From Section V.2E of II.1 (“The Problem of Scale (Part I)”)
Considering “The General Theory” of Lord Keynes
³⁷⁸Let us now explore the possibility that Keynes is right about DEH but overly optimistic about the State’s ability to create demand (which would mean WWII helped us out of the Great Depression more so than FDR). This could be the worst of all possible worlds, but I fear it’s a possibility we must take seriously. It could be the case that Conservative economists are correct about the inefficient of the State, while more Liberal economists are correct that the market isn’t always self-correcting. To use Hayek as a placeholder for Conservative thought, it could be that Hayek was right about the State but let’s say wrong about “market self-correction,” while Keynes was wrong about the State but right about DEH.
Keynes believed the government could create the demand needed to keep the market from falling below the DEH or to help the market recover back above the DEH, at which point it would begin taking care of itself again. But if Keynes was right about the DEH but wrong about the possibility of the State creating demand, then that would mean for a society to fall below the DHE would be for the society to fall beyond the State’s help. Thinkers like Hayek were perhaps right that the State theoretically could create demand, but practically they would always fail. Why? Perhaps because the information needed to do this well is too great for the State to ever-garner and/or organize as effectively as price mechanisms; perhaps because political realities will come crashing in and use Keynesianism to justify “The Great Society” of Lyndon Johnson when it only should have justified “The New Deal” of Franklin Roosevelt — numerous possibilities could be presented. Here, it is tempting to deeply review Hayekian thought, but it is my hope that enough of the case has been made throughout O.G. Rose to save us that effort here. Still, I’ll briefly cover three main points from Hayek against the possibility of the State effectively managing and stimulating the economy…
For the full piece, which is on Substack due to formatting issues, please see: