“Bold and pretentious statements abound”

This was the start of the review of my book on Classical Economic Theory and the Modern Economy provided by EH.Net to the Societies for the History of Economics online list:

This book is about how little Steven Kates thinks of the “modern economy,” an umbrella term for all variants of Keynesian economics. Bold and pretentious statements abound. “Just about the whole of modern economic theory is perniciously wrong … there is virtually nothing useful one can learn from a modern economics text in how to manage an economy” (p. 1). “Economists know nothing whatsoever about the analytical depth of the classical economists” (p. 16). Kates aims “to explain why classical economics is vastly superior” (p. 17). Kates wants to convince us that he is “almost uniquely placed” to do so, though he acknowledges “how obscure [he is] within the world of economics” and notes that “virtually no one sees things as [he does]” (p. 17). This does not prevent him from boasting about how, as chief economist of Australia’s national employers’ association, he “never made a single wrong call on the economy or the effects of public policy” (p. 20). Unfortunately, the book is filled with errors. Relevant quotes and texts are omitted or distorted for the sole purpose of justifying his anti-Keynesian narrative.

As you may see, not a positive review. He describes my discussion of  my record of accurately predicting the harmful consequences of using Keynesian policies as “boastful”, but at least it’s accurate which you would think would count for something. Because economists are so convinced that their theories are right, they never, and I mean never, go back for a post mortem to see what went wrong. And what I point to is not just failures, but also to the phenomenal success of Peter Costello’s economic management from 1996 onwards where the economy ripped along not only with zero deficits year after year but also zero debt! Anyway, I have written my book and this chap speaks for almost the entire profession in his review. At least writing for an Australian audience here at Catallaxy, there will be at least some memory of much of what I write. Also, you should go to the article at Quadrant if you would like to see not just what I wrote but also how I wrote. The difficulty in cutting through their arrogant ignorance is just how it is.

_____________My reply to the review is found below

Suppose I believe, as I do believe, that economic theory reached its highest level of analytical power in the economic theory of the mid-to-late-nineteenth century, and especially with the economic theory presented by John Stuart Mill in his Principles of Political Economy first published in 1848, how would I go about saying so? Suppose going further, I had come to believe, based on having reached this conclusion, that virtually the whole of modern economic theory is vastly inferior to economic theory of the mid-to-late nineteenth century, how exactly should I go about trying to explain what I think to others? Suppose, as in fact is actually how things have turned out, that I had concluded that a student of modern economics, who studies modern macro and micro, is by that very fact, unable to read a nineteenth century economics text and understand what it says, how should I have tried to express those thoughts to others? This was the dilemma I faced and Classical Economic Theory and the Modern Economy is how I went about trying to resolve these problems.

The sad but for me not surprising part is that it would be very difficult for a modern economist to make sense of what I am saying, as Guy Numa in the review of my book has so clearly shown. Perhaps I should not be surprised to find such a negative review of my book, but none the less I find it very disappointing. But at least I can be grateful for his undertaking the review which has highlighted a number of important points although he has has missed the central point the book was trying to make. If you would like to understand what the book is about, I can only suggest you read this brief article of mine that was published at the start of this month, by the Australian magazine Quadrant, which is titled: “What Classical Economists Knew that Modern Economists Do Not”. If you go to the link, this is how the passage from my book starts:

“# My aim in writing this book is to explain why classical economics is vastly superior to modern economic theory. And in attempting to demonstrate that this is so, I will explain how a classical economist understood the operation of the economy. But in outlining the classical approach to economic analysis, I begin with the recognition that anyone who has already been taught modern economics will be virtually incapable of understanding classical economic theory.

“# I will therefore start with a personal explanation of why I believe I am almost uniquely placed to explain classical economic theory and why it is important that we do so. It will be argued that the disappearance of classical economic theory has led to an enormous loss in our ability to understand what needs to be understood if we are to make sense of how an economy works.

“# Modern economic theory is a labyrinth. Perhaps all theory is like that. Once one enters into its precincts it becomes virtually impossible to escape other than by accident. I will therefore explain how I accidentally found my way out as a possible way to assist others to attempt to do the same.

“# And even as I begin, I will acknowledge how obscure I am within the world of economics. I have published papers and books. I have attended conferences and meetings of economic societies around the world. And in all this time, I have come across virtually no one who sees things as I do. There are a handful of others, but our numbers are trivially small. So to my story.”

Guy describes my approach as “boastful”. I think of my attitude as exasperated, since if you go to the link, you will find the lengths that I have gone to in an attempt to get these points across in the past. There have been others who have tried to do this before me, with Henry Hazlitt and W.H. Hutt the most notable. In criticising Keynesian macro, I would not describe their attitude as “boastful”. I am merely following in their tradition.

