Keynesian Revolution

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The Keynesian Revolution was a fundamental reworking of economic theory concerning the factors determining employment levels in the overall economy. The revolution was set against the then orthodox economic framework: neoclassical economics.

See also: Keynesian economics.


  • The Keynesian Revolution is one of the most remarkable episodes in the entire history of economic thought; certainly never before and perhaps never since has the economics profession been won over so rapidly and so massively to a new economic theory.
    • Mark Blaug, "Second Thoughts on the Keynesian Revolution", History of Political Economy, Summer 1991.
  • Contrary to what is widely believed, the crucial result of the 'Keynesian Revolution' is the general acceptance of a factual assumption and, what is more, of an assumption which becomes true as a result of its being generally accepted. The Keynesian theory, as it has developed during the last twenty years, has become a formal apparatus which may or may not be more convenient to deal with the facts than classical monetary theory; this is not our concern here. The decisive assumption on which Keynes's original argument rested and which has since ruled policy is that it is impossible ever to reduce the money wages of a substantial group of workers without causing extensive unemployment. The conclusion which Lord Keynes drew from this, and which the whole of his theoretical system was intended to justify, was that since money wages can in practice not be lowered, the adjustment necessary, whenever wages have become too high to allow 'full employment', must be effected by the devious process of reducing the value of money. A society which accepts this is bound for a continuous process of inflation.
  • Though with its reliance on apparently measurable magnitudes it appears at first more scientific than the older microtheory, it seems to me that it has achieved this pseudo-exactness at the price of disregarding the relationships which really govern the economic system. Even though the schemata of micro-economics do not claim to achieve those quantitative predictions at which the ambitions of macro-economics aim, I believe by learning to content ourselves with the more modest aims of the former, we shall gain more insight into at least the principle on which the complex order of economic life operates, than by the artificial simplification necessary for macro-theory which tends to conceal nearly all that really matters. I venture to predict that once this problem of method is settled, the 'Keynesian Revolution' will appear as an episode during which erroneous conceptions of the appropriate scientific method led to the temporary obliteration of many important insights which we had already achieved and which we shall then have painfully to regain.
    • Friedrich A. von Hayek, "Personal Recollections of Keynes," §18 of "Main Themes Restated," ch. VI of A Tiger by the Tail: The Keynesian Legacy of Inflation, compiled by Sudha R. Shenoy, 3rd. ed. (published jointly by The Institute of Economic Affairs and the Ludwig von Mises Institute, 2009), pp. 118–119; essay originally published as "Personal Recollections of Keynes & the 'Keynesian Revolution'" in The Oriental Economist (1966).
  • John Maynard Keynes, late economic adviser to the British Government, is the new prophet of inflationism. The "Keynesian Revolution" consisted in the fact that he openly espoused the doctrines of Silvio Gesell. As the foremost of the British Gesellians, Lord Keynes adopted also the peculiar messianic jargon of inflationist literature and introduced it into official documents. Credit expansion, says the Paper of the British Experts of April 8, 1943, performs the "miracle . . . of turning a stone into bread." The author of this document was, of course, Keynes. Great Britain has indeed traveled a long way to this statement from Hume's and Mill's views on miracles.
    • Ludwig von Mises, §I of "Stones into Bread, the Keynesian Miracle," ch. 4 of Planning for Freedom and twelve other essays and addresses, Memorial Edition (3rd), (South Holland, Illinois: Libertarian Press, 1952, 1962, 1974; essay originally published in Plain Talk (March 1948)), p. 51.
  • The great economists were harbingers of new ideas. The economic policies they recommended were at variance with the policies practiced by contemporary governments and political parties. As a rule many years, even decades, passed before public opinion accepted the new ideas as propagated by the economists, and before the required corresponding changes in policies were effected.

    It was different with the "new economics" of Lord Keynes. The policies he advocated were precisely those which almost all governments, including the British, had already adopted many years before his "General Theory" was published. Keynes was not an innovator and champion of new methods of managing economic affairs. His contribution consisted rather in providing an apparent justification for the policies which were popular with those in power in spite of the fact that all economists viewed them as disastrous. His achievement was a rationalization of the policies already practiced. He was not a "revolutionary," as some of his adepts called him. The "Keynesian revolution" took place long before Keynes approved of it and fabricated a pseudo-scientific justification for it. What he really did was to write an apology for the prevailing policies of governments.

    This explains the quick success of his book. It was greeted enthusiastically by the governments and the ruling political parties. Especially enraptured were a new type of intellectuals, the "government economists." They had had a bad conscience. They were aware of the fact that they were carrying out policies which all economists condemned as contrary to purpose and disastrous. Now they felt relieved. The "new economics" reestablished their moral equilibrium. Today they are no longer ashamed of being the handymen of bad policies. They glorify themselves. They are the prophets of the new creed.

    • Ludwig von Mises, §II of "Lord Keynes and Say's Law," ch. 5 of Planning for Freedom and twelve other essays and addresses, Memorial Edition (3rd), (South Holland, Illinois: Libertarian Press, 1952, 1962, 1974; essay originally published in The Freeman (30 October 1950)), pp. 69–70.
  • I think that Keynes was certainly a good example of a new paradigm. His work is possibly the best example of a case for which I think Kuhn's theory fits as well as it can in the domain of the social sciences. In a fairly short period of time, Keynes gave a new way of looking at the economy, a way which was widely accepted, at least by the younger generation.
  • Work by economists reexamining the so-called Keynes-versus-the-classics debate has led to another debate, one that might be termed the Keynes-and-the-Keynesians debate. Economists refer to both Keynes's General Theory and the ensuing debates as the Keynesian Revolution. The word revolution implies a radical break with previous tradition. Early work on this revolution dealt with what Keynes was really saying and with how much and where it differed in general terms from what his predecessors had said. Interest then shifted to what Keynes's predecessors really said: was there truly a "classical economics" or was this simply a straw man to make Keynes's writings look significant.
  • If liberalism's core doctrine is that, given institutional adherence to the rights of life, liberty, and property, civil society can be counted on by and large to run itself, and if the showcase example in liberalism's brief is the undirected market economy's capacity to function satisfactorily, then the "Keynesian Revolution" signaled the abandonment of liberalism.
  • Keynes was scarcely a "revolutionary" in any real sense. He possessed the tactical wit to dress up ancient statist and inflationist fallacies with modern, pseudoscientific jargon, making them appear to be the latest findings of economic science. Keynes was thereby able to ride the tidal wave of statism and socialism, of managed and planning economies. Keynes eliminated economic theory's ancient role as spoilsport for inflationist and statist schemes, leading a new generation of economists on to academic power and to political pelf and privilege.

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