The Failure of the "New Economics": An Analysis of the Keynesian Fallacies

by Henry Hazlitt

Henry Hazlitt did the seemingly impossible — something that was and is a magnificent service to all people everywhere. He wrote a line-by-line commentary and refutation of one of the most destructive, fallacious, and convoluted books of the century. The target here is John Maynard Keynes's General Theory, the book that appeared in 1936 and swept all before it.

In economic science, Keynes changed everything. He supposedly demonstrated that prices don't work, that private investment is unstable, that sound money is intolerable, and that government is needed to shore up the system and save it. It was simply astonishing how economists the world over put up with this, but it happened. He converted a whole generation in the late period of the Great Depression. By the 1950s, almost everyone was Keynesian.

But Hazlitt, the nation's economics teacher, would have none of it. And he did the hard work of actually going through the book to evaluate its logic according to Austrian-style logical reasoning. The result: a 500-page masterpiece of exposition.

Far from being a dull read, this book has all the brightness and clarity we've come to expect from Hazlitt. He is a dazzling writer, and one can't but thrill to see him in the ring with the giant Keynes. By the time he delivers the knock-out punch — taking on Keynes's suggestion that we nationalize investment — there is nothing left of his opponent.

By now, Keynesian theory is so woven into both economic theory and policy that hardly anyone notices it anymore. Hazlitt helps us stand up and take notice of the extent to which we've allowed sheer fallacy to dominate our thinking.

This new edition by the Mises Institute is a pleasure to release, after so many years of being out of print. Hazlitt lives again to give Keynes the treatment he deserves and no one else dared give him.

To search for Mises Institute titles, enter a keyword and LvMI (short for Ludwig von Mises Institute); e.g., Depression LvMI

Genres: Economics, Politics, Nonfiction, History, Philosophy, Social Science

466 pages, Kindle Edition

First published January 1, 1959

About the author

Henry Stuart Hazlitt was an American journalist who wrote about business and economics for such publications as The Wall Street Journal, The Nation, The American Mercury, Newsweek, and The New York Times.

Reviews

[Paul · Rating 4 out of 5]

This detailed critique of John Maynard Keynes's The General Theory of Employment, Interest, and Money is much better written and more cogent than the book it examines.

As I mentioned in my review of Keynes's work, I learned about Hazlitt's book from an Amazon review of the General Theory and felt inspired to take the reviewer's advice and read the two books together, in tandem. I would read a little bit of General Theory, then I would read Hazlitt's commentary on the text. This made Keynes's impenetrable book understandable, and enabled me to read the whole thing (skimming certain portions).

Hazlitt admits that he himself has difficulty understanding what Keynes is saying in many places, and offers his best guess at a translation into plain language. As a reader of both books, I was grateful that Hazlitt had both the training and the patience to tackle this task, for I have neither, even though I realize that Keynes's work has been and continues to be a major influence on the world of economics, which is to say, on the lives of each of us. On the other hand I would not want to lend too much credence to Keynes's own assertion near the beginning of his book that it is addressed mainly to his fellow economists, and that therefore laymen may find it heavy going. For I doubt that Keynes's ideas are recondite; rather, the problem is that they are, by him, so poorly expressed.

Hazlitt's own stance is that of classical economics, or anyway is descended from that line. In chapter 1 of his excellent primer,
Economics In One Lesson, Hazlitt sums up all of economics in not just one lesson but in a single sentence:

The art of economics consists in looking not merely at the immediate but at the longer effects of any act or policy; it consists in tracing the consequences of that policy not merely for one group but for all groups.

In contrast, Keynes is famous for his response to the question about the long-term consequences of his suggestions: "In the long run run we're all dead." Maybe this flippant remark was not meant to be taken seriously, but in fact his ideas have been applied and implemented with a willful blindness to their long-term effects.

In this book Hazlitt does his best to distill the meaning from Keynes's thickets of words. Flipping open Keynes's book at random, I arrive at this on page 163, where Keynes is trying to summarize the thinking of those mainstream economists with whom he differs:

In any given industry we have a demand schedule for the product relating the quantities which can be sold to the prices asked; we have a series of supply schedules relating the prices which will be asked for the sale of different quantities on various bases of cost; and these schedules between them lead up to a further schedule which, on the assumption that other costs are unchanged (except as a result of the change in output), gives us the demand schedule for labor in the industry relating the quantity of employment to different levels of wages, the shape of the curve at any point furnishing the elasticity of demand for labor.

A point that Hazlitt makes again and again is that Keynes sets out to refute positions that no one actually holds. That is, much of his book is an instance of the "straw man" fallacy. Would any economist, much less all of them, assuming that he could unpack the meaning of the above sentence, agree that it represents his understanding of how things work? It's most unlikely. Keynes would have been more convincing if he had quoted some authority verbatim and then set out to refute him. But Keynes quotes few other authors, and these are mainly those he approves of.

Another serious recurring problem is the slipperiness of Keynes's own definitions. Hazlitt points out repeatedly how these implicitly change from chapter to chapter, rendering them meaningless. Beyond this, some of his definitions are meaningless as stated. One of these is the notion of the labor unit. About this Keynes writes:

Insofar as different grades and kinds of labor and salaried assistance enjoy a more or less fixed relative remuneration, the quantity of employment can be sufficiently defined by taking an hour's employment of ordinary labor as our unit and weighting an hour's employment of special labor in proportion to its remuneration.

If you've read Capital by Karl Marx then you will recognize this definition, for it is essentially the same, as Hazlitt points out. Hazlitt continues:

Keynes's "quantity of employment" is not a quantity of employment. It is the quantity of money received by laborers who are employed.

Keynes is measuring labor in units of dollars.

Not that it makes much difference, for the definition does not play much part in his argument. But it is a sign of intellectual carelessness. It's as though Keynes's reputation was already so great when he wrote his book that he felt no need for consistency or even evidence--a lack that Hazlitt takes him to task for. Instead of providing evidence, here and there Keynes will say something like, "statistics could be found to show this." Hazlitt actually looks for statistics and other data to try to substantiate Keynes's assertions; in each case the data goes against the assertions.

In Hazlitt's book Keynes appears in a poor light. Not only are his thinking and writing shown to be inadequate, but Hazlitt draws attention to Keynes's patronizing and authoritarian digressions. Keynes has contempt for capitalists, rentiers, landlords, and even for regular working people insofar as they perversely try to save some of their earnings. For their own good, all of these people need to be brought under the control of the state and its wise officials.

Indeed, in reading Hazlitt's book, which is clear, understandable, and sensible, it is hard to believe that whole generations of economists and politicians have been enthralled with Keynes's ideas. As Hazlitt points out at the end, there have been barely a handful of works written in criticism of Keynes, while whole libraries have been filled with laudatory and enthusiastic exegeses. I'm left with the impression that his obscurity has been mistaken for brilliance.

Based on my own experience, I don't think you should attempt Keynes's General Theory without a copy of Hazlitt's book by your side. I would go further: if you want to find out what Keynes's ideas are, just read Hazlitt and forget about the General Theory. In it you will learn everything about Keynes that you could ever need to know, while also enjoying a clear, fluent read.

[Pedro Almeida Jorge · Rating 4 out of 5]

I first read this one in my last year in college. I studied economics and this was probably the first serious blow against the insipid theoretical edifice that mainstream professors had built for me (and which until then I did not really care to question). I believe I discovered and read Friedman's "Capitalism and Freedom" before this one, but Friedman's book is more politically focused. In contrast, this one is a full theoretical treatise, structured as a critique to the book (Keynes's General Theory) that many people at the time thought we should be reading (this must have been in the second semester of 2014, with labor strikes everywhere and the famous "austerity" program still raging on here in Portugal).

My undergrad education was very little focused in the history of thought, so in a sense this book was a revelation to me. It went and showed what Keynes actually said in the General Theory, and then sliced it apart! At the time, I think this really shook my faith in what my teachers were demonstrating.

