Keynes’s 1933 letter to Harlan McCracken

The letter you see I uncovered in 2008 in the Harlan Linneus McCracken Archive at Louisiana State University, which has now been published in the March 2019 issue of the Journal of the History of Economic Thought. It has already been published by me, but only in black and white. Here we see the letter as it actually is. If you would like to read more fully of the letter’s significance, you can go to:

Kates, Steven. 2008. “A Letter from Keynes to Harlan McCracken Dated 31st August 1933: Why the Standard Story on the Origins of the General Theory Needs to Be Rewritten.” History of Economics Review 47: 20–38.

The letter would be momentous were it not for the fact that it reveals that Keynes with certainty was reading other sources than those he had previously owned up to in writing The General Theory, which he commenced working on in 1932 and which was finally published in 1936. The letter substantiates virtually beyond argument – there is always an argument – that Keynes took up the notion of demand deficiency because he had been reading Malthus at the time. Malthus had been the single most important economist during the nineteenth century to have argued for the relevance of demand deficiency as a cause of recession and unemployment . Virtually every other economist at the time and through to 1936 thought Malthus was completely wrong. It was unanimously agreed among mainstream economists that the notion of demand deficiency was totally false.

Going further, it was from McCracken that Keynes took his definition of Say’s Law: “supply creates its own demand”. These words are found for the first time ever as a definition of Say’s Law in the very book Keynes is thanking McCracken for having sent to him and which he had “now read”.

The article the letter is attached to, and now published in the Journal of the History of Economic Thought, was written to demonstrate that “Say’s” Law not was invented by J.B. Say. No understanding of the classical meaning of Say’s Law can be found other than by going through the literature that followed the publication of Malthus’s Principles in 1820, not by reading Say’s Treatise, whose first edition was published in 1803. Moreover, “Say’s Law” was the name applied to this concept for the first time by Fred Taylor in the twentieth century. It was not a classical term. Keynes took the phrase “Say’s Law” from Taylor or from one of Taylor’s contemporaries. I am near enough the only person from whom this can be found out. Virtually no one else will even repeat it, and certainly no one is capable of refuting it since the term never shows up anywhere until it was coined by Taylor. Beyond that, no one ever said “supply creates its own demand” in relation to Say’s Law until it was said by McCracken.

You would not think there would be such a cover-up in something as esoteric as the History of Economic Thought, but the implications are explosive, the more so to the extent that others might begin to appreciate there is more in pre-Keynesian economic theory than anyone since 1936 has given it credit for.

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10 Responses to Keynes’s 1933 letter to Harlan McCracken

  1. stackja

    Again I ask the question, if Keynes was the solution? Why is there still a problem?

  2. RobK

    Interesting. Thanks Steve.

  3. Infidel Tiger

    I knew Harlan’s brother Phil.

  4. Tator

    Infidel Tiger, and his good mate, Ben Dover.
    My wonderment is how did Keynes get so prominent in the Economics world when everyone beforehand disagreed with him and how could people let such a charlatans work continue so long and create so much fiscal damage. It’s like some of these Kardashians out in Arsebook land quoting Professor Bill Mitchell and his “wonderful MMT” and claiming it is economics gospel.

  5. John Bayley

    My wonderment is how did Keynes get so prominent in the Economics world when everyone beforehand disagreed with him..

    I think this can be explained by the relentless growth in the size and reach of government that occurred after WWII and has not really stopped since.
    Keynesian economics is beloved by politicians of all colours because it gives them a ‘scientific’ justification for why the State should be involved in ‘managing’ the economy.
    In other words, Keynes was an apologist for, and proponent of, socialism. His successors, the Neo- and Post-Keynesian schools, of which the rehashed chartalism, this days known as MMT, is one, have just taken this to the ‘logical’ next step.

  6. Rtp

    Isn’t it easier to, instead of explaining Say, to just point out that demand is, by definition, a relative concept (how much of something you will sacrifice to get a different thing(s))? As it’s a relative concept you cannot aggregate it so “aggregate demand” is the same as dividing by zero.

  7. Bones

    To those inclined to agree with John Bayley above, I refer you to my post of yesterday which I unwittingly posted under “Windwatch”.

  8. Mark M

    ANNALS OF GOVERNMENT MEDICINE

    The Rolling Stones are still touring after all these years.

    But a week ago, they announced a postponement of their upcoming North American concert series because of a heart condition suffered by Mick Jagger.

    Then, only days later, it was announced that Jagger had undergone a successful transcatheter aortic valve replacement procedure.

    https://www.powerlineblog.com/archives/2019/04/annals-of-government-medicine-27.php

    The Rolling Stones have always had a good appreciation of the virtues of free enterprise.

    John Phelan, the British economist who works for my organization, likes to quote Keith Richards:

    “The whole business thing is predicated a lot on the tax laws…It’s why we rehearse in Canada and not in the U.S.

    A lot of our astute moves have been basically keeping up with tax laws, where to go, where not to put it.

    Whether to sit on it or not.

    We left England because we’d be paying 98 cents on the dollar.

    We left, and they lost out.

    No taxes at all.”

    Somewhere some economist is rolling in his grave, scratching at the lid.

  9. Bones

    Go Keith!

    My understanding is that Keith Richards never had a job. Not many people can live life on their terms and their terms alone as Keith has.

    For a wonderful few hours read his biography, very readable and enjoyable.

    One yarn is that when the money began to roll in, Keith allegedly bought a vintage open wheeler Bentley, a cracker of a vehicle with plenty of oomph. However it had a crash gearbox which was difficult to navigate, so he drove it into a ditch and made his way home by other means.
    Keith has been reported as having said “I am glad to be anywhere”.

  10. Just goes to show Keynes was a crank all along; he really only did two semesters of economics at university, post grad micro economics and macroeconomics, one subject a semester each.

    Why anything he wrote other than his Versailles Treaty is taken seriously is bewildering to the studious, unworldly and earnest, the reason really is simply because politicians like the cretins noted above like ideas like endless debt, pump priming and MMT.

    Name a “Keynesian” government that has ever repaid back debt. GO!!!

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