beings are agreed about when it comes to the human person. I suggest to you that we’re not as divided as we think we are sometimes. I bet if you went out on, in Grand Rapids on a street corner, maybe not when it’s 17 degrees out, and you interviewed a hundred people and you asked them one question: do you believe that human life has intrinsic dignity? I bet you would get nearly universal agreement to that question.
[00:42:55] And if you could expand on that question to other shared visions about what a [00:43:00] human being is for, what the purpose of work is, what opportunities should look like, and why people should have those opportunities, then together we might be able to stop thinking about this construction – economic man – and instead think about our purpose, and what we’re for, beyond avoiding work, and consumption, and doing things that only lasted today.
[00:43:20] And then finally, economics just needs to be more honest. Sometimes economists like to put on their white lab coat and sound like they really know precisely what they’re talking about. They don’t, and they should be more humble about that, and they should confess that economic man is a construct that’s convenient to use, but it’s not representative of actual genuine, authentic human beings.
[00:43:43] Thanks very much. And we’ll open it up for questions.
[00:43:53]Patrick Oetting: [00:43:53] We have close to 20 minutes for Q and. A. If you raise your hand, Isaac or I will bring the mic to you.
[00:44:03] [00:44:00] Dylan Pahman: [00:44:03] Hi Victor. I’m Dylan Pahman, I work here at Acton. I had a question. I was. I was wondering, and you probably do in your book, but I was wanting, if you could get a little more into, what Keynes is actual moral vision was. Because, you know, the Bloomberg group of course rejected traditional morality, but they still had a sort of moral motive for what they were doing. Even that quote of, “in the long run, we’re all dead,” well, the context is, well, if somebody comes to you and says they’re struggling right now, it’s no comfort to say to them, well, don’t worry, you know, creative destruction, et cetera – in the long run, everything will be okay for the economy, because in the long run, that person will be dead. Right? So it was actually trying to evoke sympathy for people in the moment, you know? It might also have been flippant about longterm consequences, but, but, so there’s an interesting moral concern even in The General Theory. And then of course in his, Economic Prospects for our Grandchildren, he starts evoking even Christian sort of moral language, although in some very bizarre ways. [00:45:00] So if you could just talk more about that and how that factors into this.
[00:45:04]Victor Claar: [00:45:04] I think you’re exactly right. I think that in Keynes’ mind, he really did in many ways see himself as a moralist, and there’s an academic scholarly debate over whether or not Keynes was a further step away from the tradition of economics and moral theory, or whether it was a step back in the right direction after some of the things that the classicals had tried to do.
[00:45:24]You’re exactly right. Keynes thought the humane thing to do when people were suffering today is to relieve their suffering today. he was less concerned, you’re exactly right about, what the longer term costs might be for making the economy or individuals a little better off today.
[00:45:42] So a good parallel here might be, if there’s a medical patient who’s literally, quite literally suffering. There are some pharmaceutical things that you could do for that patient to relieve that suffering. Some of them might be neutral in terms of the patient’s longterm prospects. Some might be beneficial and some might actually give some [00:46:00] palliative care today that leads to longer term consequences in the future.
[00:46:05] And so I do think that he thought he was being merciful, and trying to care for an economy that had fallen down and it couldn’t get up, especially when The General Theory came out in the 1930s. It’s also interesting that Keynes saw himself as working against communism. So he’s quite clear in the general theory that, oh, public ownership, that’s not what we’re about here at all. But what we’d like to do is we’d like to frame institutions just so, so that these human beings who aren’t like us in the Bloomsbury group, can’t see things really clearl, bless their hearts – I lived in Arkansas for eight years, so I can say that, bless their hearts – we’ll just channel them in the right way.
[00:46:47] So we’ll frame the institution. So if we want them to head west, they’ll head west. And if we want them to make a 45 degree right turn, they will do that. So I wish I had the quote in front of me. It’s in the book. I mean, he basically [00:47:00] says it doesn’t matter who owns the means of production so long as we can, for lack of a better word, transmute human nature so that those individuals do the sorts of things that we think they should be doing. So it’s a little like um, I don’t know if you’ve ever manipulated your child for any reason – in the short term, sometimes that’s a really great thing to do, but if you do that over time, sometimes you can do some real damage to the child as a consequence and maybe even atrophy that child’s ability to make virtuous choices in the future.