If Friedman's book offered me a political agenda and a sort of political attitude, Hazlitt's book made an economist out of me. From this moment on, I really knew my vocation: to dig into the past and show everybody how things went wrong in economics! My interest in Austrian economics grew exponentially, as I realized I had to learn the fun things by myself, while trying to keep my mouth shut in classes (lucky me, I had already finished the relevant courses in economics - but still some unilateral discussions and protests ensued...).

Somehow, however, the memory of this book became a bit blurred, and as I delved into the Austrian universe (the theory of capital, Garrison's models, etc.), I remember having thought Hazlitt's book was in the end too simplistic. Although Keynes was still wrong, he really had a more subtle point that Hazlitt must have missed.

Now that I have finally read Keynes's General Theory alongside this book by Hazlitt, I realize I was the one who got confused: Hazlitt really touched the main points. It was me who was still too novice to understand it all.

The book still reads a bit too repetitive on some of the criticisms, and sometimes one gets the impression that Hazlitt does not always make his best effort to interpret Keynes in the most generous way. But well... No one is perfect. I certainly would not have had the patience and ability to produce this amazing critical feat. Hazlitt's talent as a journalist certainly helped him.

Re-reading this was a true pleasure. It was like going back to those naive student days and discovering Austrian economics once again. Feeling amazed by how many brilliant insights contained herein have since then been held so close to my economist's heart. I was also sometimes left wondering what my reaction must have been when reading some of these bits at that time. The critique of the multiplier, the critique of econometrics, his focus on methodology, the limitations of demand curves and the meaning of savings and investment. Wow. All these things were completely passed over by my teachers, although I must admit none of them were really that openly-Keynesian in their lectures. Some were even Chicago-oriented. But the thing was just bland and soulless, at least compared to the secret hints provided by Hazlitt in so simple terms. Yes: the book reads super fast, just like those books you just can't stop reading.

One of the things I loved noticing in this second reading was that Mises seems to have provided really close assistance in the writing of this book. He was also claimed as an important help to Benjamin Anderson's penetrating critique of the same work. I mention this because Mises's own treatments of Keynes always seem a bit superficial to me (I bet he really did not have patience for the Englishman), so it was good to see the old master really knew his game in detail.

Anyways, if you are studying economics and want to know the best way to get into the alternative Austrian tradition, this is one of the best choices available, specially if your teachers did not actually make you read Keynes, as mine did not. This way, you will be able to make a nice acquaintance with the important bits from Keynes's General Theory, while at the same time witnessing and being guided by Hazlitt's sharp criticisms. From now on, this will be my first recommendation to every economics student who would likely find Hazlitt's Economics in One Lesson too easy to chew and even too pedantic a suggestion.

Appendix:

Finally, I was marveled when I re-encountered this hilarious epistemological joke that really stuck in my mind the first time I read it, and which during all these years I had forgotten where to find:

Keynes might have done better to remember the remark by a character in Bernard Shaw's Saint Joan when told of the theory of Pythagoras that the earth is round and revolves around the sun: “What an utter fool! Couldn't he use his eyes?” (p. 348)

Am I the only one who's amazed by this silly joke? Every time I tried to make an impression out of it on someone else, the answer was a disappointing "so what?" :(

[Michael Connolly · Rating 4 out of 5]

The book of Henry Hazlitt, published in 1959, is a criticism of John Maynard Keynes' earlier book The General Theory of Employment, Interest, and Money, published in 1936. In his book, Keynes tried to disprove the traditional economic belief that free-market capitalism will have only a small amount of unemployment. Keynes book was published during the Great Depression, when there was widespread unemployment. Keynes used his theory in order to justify government intervention in the economy. Current pro-capitalist economists say that unemployment is not caused by a failure of the market, but rather by government intervention in the economy, often blaming the Federal Reserve, which was created in 1913, as a primary cause of the Great Depression. As part of his attack on the classical economists, in particular, on Jean Baptiste Say, Keynes misrepresented Say's ideas. Keynes asserted that Say said that there is no unemployment under free market capitalism, but what Say actually said was that it takes time for knowledge of changes in supply in demand to travel through the market, so that there may be temporary, small pockets of unemployment here and there, but with time these pockets will shrink. Keynes also accused classical economists of devising a theory that was true only in idealized situations. Keynes claimed that his theory was more general and more realistic. But the theory Keynes described that applies only in idealized situations is not classical economics, but rather Keynes' simple-minded misrepresentation of it. This is called putting up a straw man.