I will just emphasise that the book is not about Say’s Law although Say’s Law naturally does come into it. It is about the classical economic theory that was the core of the profession between the 1840s and its complete disappearance with the publication of The General Theory in 1936. But the following discovery of mine is for the first time acknowledged by someone else and it is important where Numa wrote: “It is true that Taylor invented the term ‘Say’s Law.’” That is, it was the American economist Fred Taylor who invented the term “Say’s Law” in the twentieth century where it became a much discussed issue mostly in the US during the 1920s and 1930s. It is Taylor’s understanding of Say’s Law that ends up being refuted in The General Theory. J.B. Say’s Law of Markets, first stated in 1803, has virtually nothing to do with Say’s Law and to bring J.B. Say into it obscures the core issues. That too is discussed in my book, along with the also unknown fact that the phrase “supply creates its own demand” is also twentieth century American having been first stated by the American economist, Harlan McCracken in 1931. The origins of The General Theory cannot in my view be properly discussed without knowing these facts.

I will close by using the same quotes from my book used in the review by Numa since these do accurately describe what the book is about: “Just about the whole of modern economic theory is perniciously wrong … there is virtually nothing useful one can learn from a modern economics text in how to manage an economy” (p. 1) and “Economists know nothing whatsoever about the analytical depth of the classical economists” (p. 16). Both of these statements, so far as I am concerned, are absolutely true. If you want to know why I think so and why it matters, you really should read the book.

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18 Responses to “Bold and pretentious statements abound”

  1. Bruce in WA

    I wish I was clever enough to understand this! 😟

  2. Tintarella di Luna

    I wish I was clever enough to understand this! 😟

    #MeToo – But I will persist and perhaps if I read it again and again and again, I might be at the undulations of the foothills of understanding.

  3. NoFixedAddress

    I like the cut of Steve Kates jib and have since I first started to read his stuff on Catallaxy Files. catallaxyfiles.com

    I love the way he shoves it up the left and right nostril of every University trained ignorant economic pig and inherently proves the waste of time of a university education!

    Fortuitously and nearly unbelievably somewhere along the line Professor Kates read the works of John Stuart Mill’s Principles of Political Economy first published in 1848 and to compound Kates’ apostasy he read of and studied Say’s Law! A Treatise on Political Economy (Traité d’économie politique, 1803)

    If you go to the communist wikipedia page for Say’s law you will find a quote from Steve Kates as follows,

    Steven Kates, although a proponent of Say’s Law, writes:

    Before the Keynesian Revolution, [the] denial of the validity of Say’s Law placed an economist amongst the crackpots, people with no idea whatsoever about how an economy works. That the vast majority of the economics profession today would have been classified as crackpots in the 1930s and before is just how it is

    Now Professor Steve seems to think that former Liberal Party of Australia Treasurer was a good bloke with economics. I think he as well as John Howard were are pair of fuckwits actually and the only thing that John and Peter ever did was to stuff Australia, grandly.

    Now Keynes was and is an ignorant fucking dilettante.

    He didn’t care who he fucked.

    Just like the ignorant economists of today, and unlike Mill and Say, none of them, not a single Krugman has ever done a day’s work in their lives.

    They live in fantasy land in their twisted and warped university educated minds!

    And these are The Bureaucrats that rule our lives.

    Get Fucked You Dumb Cunts.

    Get your own food.

  4. Tom

    Thanks, Steve. For others interested in economics, I found Steve’s piece in Quadrant on October 31, 2o2o, particularly helpful (What Classical Economists Knew that Modern Economists Do Not).

    Like Steve, I found my eventual comprehension of Say’s Law (supply creates its own demand) both thrilling and revolutionary in understanding how business and economics work. Anyone armed with that knowledge can conquer the world commercially. It’s intrinsic to understanding how business innovators are rewarded by the market.

  5. Herodotus

    A bad review would inevitably derive from the fact that your approach doesn’t support the political stance of our times, which for the most part seems to favour governments as dispensers of largesse aka other peoples’ money.
    The green left is against nearly all the industries which have underpinned modern civilisation in the western democracies. Their alternatives are so many mirages, a greenish miasma obscuring proper focus on the central tribalism that they encourage, leading to the New Feudalism.

  6. Old School Conservative

    I enjoy reading your explanations Steve and my understanding of economics is slowly increasing from reading your work.
    Your labyrinth metaphor resonated with the cloud of confusion in my mind.
    Keep up the good work.

