This is for you TexasLogic

[Duke Silver]

From my brother, who is a huge economics nerd.

http://cafehayek.com/2011/04/the-fig...century-2.html

[MissionsBack2BackChamps]

Our current Keynesian system is truly a fixed game. The thread winds through Tim Geithner, Bear Stearns, AIG and the New York Fed. This nexus is vile and disgusting. Obama was the chosen one and he was not likely going to beat McCain on foreign policy, but the economy.....yeah....that was where the Obama campaign could own McCain. As a result, we elected a president that no one really knew much about. Pay attention to the man behind the curtain.

[TexasLogic]

Originally Posted by Duke Silver

From my brother, who is a huge economics nerd.

http://cafehayek.com/2011/04/the-fig...century-2.html

Now I've seen it all -- a rap video with mention of both Malthus and Say.

I'd have paid money to see the real thing. Keynes was brilliant, but Hayek had considerably more formal economic training and intellectual chops. My money would be on Hayek.

My favorite Hayek quote about Keynes: “John Stuart Mill’s profound insight that demand for commodities is not demand for labour, which Leslie Stephen could in 1878 still describe as the doctrine whose “complete apprehension is, perhaps, the best test of a sound economist”, remained for Keynes an incomprehensible absurdity.”

[Duke Silver]

Originally Posted by TexasLogic

My favorite Hayek quote about Keynes: “John Stuart Mill’s profound insight that demand for commodities is not demand for labour, which Leslie Stephen could in 1878 still describe as the doctrine whose “complete apprehension is, perhaps, the best test of a sound economist”, remained for Keynes an incomprehensible absurdity.”

Elaborate please.

[TENHORN]

Maybe "translate" would be better.

[TexasLogic]

Originally Posted by Duke Silver

Elaborate please.

Oh brother, you would ask that!

Keynes asserted that employment was always increased through increases in demand for commodities and other consumer goods, i.e, demand for commodities / goods were solely dependent on investment. Thus, investment was the sole determinant for increasing demand and reaching full employment. All other factors for aggregate demand and employment (prices, productivity, money supply / interest, innovation / technological advances, obsolescence, etc.) were ignored. In the quote I posted, Hayek is pointing out that Keynes' theory was a direct contradiction of John Stuart Mills’ previously accepted (and proven) theory on how demand correlates with employment.

I’m just a layman and struggle to understand much of the technical aspects of a lot of this stuff. I probably shouldn’t be trying to explain it. Here is an excerpt from a fascinating PBS interview in which Milton Friedman (a former Keynesian who later debunked the mathematical model [Phillip’s Curve] that proved Keynesian Theory before the Phillip’s Curve and Keynesian Theory were officially debunked in practice in both the U.S. and Great Britain in the 1970s). This is the bulk of his answer to a question about Keynesianism: http://www.pbs.org/wgbh/commandinghe...riedman.html#4

“Now the crucial issue is, which is more important in determining the short-run course of the economy? What happens to investment on the one hand, or what happens to the quantity of money on the other hand? What happens to fiscal policy on the one hand, or what happens to monetary policy on the other hand? And the facts that led me to believe that his hypothesis was not correct was that again and again it turned out that what happened to the quantity of money was far more important than what was happening to investments. The essential difference between the Keynesian theory and the pre-Keynesian, or the monetarist theory, as it was developed, is whether what's important to understanding the short-run movements of the economy is the relation between the flow of investments -- the amount of money being spent on new investments, on the one hand, or the flow of money, the quantity of money in the economy and what's happening to it. By the quantity of money I just mean the cash that people count, carry around in their pockets and the deposits that they have in banks on which they can write checks. That's the quantity of money. And the quantity of money is controlled by monetary policy. On the investment side the flow of investment is controlled by private individuals, but is also affected by fiscal policy, by government taxing and government spending. The essential Keynesian argument, the basic Keynesian argument, was that the way to affect what happened to the economy as a whole, not to a particular part of it, but to the level of income, of employment and so on, was through fiscal policy, through changing government taxes and spending. The argument from the monetarists' side was that what was more important was what was happening to the quantity of money, monetary policy on that side. And so, as I examined the facts about these phenomena, it more and more became clear that what was important was the flow of money as compared to the flow of government spending, and when fiscal policy and monetary policy went in the same direction, you couldn't tell which was more important. But if you looked at those periods when fiscal policy went in one direction and monetary policy went in another direction, invariably it was what happened to monetary policy that determined matters. The public event that changed the opinion of the profession and of people at large was the stagflation of the 1970s, because under the Keynesian view, that was a period in which you had a very expansive fiscal policy, in which you should have had a great expansion in the economy. And instead you had two things at the same time, which under the Keynesian view would have been impossible: You had stagnation in the economy, a high level of unemployment. You had inflation with prices rising rapidly. We had predicted in advance that that would be what happened, and when it happened, it was very effective in leading people to believe that, maybe, there was something to what before had been regarded as utter nonsense.”

Also, Hayek’s view on Keynesian Theory: http://hayekcenter.org/?p=38