Hazlitt also makes many other criticisms of Keynes:

* Keynes introduced unnecessary new terms

* Keynes shifted his definitions of terms during the course of his book

* Keynes disparages saving and praises consumption

* Keynes contradicts himself by praising investment but disparaging saving (which is required for there to be money to invest)

* Keynes often considers the effect of a transaction on only one of the parties, and ignores the effect on the other party. In particular, he ignores the effect of interest rates on lenders, and he ignores the effect of wage rates on employers.

* Keynes sometimes dismisses the arguments of his opponents, rather than providing evidence or rational arguments against them. For example, Keynes dismisses the assertion that unjustifiably high wages are a cause of unemployment by calling it "not very plausible", without showing why it is implausible.

[Toe · Rating 3 out of 5]

John Maynard Keynes published “The General Theory of Employment, Interest and Money” in 1936. Keynes's work has had more influence on modern macroeconomics than any other. It continues to shape economic discussions by the media and policies implemented by the Fed and elected officials. Full disclosure: I haven’t read Keynes’s General Theory. From what I understand, his main argument was a direct assault on classical economics. Keynes argues that unemployment arises from insufficient aggregate demand (and not an artificially high price of labor as classical economists posit). To achieve full employment, the government can and should work to increase demand. This can be accomplished through monetary policy (the Fed lowering interest rates to spur borrowing and investment) and fiscal policy (the government increasing expenditures on public works projects, welfare, warfare, etc.). Keynes coined a term called the “multiplier,” which is basically a measure of the amount of increased aggregate demand that an additional dollar of spending creates. The idea is that the U.S. government can spend $100 and create additional GDP of $150 because the money will percolate through the economy and spur productive activity. Keynes also argues that he has solved the problem of booms and busts. He can give us a perpetual boom by the government keeping interest rates below where they would be in a free market. He says, “The Remedy for the boom is not a higher rate of interest but a lower rate of interest! For that may enable the boom to last. The right remedy for the trade cycle is not to be found in abolishing booms and thus keeping us permanently in a semi-slump; but in abolishing slumps and thus keeping us permanently in a quasi-boom.”

Henry Hazlitt was a classical economist, who, here, ruthlessly dismantles Keynes’s magnum opus. HH asserts that Keynes’s work was so widely regarded for a couple of reasons. First, it was opaque and convoluted, so few people could both understand it and had the courage to challenge it. Second, it played into the proclivities of the people in power: politicians loved the idea of being able to spend more, and big business was close enough to those politicians to benefit themselves. The most recent financial crisis seems to bear this out. Look at the benefits recently bestowed upon GM, Chrysler, Wall Street banks, and Fannie and Freddie.

HH says Keynes has it all wrong. There is no multiplier, and government dictating the price of money (i.e., the interest rates) creates booms and busts--or at least greatly magnifies them. Moreover, keeping interest rates low discourages saving, which is the prerequisite to capital accumulation and an increased standard of living. There are no free lunches. You can’t magically wave away scarcity of capital through currency manipulation. Inflation is a bad thing that harms consumers, and it necessarily results from low interest rates or printing money.

To criticize Keynes’s faulty reasoning and reveal his numerous errors, Hazlitt analyzes Keynes’s General Theory chapter by chapter, and sometimes line by line. Because the General Theory is technical and inaccessible, The Failure of the New Economics often follows suit. My mind wandered, and I will not remember the specific arguments going forward. Towards the end of the book, however, HH has provided a nice summary of each of the chapters, and I will provide some of the quotes below.

