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Keynesian Leadership: As Sound as the Dollar

Gary North
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Reality Check (Nov. 29, 2012)

In the fourth quarter of 2008, the whole world turned to the central banks for deliverance. The central banks responded with the largest monetary expansion in the post-World War II era. All but Austrian School economists either applauded -- Keynesians and monetarists -- or else remained mute. The politicians did the same. Economic intellectual leaders invoked their central confession of faith: "salvation by monetary inflation." They spoke on behalf of their followers -- the whole world -- in the name of their sovereign masters: central bankers. That is what leaders do: they represent.

Lesson: choose your representatives wisely. You are always at risk of betrayal.

Everyone is a follower. There is no escape from this. This world is a series of hierarchies, and everyone belongs to several of them. Some are automatic at birth; others are automatic when you become an adult. You have the option of switching allegiances, but you do not have the option of avoiding allegiances.

Therefore, among the most fundamental and long-lasting decisions that anyone makes is deciding which leader to follow. A woman makes this decision when she decides to marry. A man makes this decision when he decides to go to work for a company. Everyone makes this decision with respect to belief in fundamental principles of life, which people may or may not believe are grounded in a superior force, whether God, society, or economics. As Bob Dylan wrote a quarter-century ago, you have to serve someone.

In making decisions regarding which intellectual leader to follow, you would be wise to take a close look at how that leader responds to criticism. If a leader asks you to commit to some supposedly unstoppable, irresistible, inevitable force in history, you would be wise to see how he defends his proposition whenever that proposition, or perhaps only his version of it, comes under assault by critics.

If the leader gives as good as he gets, if he can defend himself effectively against all comers, and if you can actually understand both the critics and the leader's response, then you have a pretty good reason to either sign up as a follower or re-enlist. If the leader is an intellectual, and he provides intellectual defenses of his position, that is a good sign. If he is prominent enough to warrant organized attacks against his position, this indicates that you have committed yourself to somebody who is a serious contender.

There can be serious contenders who do not get a lot of criticism. This may be the early stages of the movement. Or, for multiple reasons, the individual is not well known in those circles which would be most likely to provide critics. Then there is this possibility: the critics know better than to take on this person in full public view, because he will hand their heads to them. This is fairly rare, because most intellectuals are sufficiently confident of their abilities, whether or not they possess significant abilities, so that they rush in where angels fear to tread. They go on the offensive, and they find that they were not equipped to handle the defender.


Sometimes this can lead to amusing consequences. A generation ago, there was a debate team that defended the six-day creation on college campuses. One member was a Ph.D. in hydraulics. His name was Henry Morris. The other was a Ph.D. in biology. His name was Duane Gish. They were not famous scientists, but they were competent in their fields, and they had devoted their lives to defending a position. They had honed their debating skills to a point where they were formidable. They understood that all they had to do was convince over half of an audience of college students in 90 minutes that their opponents were ill-equipped in the debate. This did not mean that they converted the audience to the six-day creation. It did mean that they gave a good account of themselves. They practiced their skills for decades.

They used these debates to get donations from followers. They used tenured academics as sacrificial lambs. The lambs kept showing up. Sheep are stupid creatures. So are tenured academics, rhetorically speaking. There were some very embarrassed university professors who did not take the challenge seriously, and were not skilled debaters. They had their heads handed to them by Morris and Gish. This went on for decades. Morris and Gish were not famous, so the academic suicidal tag teams did not bother to get audiotapes of half a dozen previous debates. If they had, they might not have taken up the challenge, but in any case, they would have prepared to meet the responses, thereby giving a better account of themselves. But they were arrogant, and they suffered the consequences.

What will you learn early in graduate school, or even as an undergraduate, is that most academics are not very effective speakers. They are boring. They were boring as graduate students, and they are boring after 30 years of droning on and on in front of captive audiences. There are only a comparative handful of individuals who ever become skilled debaters, and I don't think there are ever more than 20% of the performers in any profession are very good in front of an audience. Once in a while, you find somebody in the top 5%, and you remember this person.


The result in every field is the same: a handful of articulate individuals represent the profession to the general public. When they make serious gaffes, the profession tends to cover for them. The troops form a defensive circle around a temporarily upended representative, because not to do so would be an admission that they had selected an incompetent as their representative. So, no matter what his personal behavior is, no matter what he said in public off-the-cuff, he gets away with it.

