Free Market Economics vs Keynes

I realise how tedious all this maundering on about Keynesian economics is for some people, which I do go on about. But the thing is, you will not find this discussed anywhere else in the world. This is said more in amazement than anything else, but there is virtually no one else anywhere that I can see who is as focused on the damage caused by modern macro, with the reality being that virtually no one, even among economists who think they are non-Keynesian, can see the problem with macroeconomic theory unless they also understand Say’s Law and the classical theory of the cycle.

All this has come to mind with the publication of The Elgar Companion to John Maynard Keynes for which I received notice just yesterday. This may be compared and contrasted with my own What’s Wrong with Keynesian Economic Theory? which was published in 2016.

With this in mind, let me again mention the article I did for the March Quadrant on The Dangerous Persistence of Keynesian Economics. It is in my view the best short statement I have ever managed to put together to contrast the classical approach to economic theory with the modern. If you are at all interested in these kinds of issues, you should read it. And let me emphasise that to understand classical economics properly you must understand Say’s Law in its true meaning, which you will not find by reading Keynes or any mainstream economist since the 1930s. One of those who does understand Say’s Law is Arthur Laffer – the Laffer of the Laffer curve – whose comment on my book is found below.

His comment is found in the advertising notice sent out just yesterday by Edward Elgar on my Free Market Economics. They describe the book as “Austrian”, which is accurate enough since Austrian economics is the last variant of classical theory that remains alive today. My approach, however, comes through a different line of descent, from the greatest economist who has ever lived, John Stuart Mill. That is why there is no other book in the world like mine. Don’t take my word for it; this is from just yesterday in the comments:


Steve I bought a copy of your book a few years back and thoroughly enjoyed it. It gave me clear lines of argument to use against the mob when they tell me how awesome the NBN is, or how 27 years without a recession is a great thing etc. great book, keep on fighting the good fight

This was the notice put up by Elgar.

It’s not too late to order your exam copies.

If you’re teaching Austrian or Public Choice Economics next semester and you’re planning the course reading list, take a look at the textbook offering below from Edward Elgar.

Free Market Economics, Third Edition

An Introduction for the General Reader

Steven Kates, RMIT University, Australia

‘This book presents the very embodiment of supply-side economics. At its very core is the entrepreneur trying to work out what to do in a world of deep uncertainty in which the future cannot be known. Crucially, the book is entirely un-Keynesian, restoring Say’s Law to the centre of economic theory, with its focus on value-adding production as the source of demand. If you would like to understand how an economy actually works, this is one of the few places I know of where you can find out.’

– Arthur B. Laffer, Laffer Associates, US

In this thoroughly updated third edition of Free Market Economics, Steven Kates assesses economic principles based on classical economic theory. Rejecting mainstream Keynesian and neoclassical approaches even though they are thoroughly covered in the text, Kates instead looks at economics from the perspective of an entrepreneur making decisions in a world where the future is unknown, innovation is a continuous process and the future is being created before it can be understood.

The aim of this book is to redirect the attention of economists and policy makers towards the economic theories that prevailed in earlier times. Their problems were little different from ours but their way of understanding the operation of an economy and dealing with those problems was completely different.

Free Market Economics, Third Edition will help students and general readers understand classical economic theory, written by someone who believes that this now-discarded approach to economic thought was superior to what is found in most of our textbooks today.

Key features:

  • analysis derived from the theories of pre-Keynesian classical economists, as this is the only source available today that explains the classical pre-Keynesian theory of the business cycle
  • a focus on the entrepreneur as the driving force in economic activity rather than on anonymous ‘forces’ as found in most economic theory today
  • introduces a powerful though simplified model to explain the difference between modern theory of recession and classical theory of the business cycle
  • great emphasis is placed on the consequences of decision making under uncertainty
  • offers an introductory understanding, accessible to the non-specialist reader.

And if you would like to buy a copy of the book you can locate one here. Digital copies are also available.

AND A BIT MORE ALONG THE SAME LINES: Something most assuredly goes wrong after 2008-09. GDP growth per capita never gets back to where it was. And even the after data are tainted by GDP figures that overstate growth because of the wasted “stimulus” expenditure which is recorded as GDP but adds nothing to the real level of production.

The data were put together by the IPA.

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7 Responses to Free Market Economics vs Keynes

  1. stackja

    Keynes books are in the fiction section? Again if Keynes is the solution? Why is there still a problem?

  2. sfw

    I’d like to buy it but it costs anywhere between $76 and $120, way too dear for the likes of me.

  3. Overburdened

    Keep beating your drum.
    When the imminent reckoning arrives whatever you think won’t be a comfort, unless you think the same story will be the remedy.

  4. Arky

    Bagehot begins by asking why there is a cycle at all. He answers by providing two basic principles that underpin the performance of an economy.

    There is a cycle because it is a natural system and has a harmonic frequency.
    Like being stuck in traffic congestion. The traffic does not slow to a lower and lower speed. It slows to a surging stop- start harmonic. The solution isn’t to put more energy into the system, which is analogous to stimulus. The solution is to damp the system.
    Like a shock absorber.

  5. Arky

    In order to damp an economy you would need to introduce something that slowed the speed of change.
    Less speculation, more investment, more certainty, less policy changes.
    Like anything it is a trade off: the more quickly an economy can gear up and change, the more prone it must be to recession.
    You can’t have maximum growth and maximum certainty.

  6. sdfc

    When I tell people this, they do actually understand.

    That’s because it’s bollocks.

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