The book reminded me of a conversation with my mother I had long ago. One of my earliest memories is a ride in the backseat of my mom’s 1988 Honda Accord. It was sometime around 1990 and I was about 5 years old. The image is foggy. But I can see the car has a silver exterior and dark brown interior. We are headed north to school. My mom hands me two quarters, which I could use after school to get a fistful of candy (Skittles, Runts, or M&Ms) and a coke. I am very pleased with these two quarters. I understand from experience that they will be converted into tasty treats later in the day.

Suddenly, a question strikes me. The two pieces of silver metal in my hands contain some mysterious, almost magical power that makes me very happy. I wonder where they come from and why can’t there be more of them. I decide to ask.

Me: Mom, where does money come from?
Mom: I get money from working at the hospital.
Me: Where does the hospital get money?
Mom: From patients.
Me: Where do patients get money?
Mom: From their jobs.
Me: But where do these coins and dollars come from?
Mom: They come from the government. The government makes them.
Me: Well, why doesn’t the government just make a whole bunch of them and give them to everyone so everyone can get as much stuff as they want?

That’s where my memory ends. I don’t remember the rest because I didn’t understand my mom’s answer. My mother must have provided some explanation that the metal coins and paper bills were merely representations of things that people really wanted, like Skittles and coke. We couldn’t eat the metal and paper. She must have told me that merely printing more paper dollars would not actually make more Skittles. This was too confusing and abstract for my young mind to handle. In my mind, the value of money and the value of goods were identical.

In that memory, I am to Keynes as my mom is to Hazlitt.

Memorable quotes:

“Though Keynes has been praised as the peer of Adam Smith, Ricardo, and even Darwin, not a single important doctrine in his work is both true and original.”

“Keynes did not succeed in refuting Say’s Law of Markets. His attempted refutation consisted merely in ignoring the qualifications that the classical economists themselves insisted on as an integral part of the doctrine.”

“Keynes’s thought is honeycombed with contradictions. His central idea of an equilibrium with unemployment is self-contradictory by the very concept and definition of equilibrium.”

“Keynes’s definitions of his key terms—Income, Saving, and Investment—are merely circular; they are all defined in terms of each other. He so defines Saving and Investment that they are not only necessarily equal, but identical. He repudiates and apologizes for his ‘confusing’ definitions of these same terms as given in his Treatise on Money, but absent-mindedly returns to these old definitions in his subsequent discussion, particularly when he tries to prove that investment increases employment and that saving reduces it. Keynes treated saving with contempt as far back as The Consequences of the Peace, in 1919. His General Theory was merely his last rationalization of that contempt.”

“Keynes’s investment ‘multiplier’ is a myth. There is never any fixed, predictable ‘multiplier’; there is never any precise, predeterminable, or mechanical relationship between social income, consumption, investment, and extent of employment. An ‘equilibrium with unemployment’ is a contradiction in terms.”

“Keynes’s arguments against ‘liquidity’ and against ‘speculation’ are untenable. Speculative anticipations and risks are necessarily involved in all economic activity. Somebody must bear them. What Keynes is saying is that people cannot be trusted to invest the money they have themselves earned, and that this money should be seized from them by government officials and spent or ‘invested’ in the directions in which those officials (seeking to hold on to political power) deem best.”

“Inflation is at once an uncertain remedy for unemployment, an unnecessary remedy for unemployment, and a dangerous remedy for unemployment.”

“Keynes’s ‘system,’ as he came to recognize at the end of the General Theory, was actually a reversion to the naïve and discredited theories of the mercantilists and underconsumption theorists, from Mandeville and Malthus to Hobson. It was also a reversion to all the inflationist theories of the currency cranks, from John Law to Silvio Gesell.”

“Keynes’s proposals for the ‘euthanasia of the rentier, of the functionless investor,’ were proposals to rob the productive and expropriate their savings. Keynes’s plan for the ‘socialization of investment’ would inevitably entail socialism and state planning. Seriously carried out, it would remove any significant field for the exercise of private initiative and responsibility. Keynes, in brief, recommended de facto socialism under the guise of ‘reforming’ and ‘preserving’ capitalism. ‘Domestic laissez faire and an international gold standard,’ blamed by Keynes as among the ‘economic causes of war,’ were, in fact, powerful forces for peace and international cooperation. It is the national planning policies recommended by Keynes that would tend to provoke wars.”