[00:47:37] Questioner: [00:47:37] Oh, thank you very much. I appreciated the presentation. You mentioned the flawed anthropology of, of the gentlemen in question. we’ve also noticed in the past reading of the flood anthropology that Karl Marx had. Was there an interaction between the two? Did they talk about each other, during that time? Maybe just some of the insights that you gained in that study.
[00:47:57] Victor Claar: [00:47:57] This is a case where, if my coauthor Greg Forester [00:48:00] would hear, I would quickly defer to him, because he read more in this area than I did. I’m, I’m not – I’m not aware of how much of that sort of direct interaction there was between Keynes and Marx.
[00:48:16] Again, I do know that Keynes was opposed to communism, and he really did think that he private ownership mattered and mattered a lot, and that the means of production should be owned individually rather than collectively. But. We could, again, sort of manage the institutional arrangements rather than manage the means of production and the production itself.
[00:48:35] So, so I’m going to say that I know a lot of things about Keynes, but I’m not well positioned to answer that question.
[00:48:56] Questioner: [00:48:56] I was under the impression that FDR and the New Deal were [00:49:00] influenced by Keynes, but you talking about it and the – the dates that he lived and his influence makes me think I’m wrong.
[00:49:08] Victor Claar: [00:49:08] No, you’re not wrong at all. In fact, Keynes was also a really great marketer of ideas, and long before the general theory was published in 1936, Keynes had already been giving research seminars at places like the University of Chicago to economists like Frank Knight. And during the great depression – it’s really interesting. There’s a book by a gentleman named J. Ronnie Davis. That’s R O N N I E. J. Ronnie Davis. It’s actually his dissertation that he wrote at LSU. And I think that’s published by Iowa State University press.
[00:49:43] But J Ronnie Davis, and it’s short. He basically chronicles all of the language that the so-called free market economists were using in the run up to the publication of The General Theory. And there are these quotes that – you can make a quiz, right? Who [00:50:00] said it: Keynes Or Frank Knight? Who said it: Keynes or a Chicago School economist? And some of the quotes are things like, I can’t remember who said it, but I, but I think I am quoting directly: “economists at such a time are universally agreed that we need to spend as much as possible as soon as possible.”
[00:50:19] This is not Keynes. These are economists in the Chicago School writing letters to Congress and writing letters to the President about how much more active, especially with fiscal policy, government needs to be. So Keynes arrived on the scene at a moment when we were in a great depression. So people were sort of looking for a way out. He proposed something that we hadn’t ever proposed before, which is spending ourselves out, even if it meant incurring a debt that we might have as a consequence. And he’d also done a lot of marketing, especially in places that we would think today is historic, legendary defenders of free market economics. Even those people in their own [00:51:00] words were assertive, already making Keynesian arguments, especially where the fiscal part of it was concerned.
[00:51:08] Yes.
[00:51:08] Questioner: [00:51:08] Yes. I’m wondering, sir, why should people who are, are, advocates of a top down sort of general view of, of economic management, why should they change their, perspective, their thinking, or their behavior?
[00:51:24]Victor Claar: [00:51:24] So I think there are a couple of reasons. One is, I think, the shared understanding that I suggested we start with, right? If we can have an honest conversation about what a human being is for, whether it’s a kid in urban poverty, whether it’s a kid in rural Africa in poverty – if we have a conversation about what we aspire to for that human being, then we could work from there and ask ourselves, well, we’ve been doing these things for 40 years and they’re not working.
[00:51:51] What maybe could we do instead? Because if we agree on the goals and the investments we’re currently making are not accomplishing those goals and [00:52:00] perhaps they have unintended consequences, then maybe we need to re-examine what we’re doing and roll back some of the things that we’ve done.
[00:52:09] Now, let me be honest as an economist: there is a thing called mission creep. Once a policy entity exists, it’s really rally hard to say, well, you know, we’re spending a lot of money here and it’s not really paying off. Families do this all the time. They cancel subscriptions. They, they shop around, they’ve been spending a lot of money and they discover it’s not really effective the way they had hoped. Then they stop. That’s a much harder thing to do politically, especially since people’s jobs depend on it. And since there’s an entire lobby industry that depends on it.
