Wisdom – Friedrich Hayek on Keynesian Economics

As Friedrich Hayek, shown to the left with President Reagan, pointed out in many articles and books, Keynesian economics cannot work and never worked. Below is a particularly pertinent quote regarding how things have been made worse by government stimulus efforts.

Keynesian fail – manipulating “aggregate demand” does not equalibrate the supply and demand for inputs

by Greg Ransom

A basic understanding of the price mechanism exposes the pseudo-science of Keynesian economics:

It was John Maynard Keynes .. who ultimately succeeded in rehabilitating a view long the preserve of cranks ..  He had attempted by a succession of new theories to justify the same, superficially persuasive, intuitive belief that had been held by many practical men before, but that will not withstand rigorous analysis of the price mechanism: just as there cannot be a uniform price for all kinds of labour, an equality of demand and supply for labour in general cannot be secured by managing aggregate demand.  The volume of employment depends on the correspondence of demand and supply in each sector of the economy, and therefore on the wage structure and the distribution of demand between the sectors.  The consequence is that over a longer period the Keynesians remedy does not cure unemployment but makes it worse.

It’s your Hayek Quote of The Day courtesy of Economic Thought.

Share/Save