“Now though I have analyzed Keynes’s General Theory in the following pages theorem by theorem, chapter by chapter, and sometimes even sentence by sentence, to what to some readers may appear a tedious length, I have been unable to find in it a single important doctrine that is both true and original. What is original in the book is not true; and what is true is not original.”

“I have found in Keynes’s General Theory an incredible number of fallacies, inconsistencies, vaguenesses, shifting definitions and usages of words, and plain errors of fact. My desire for thoroughness in pointing these out has carried the length of this book much beyond what I originally intended.”

“The whole of the General Theory might be described as an exercise in obfuscation, and the obfuscation begins at an early point.”

“The ‘virtue’ of Keynes’s teaching is that it praised thriftlessness, reckless spending, and unbalanced budgets and was therefore extremely palatable to the politicians in power.”

[Mike · Rating 4 out of 5]

A fantastic example of what happens when a logical, concise and excellent writer encounters the masterwork of a scatter-brain.

[Garrett Sculthorpe · Rating 5 out of 5]

I have never read such a devastating critique of another piece of writing in my life. From each supposedly “new” idea to Keynes’ borderline plagiarism and poor writing, Hazlitt leaves no stone unturned in Keynes’ General Theory while still touching on some of Keynes’ other works as well. Not only does Hazlitt deconstruct the General Theory, but in between his citations and critiques he offers a fair amount of constructive engagement with classical thought as well.

[Steve Hadfield · Rating 5 out of 5]

Although the statistics are extremely hard to listen to and follow, it was still a complete tear down of John Maynard Keynes and his economics that have done more damage to western countries all around the world. In short, destroy your economy to save the wage rate. And now that we're 18 Trillion in debt, his economic beliefs have pushed us most likely past the point of no return.

[Martin Hrabal · Rating 4 out of 5]

For me, it is a great book. I always disliked Keynesian macroeconomics and this is great ste-by-step critical analysis of its errors. But for positive explanation of economic theory there are other books. From Hazlitt himself e.g. Economics in one lesson.

[Cormacjosh · Rating 5 out of 5]

Remarkably easy to understand, much easier than I thought !!! This book absolutely smashes John Maynard Keynes economic philosophy, which unfortunately is what controls our economic system at present. I read Hazlitt's Economics in One Lesson ( 1946 ) last year, and was delighted to discover how easy a read this book was. I dearly wish more people would come to the table willing to learn and understand the rules of basic economics, and how Keynes' system is counter to that and the prosperity that this Nation has largely enjoyed in the last 200 + years. Keynes ideas are basically sugar coated Socialism, rooted in envy and jealousy, as most Socialism is, with the added factor of just plain blind faith in pie in the sky notions that the Keynesians can get some half baked scheme to work just by tweaking numbers here and there. In a more rational, less polarized world, this present system would not be long entertained. We need people to understand the banking system, so that we can finally have that Revolution that Henry Ford told us would come. I'm waiting for that morning to dawn.

[Mihai · Rating 4 out of 5]

I think Hazlitt's book is a good companion to Keynes' GT, at least for some chapters. It's definitely useful and refreshing after struggling for hours through the extremely badly written and difficult pages of the General Theory. However, for someone who would like to try to understand Keynes on his own terms, and follow through as much as possible with his reasoning, this book won't be of much help. In fact, from my experience, no 'guide' to Keynes really does the job. Especially when it comes to the later chapters (18-19-20-21), which contain Keynes' controversial mathematical model. There is no getting around reading the original if one wants to get to know how Keynes thought. For the numerous inconsistencies and paradoxical thinking scattered all over the GT, Hazlitt does a descent job. Considering when The Failure of the New Economics was written, I can only appreciate the Sisyphean effort that must've went into producing it.