[00:52:41] But I still think that even in an extremely diverse 2019 if some of the most flame throwing politicians that we know on the national scene, they could sit down and have a conversation about what the point is, [00:53:00] right? What do we really aspire to for a human being? Is work always bad? Or, so, so one hypothetical that my coauthor likes to use is, in economics, we tend to assume that a trust fund kid who gets a guaranteed 40 grand a year and does whatever he wants to do every day is better off than a trust fund kid who gets 40 grand a year and goes and volunteers and gives away some of his time, or maybe he works an hourly job.
[00:53:30] I think that’s kind of a shame, because I think that human beings are called no more than just living life however you choose. I think that work makes us better people. I think that every job that I’ve had starting at age 11 – I was a child laborer at age 11, below minimum wage – all of those job has made me better.
[00:53:49] And I like to think of work is going to the gym, right? When people go to the gym, they don’t go because they want to move a bunch of weights around. They move because they want something to happen inside of [00:54:00] them. In fact, some of you in the room might remember this old joke before Ellen DeGeneres became Ellen DeGeneres. She used to tell this joke. It was: so my mom turned 40, and when she turned 40, she decided that she was going to walk a mile every day. Well, that was three years ago, and today we don’t have any idea where she is.
[00:54:20] But, see, it’s like a 25 year old joke and it’s still great. But, but the point there is the obvious one and it’s what makes it funny. The point is that she wasn’t walking every a mile every day to get somewhere. She was walking a mile every day to make something different about who she is. And so when we work, I like to think we become more disciplined, more virtuous, more honest people in most cases. And not only that, every day that you had a bad day at work, there’s almost always somebody on the other side of that transaction who is thrilled that you were there, even though maybe it wasn’t your best day at work. But it’s, but it’s hard in 2019 to talk about [00:55:00] human anthropology. It’s really hard.
[00:55:07]Questioner: [00:55:07] Did, did Keynes before he passed, did he, maybe not recant, but soften his position about this turning of the economic dials to control things? Did, he’d maybe softened that position in that he felt that that never really should be intended as a longterm fiscal or monetary policy?
[00:55:23] Victor Claar: [00:55:23] Yeah. So originally the way that Keynes articulated, especially the deficits spending part, his theory was that, well, when we fall into a really bad recession and we do the right thing and we spend money we don’t have, but of course, once the economy recovers, there’ll be so much income, the tax base will be so much bigger, that we’ll earn more than enough money to retire that debt that we incurred during the recession. How has that worked out? It hasn’t. So I think that, I think that Keynes also had some fairly rose colored view of, views of his own, and [00:56:00] maybe saw politicians and bureaucrats as maybe slightly better people than they actually were?
[00:56:06] Because he looked around and he looked at his Bloomsbury friends and he felt pretty comfortable with them. And that if people like them were in charge, I think Keynes thought that we really would manage the economy more effectively than it’s turned out we’ve, we’ve managed economies.
[00:56:21]Patrick Oetting: [00:56:21] We have time for one more question.
[00:56:28] Questioner: [00:56:28] Uh, were there any direct interactions between the economist Ludwig von Mises and John Stewart Mill, or do they have any similar beliefs?
[00:56:36] Victor Claar: [00:56:36] That’s a really good question. And you said, Mises and Mill, right? there isn’t time for a lecture about praxyology and catalytics, so we’ll forgo that today.
[00:56:47]I do think that in many ways, Mises thought more intentionally, but again, I’m not a philosopher. I’m an economist, so I read with an economics [00:57:00] lens and not a philosophy lens. I do think that Masis was very intentional about thinking what it is that drives human beings to cooperate and to collaborate.
[00:57:10] And for Mises, it’s all very organic. If I’m not going to debt- die today, that if we can, if we can become friends, and we can find ways to protect each other so that we don’t both die today, and if society continues to do that, then not only do we survive longer, we actually develop a sense of community and fellowship.
[00:57:34] And Mises, even though sometimes Mises sounds like a very cold, clinical thinker, he pronounced those relationships that we form that unnecessarily- that, and, initially came out of our need to survive, they actually lead to the relationships that we have that are some of the most rewarding, personally gratifying things that we get to experience. But [00:58:00] it’s as a consequence of our need to collaborate because otherwise we’d be dead. Literally dead. Thank you very much.
[00:58:09] Patrick Oetting: [00:58:09] Thank you, Dr. Claar.