This is not true if he crosses some sacred barrier, thereby becoming profane. When in 2005 the president of Harvard University, Larry Summers, made an offhand comment that very few women are among the best scientists and engineers, and this is because women generally lack the necessary mental skills, he was forced to step down from the presidency of Harvard. He now has a less prestigious position, advising President Obama. When you're the president of Harvard University, such a reduction of status is highly embarrassing.

Followers have a problem. The longer a person is committed to a particular position, the more expensive it is for him to switch his views. It is not simply that he has sunk years of faith in the position. It is that he has structured his thinking in terms of the presuppositions and arguments of the position. So, if he abandons the position, he must re-think almost everything that he has regarded as true. This is an example of the old saying: "You cannot change just one thing." You cannot change just one idea.

So, people who convert to a rival position in their old age are rare. In 2009, a follower of Milton Friedman did this: Judge Richard Posner. At age 70, he switched to Keynesianism. He had been a leading intellectual in the field of law and economics, in fact one of the pioneers. He was a federal judge. Since then, he has not bothered to go into print refuting everything that he had written for the previous 40 years, because he had written a great deal. Anyone who would follow him now would be taking on a spent force. Virtually everything he has written testifies against the truth of the position which he now maintains. He does not have enough energy, or enough time, or enough motivation to go back and rewrite everything that he had written, yet that is what is required whenever a leading author recants from his earlier position.

When you adopt an ideological position, especially if it has broad implications for society in general, you had better pick someone within the movement who is competent to defend it. If not, you will be left high and dry if he comes under criticism, and he then proves incapable of effectively defending his (your) position. If he becomes the target of a more competent person intellectually, especially one with superior rhetorical skills, and, worst of all, someone who is widely respected by people inside and outside of the particular movement, he had still better be able to defend himself effectively, given his intellectual limitations. Someone else may be smarter, but wrong. The defender had better be able to see the hot-shot's Achilles heel.

From time to time, we see cases of individuals who overrate their abilities, who gather large followings, and who then, like Goliath, take on some supposedly helpless David. They wind up flattened, and sometimes beheaded.

Within a particular movement, if the fallen hero is visibly beheaded, the secondary leaders in the movement quietly disperse. They do not mention the fallen state of their previous spokesman. They pretend that the corpse in the field, missing its head, belongs to somebody else. They may even pretend that the confrontation had never taken place.


In the world of economic thought, the Keynesians are the Philistines of this era. Keynes was the original Goliath. Unfortunately, the man who was widely regarded as David, F. A. Hayek, neglected to challenge Keynes after the publication of Keynes's General Theory in 1936. This was not simply a tactical error; it was a strategic error. Hayek never did recover from that error. It was not that he could not defend his position. It was not that he could not critique Keynes. It was that he never sat down and wrote a detailed book that line by line refuted The General Theory. That was what was needed. Others did, but they were not famous.

An economist named Arthur Marget responded within two years with volume I of a a two-volume refutation, The Theory of Prices. But nobody had heard of Marget, and even today, almost nobody has ever heard of his book. I convinced Jeffrey Tucker of the Mises Institute to post a PDF copy on the website of the Mises Institute. But since almost nobody has ever heard of Arthur Marget or his book, the book is not downloaded, printed out, marked up, and cited in footnotes. That was true in 1942, and it is true today.

Keynes got a free ride. The pressures of World War II justified the fact that he did not respond to critics, because he was busy running the British Treasury. He died in 1946. Two years later, Paul Samuelson wrote the most successful college textbook in economics ever written, and from that point on, Keynesianism in general got a free ride.


Ludwig von Mises was an effective writer and defender of his position. But that position was far out of touch with mainstream economics. He was relegated after 1945 to an unpaid teaching position at a third-rate university. So, nobody paid any attention to his comprehensive refutation of all other economic systems, which was simultaneously a comprehensive presentation of a comprehensive alternative system. His book, Human Action, was published in 1949. Only a few people read it, and these people tended not to be inside academia. It sold better than expected, but it surely was not a best seller.