[Bryan · Rating 3 out of 5]

2.5 stars and DNF.

The 2.5 stars is not an indication that this is a bad book, I just wasn't liking this style, especially compared to his Economics in one lesson. In this book he responds to Keynes major work, however he responds by copying that same style which is one I didn't care for. His arguments are solid and logical, and if only rating this book on what he said, it would be notably higher. I simply never got into this book, especially that I was primarily reading it in short sections and rarely more than 20 minutes at a time. Perhaps I will try this book again at a later date.

[Chris Richardson · Rating 5 out of 5]

Beautiful polemics to deal with a polemicist.

[William The Avid Reader · Rating 5 out of 5]

an amazing takedown of Keynesian economics, including the general theory.

[Arianne X · Rating 2 out of 5]

The False Precision Fallacy

It is important to understand that this book is a systemic critique of the 1936 work by John Maynard Keynes, ‘The General Theory of Employment, Interest and Money’ (The "New Economics") from the perceptive of the Austrian School of Economics, the principal proponents of which were Carl Menger (1840 – 1921), Eugen Bohm von Bawerk (1851 – 1914), Ludwig von Mises (1881 – 1973) and F.A. Hayek (1899 – 1992). The Austrian School of Economics is a more rigorous restatement of the earlier Scholastic-French thinking about economics, the principle proponents of which were Jean-Bariste Say (1767 - 1832) of Say’s Law fame and Frederic Bastiat (1801 - 1850), of Broken Window Fallacy fame.

This book proceeds by repeating varies key passages from the ‘General Theory’ and then offering a critiquing of each passage from an Austrian perspective. Some readers may find this systemic, passage by passage, treatment somewhat tedious. However, this book was an important contribution to the philosophical debate about the possibility of economics itself and then to its reality and nature.

The Austrian tradition of economic thinking is more conceptual and holistic in viewing economics as inseparable from society, culture and politics; it is less mathematical than Keynesian thought which views economics as a specialized science. From a Keynesian perspective, the Austrian School lacks precision. From an Austrian perspective, the Keynesian school of thought over emphasis models, data and statistics. Markets are a part of the complex array of human relationships that permeate the economy with profound social, cultural and political implications that cannot be reduced to equations, databases and spreadsheet, all of which cannot help but be incomplete. An economic transaction is just one example of a human relationship.

From a Keynesian perspective, Austrian economics does not offer actionable policy options to address the shortcomings found in markets. Not all markets are the same and there should not necessarily be a market for every conceivable good or service, nor is the market solution necessarily the best solution for every conceivable manifestation of human action and relationships. From a Keynesian perspective, markets do not always provide the optimal societal solution and are in need of correction. However, the Austrians will point out that we proceed to fool ourselves into believing that we achieve more precision than is possible from this new science.

I think the best approach is a balance approach. Traditional Keynesian economic thinking is too quick to prescribe actionable policy remedies for perceived market failures whereas the Austrian School puts too much faith in markets to deliver the optimal societal and cultural, not just economically efficient, solutions to the fundamental human problem of limited resources. At best, Mr. Hazlitt is asking us to think critically and rigorously to get beyond and the shallow depth of our own self-interest and outside the bounds of our narrow personal advantage. At worst, Mr. Hazlitt offers and very one-sided critique of Keynesian economic thinking.

[William · Rating 5 out of 5]

Henry Hazlett hits the nail on the head in this stunning and scathing treatise on John Maynard Keynes’ general theory of economics as was offered in the book ‘The General Theory of Employment, Interest and Money’. Hazlett takes on this dazzling rebuke of the theories of Keynes picking apart the book chapter by chapter skillfully showing the great fallacies which Keynes presented with little to no discernible basis for the mathematical functions save for Keynes’ own assertions. As Hazlett points out on numerous occasions throughout this work, mere assertion is no basis for a working functions in mathematically dealing with the myriad of variables in calculating economic principals.

All in all, This work is a prime example of the severe shortcomings and outright misrepresentations to the blatant falsehoods and self serving manipulations within the elaborations into the Keynesian economic theory.