  7. Carl

    I read two of your books and am totally dismayed at the general belief that governments printing and spending money will repair the economy after the lockdowns. These are four things that people believe are true because everyone else believes they’re true, even though they are nonsense:
    . Communism.
    . Freudian psychoanalysis.
    . Global Warming.
    . Keynesianism – downtowns are caused by insufficient demand that’s fixed by government spending.

  8. Carl

    Governments, including our own, are printing and spending to get the economy moving. This could lead to uncontrolled inflation and a trade imbalance and debt crisis. What is a reasonable course of action for an individual? Hold cash and hope inflation doesn’t take off? Buy shares and hope a downtown doesn’t crash the market? Move money overseas even though all western countries seem to be spending madly?

  9. Spurgeon Monkfish III

    downtowns are caused by insufficient demand that’s fixed by government spending

    Nothing is ever “fixed” by government spending, on anything. For anyone with a functioning brain, this should be a statement of the bleeding obvious. Governments the world over are thoroughly accomplished at only one thing – relentlessly destroying a significant proportion of the wealth created by the private sector.

    It’s a testament to the staggering stupidity and insanity of this age that it hasn’t occurred to the global politico-bureaucratic class that repeatedly attempting to implement the z-grade hypotheses of that overrated mediocrity Keynes will result in a different (i.e. any remotely positive) outcome.

    I appreciate the efforts of Perfesser Kates to re-educate these irredeemable idiots, but ultimately it’s akin to trying to teach a dog quantum physics.

  10. Spurgeon Monkfish III

    What is a reasonable course of action for an individual?

    I’m grappling with this existential issue at the moment. My initial likely course of action will be to cash in all my wealth and get the hell out of this stupid stupid country for good. The only problem is finding a suitable destination, which is proving extremely difficult.

  11. woolfe

    As Carl asked where would you go?

  12. Herodotus

    Ask old people what to do. They may have been around in the 1930s, although most are gone, but we had parents from that depression era*. Those still living who were here and observing in the late40s to 1950s will recall that everyone lived much more simply, and money was always tight.
    Self-sufficiency to a greater or lesser degree was common. Italian migrants post WW2 understood this and grew fruit and veg on every available part of their block – at least until they became wealthy and started to do more concrete, paving, big gates, heavy duty decorative stairs and bannisters leading to the front door, and of course those lions.
    But I digress. Buy some acres of land (even 5 will be of use), install solar and wind (just the one smallish windmill – they are noisy) and battery backup to provide off-grid power (not necessarily all your power, but possibly – this off-grid scenario is where these otherwise feeble things do have utility!), grow fruit, grapes, vegetables, and raise sheep and cattle in sufficient quantities to give the household meat. Chooks are also valuable, supplying eggs and meat while eating a lot of scraps and fertilising the ground they live on. Move their yard periodically and then grow veg in the area they have just vacated. Make sure pen is fox proof. Pigs can also be raised, but need a bit more housing management than sheep and cattle.
    No point going to any other country, we have all we need here.
    *Rediscover rabbit aka subterranean chicken. Can be cooked up into very nice meals.

  13. Nath

    I have read everything Kates has written – all his books, all his articles. In my experience, with my own business and employing people, he is spot on (with economics). Say’s Law of Markets is about the matching of supply with demand – what other people want, and at competitive prices.

  14. Megan

    I’m rather a fan of bold pretentiousness when it’s applied to economics.

  15. Maryanne

    Many decades ago somebody at Sydney University said, “A formal education in economics is a cretinizing process.” I do hope he never recanted.

  16. don coyote

    Steve gets some support from Marxist historian Eric Hobsbawm here:

    “Much of the eighteenth-century industrial expansion did not in fact lead immediately, or within the foreseeable future, to industrial revolution, i.e. to the creation of a mechanized “factory system” which in term produces in such vast quantities and at such rapidly diminishing cost, as to be no longer dependent on existing demand, but to create its own market.*

    *The modern motor industry is a good example of this. It is not the demand for motor-cars existing in the 1890s which created an industry of the modern size, but the capacity to produce cheap cars which created the modern mass demand for them.”

    The Age of Revolution 1962

  17. Entropy

    It’s a testament to the staggering stupidity and insanity of this age that it hasn’t occurred to the global politico-bureaucratic class that repeatedly attempting to implement the z-grade hypotheses of that overrated mediocrity Keynes will result in a different (i.e. any remotely positive) outcome.

    In the eighties and nineties it was nearly impossible to get a spending program up and running in a politically insensitive area. These days program developers can’t keep up with the dizzying array of ever flowing largess from government coffers.

    But it is like socialism, just because every time a Keynesian solution is tried, it leads to stagnation and a huge debt hangover, which doesn’t clear up until government stops being so…prevalent, doesn’t matter. With the right people in charge it will work next time.

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