The main thing that saved Mises was the fact that the editor at Yale University Press liked his books, and his books sold well enough to justify keeping them in print. Even so, that did not protect Mises. In 1963, Yale published what has to be the worst typeset book in its history, and perhaps in the history of any university press. It was a botched second edition of Human Action. It was so ghastly that Mises was able to persuade Regnery Books to publish the third edition three years later, but Regnery still had to make payments to Yale University Press for the privilege of doing so. This is a true academic horror story, as Henry Hazlitt announced it in the pages of National Review in 1964, but the incident is long forgotten.

In the early 1960s, his disciple Murray Rothbard began a lifelong defense of the main tenets of Mises' economic thought. Rothbard was a superior writer to Mises (and everyone else), and a highly skilled polemicist. But he was even more out of the mainstream than Mises had been. He was relegated to the true fringes of academia, Brooklyn Polytechnic University, which did not even offer a major in economics.

Rothbard did not have access to any university press, except for The Panic of 1819, his Ph. D. Dissertation, in 1962, before he became a pariah. His early books were published mainly by financial support from the Volker Fund, and then from minor commercial publishing houses. He did not gain much attention. It was not that he could not fight the good fight. It was that nobody let him into the ring to challenge him. He could have said, as Marlon Brando said in On the Waterfront, "I could have been a contender." It was not that he was told to throw a fight. It was that nobody let him into the ring.

The advantage for those of us who became followers of Austrian School economics at an early age was this: we never had to apologize for being followers of economic theorists who were skilled intellectually, rhetorically, and conceptually as Mises and Rothbard were. Even Hayek usually gave a good account of himself, throwing only one major fight: the final third of his book, The Constitution of Liberty (1960), where he surrendered to the concept of the welfare state.

The great advantage that Austrian School economists have had from the beginning is this: Keynesianism is incoherent. Furthermore, whenever Chicago School economists write for other economists, they also become incoherent. They adopt the formulas and jargon of the Keynesian-dominated economics profession. Tenured professors deem it unworthy to be able to communicate in the language of the people. That was pointed out a generation ago by tenured socialist at Harvard University, John Kenneth Galbraith. Galbraith was an effective writer, and he always wrote so the intelligent non-economists could understand him. He was therefore considered highly suspect by the profession, despite his tenured position at Harvard. The reason why they distrusted them was because his books sold so well.

Keynesians have had a free ride for so long, except for peripheral challenges from Chicago School monetarists, that they have grown intellectually flabby. They don't engage in any serious academic debates that are not sanctioned by the American Economic Association or some equivalent academic trade association. They operate in terms of a government-protected cartel (academic accreditation), and that cartel is mostly funded by taxpayer money. Thus, a comprehensive critique of state education, state regulation, and state everything else never gets into a textbook that is assigned by economics departments. Students are never introduced to a comprehensive refutation of the Keynesian worldview. At best, they are introduced to a few peripheral examples of criticisms, made in terms of the methodology of Keynesianism, from Chicago School economists or, very occasionally, public choice economists.

Those of us who are followers of Mises and Rothbard, especially those of us who became followers a generation ago, are not distressed by the fact that our most prominent representatives have been excluded from the ring in which ideological pugilists fight it out with each other. We know why this is the case. To allow someone like Mises or Rothbard into the ring would be to acknowledge that there is a developed economic position which is opposed to the mixed-economy policies of Keynesian economics, and which is also opposed to the mixed-monetary policies of the Chicago School. To let someone like Mises into the ring would be to give him an audience. That is the last thing the Keynesians ever wanted to do.

This was discussed in detail in an article that was published in 1990, not in an academic economics publication, but in The New Yorker. The author was Robert Heilbroner, the multimillionaire socialist who got rich from his book's royalties, The Worldly Philosophers. In that article, he admitted that Mises had been right from 1920 to 1990 about the inability of socialists to devise a system of rational economic calculation. He described how the entire economics profession had dismissed Mises' arguments, and which instead had substituted the arguments of a Communist economist, Oskar Lange.


Lange is my favorite example of how somebody was given a cover by the economics guild. When, in the mid-1930s, he made his challenge to Mises, he was brought to the USA on a Rockefeller grant in 1937. So impressed was the University of Chicago's department of economics with his refutation of Mises that it gave him a professorship in 1938. But in 1945, when the Soviet Union took over Poland, he renounced his American citizenship, returned to Poland, and became a high-level state functionary. Comrade Stalin had personally requested this. How could any loyal Communist refuse?