[Jeff Russo · Rating 4 out of 5]

I would have a tough time recommending this book to anyone without at least a little bit of background in economics, and Hazlitt does seem to over-parse a bit at times, but overall an excellent book.

Unfortunately, the bad economics peddled by Keynes is so seductive to people that want to be important and take wealth without earning it that it still holds sway with academia and government today. I can heartily recommend this book to Paulson, Bernacke, Geithner, and all the other guys currently administering more poison to the sick patient.

And Hazlitt does write with a certain cool mid-century style.

(PS, this essay is in a sense a condensed version of the major themes of this book (albeit by a different author) if you want to get a brief introduction to the topic and decide if you then want to consume a whole book).

[Matthew Corso · Rating 5 out of 5]

The authority. A comprehensive refutation, line by line. If you are learning economics, this book is a MUST READ. For those new to economics, this is not an overview or the perfect "starter book," but an in depth analysis of Keynesian "economics." A logical and curious mind would enjoy this book as Hazlitt has an excellent way with words. He is consistently blunt yet manages to weave sarcasm and in turn, a touch of humor into such a serious subject. After learning Keynesian "economics" in college this book shines brilliant truth into each dark corner, it makes it easy to see the impetus in what Keynes offered to politicians. A deliberate marriage. A wise man, Keynes changed his own views by the time his "grandest" work was published. It seems that satisfactory recognition only came when he had something to offer.

[James Goulding · Rating 5 out of 5]

This is a thorough fisking of John Maynard Keynes's 1936 General Theory.

Hazlitt, with two decades' hindsight, is so contemptuous of Keynes's magnum opus that from the outset he presents him as a font of word games, obscurantism and sophistry, who scarcely deserves the status of rival theorist.

Neophytes should consult Hazlitt's popular, and not distinctively "Austrian" Economics in One Lesson. The Failure of the New Economics is, nonetheless, not likely to intimidate economic dabblers, and its literary, non-mathematical approach may gratify. There are more focused treatments of the Austrian business cycle theory; for harsh skepticism of mainstream academia and its sanity waterline, there must be few better options.

[Sean Rosenthal · Rating 5 out of 5]

Interesting Quotes:

"The 'virtue' of Keynes's teaching is that it praised thriftlessness, reckless spending, and unbalanced budgets and was therefore extremely palatable to the politicians in power."

-Henry Hazlitt, the Failure of New Economics


"The theory of aggregate production that is the goal of the following book can be much more easily applied to the conditions of a totalitarian state than the theory of the production and distribution of a given output turned out under conditions of free competition and of a considerable degree of laissez-faire."

-John Maynard Keynes, preface to Nazi Germany version of the General Theory, 1936, quoted by Henry Hazlitt, the Failure of New Economics

[Geir · Rating 5 out of 5]

This book is a must-read for those of us who
- have a slightest bit of interest for economics
- have studied economics in government schools (on any education level)
- want to understand the news about the economy correctly and see what is being wrongly presented by the mainstream media
- want to see how politicians chose their "favorite" type of economic theory to give socialism/statism a scientific excuse

I enjoyed reading this book. Henry Hazlitt can write about complicated subjects in a clear and easily understood way.

[Zinger · Rating 4 out of 5]

Hazlitt did a really good job of critiquing John Maynard Keynes' book The General Theory of Employment- Interest, and Money. I found this book helped me understand Keynes' book better than reading Keynes' book.

If you have to read Keynes' book, you will spend your time better not reading it and instead reading Hazlitt's book.

[Craig Bolton]

The Failure of the New Economics by Henry Hazlitt (2007)

[Nedland P.]

Excellent, but very detailed refutation of Keynesian economics. Good only for real wonks, even though Hazlitt is a wonderfully clear writer.

[IMPERIVM · Rating 4 out of 5]

A point-by-point critique of Keynes' General Theory.

[Mattheus Guttenberg · Rating 4 out of 5]

I have read this multiple times for the enjoyment of witnessing the pure devastation Hazlitt rains down on Keynes and his economic theories.