At no time did Poland or any other Communist or socialist nation use Lange's proposed theoretical solution to Mises' criticisms: a system of trial-and-error pricing. His theory was both conceptually wrong and useless in practice. Nevertheless, in college-level economics textbooks today, Mises is mentioned, if at all, only in relation to Lange's supposedly successful refutation. His Communist connection is never mentioned. It is as if he were just another neutral participant in the academic guild, criticizing a clearly misguided defender of the free market, whose argument had never been right.

Just five years after Lange departed, in 1950, the University of Chicago's economics department refused to give Hayek a position. He did not meet their standards of scholarship. But a Communist hack had. This gives you some indication of the hostility of the Chicago School economists to any challenge to socialism from the Austrian School camp. "Better a Commie hack than Hayek!"

Heilbroner in 1990 wrote the dreaded three-word phrase: "Mises was right." This admission immediately went down the academic memory hole.


The most recent example of the way the academic game is played is the refusal of Princeton economist and Nobel Prize winner Paul Krugman to acknowledge the existence of Robert Murphy. Murphy has challenged him to a public debate, and Krugman has not merely run for cover, he will not even admit that the challenge was made. Murphy has gotten a bunch of us to pledge irrevocable money to give to charity if Krugman ever shows up to the debate. We think of it as a boxing match's purse. ( With over $80,000 on the line, Krugman is playing the ancient academic game, silence is golden. But it is not golden in this case. It is yellow.

Keynesians are notoriously inarticulate. I can see why the typical Keynesian would not take up Murphy's challenge, because Murphy, being an Austrian School economist, and being in a minority position for years, has honed his skills of debate. He would not waste his time on your standard Keynesian economist, because beating up a Keynesian economist in full public view is like smashing your fist into a bowl of Jell-O. On the other hand, beating Paul Krugman to a pulp in full public view, to be posted on YouTube within an hour, would be a delightful opportunity for Murphy, and it would be a disaster for Krugman. So, Krugman plays the academic game. "Murphy? Who's Murphy?"

As for the children or other poor people who might have been aided by $80,000, Krugman's inaction speaks for all Keynesians: "Let the hungry masses starve unless the federal government is running a deficit to feed them." It's not that Keynesians want to keep people from starving; it's that Keynesians want to keep government deficits running, to goose the economy. The deficits keep the stagnation going even longer. Then Keynesians blame insufficient deficits for this continuing stagnation.

Krugman is basically a Goliath who is smart enough to pretend that David didn't issue this challenge. Krugman is not some obscure tenured economist; he is the front man for the entire profession. He writes a column in the New York Times. He actually can speak in English. But he is incapable of defending the position against somebody who also speaks in English, and who can use economic logic to expose as intellectually incoherent the non-economic logic of the Keynesian position.

Krugman is a Goliath who struts onto the field of battle, but when David shows up, pretends that David isn't there. He doesn't verbally challenge anybody to refute him in his columns. In this sense, he is not like the original Goliath. But he keeps verbally attacking unnamed people who do not agree with his policies of high taxation, massive deficits, and enough inflation to keep the system going. He doesn't name his victims, for obvious reasons: one of them might actually respond.

Back in the late 1960s, I took a graduate seminar in sociology from Robert Nisbet. He described an incident from his academic days at Berkeley. He was sitting in the cafeteria with a colleague, and they were watching another colleague who was seated in another table. Around this colleague were gathered half a dozen rapt graduate students. The man Nisbet was sitting with made this remark: "There is a fake giant surrounded by real pygmies." That quip has stayed with me for almost half a century. I think it applies to Paul Krugman as well as to any academic in our day.

Anyone who would be unwise enough to let Paul Krugman represent his position is skating on thin ice. The economy will eventually provide the blowtorch which demonstrates to all the thinness of that ice.


You would be wise to select your worldview in terms of intellectual representatives who can give a good account of this position, defend this position against all comers, and, most of all, decide strategically which audience is worth persuading, and which battlefield will prove to be the decisive one. Sooner or later, there will be the equivalent of the Battle of the Bulge. In economic affairs, that day will come when Washington's checks start bouncing. That day is coming. Be prepared.

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