Would Keynes Have Refuted Keynesianism?

At EPJ Central, RW posts an interview with Austrian economist Friedrich Hayek, who recounts an intriguing and ominous exchange he once had with the soon-to-be deceased Keynes, the economist commonly credited with providing the intellectual justification for rampant money printing. Toward the end of the interview, Hayek quotes Keynes:

"My theory was frightfully important in the 1930's when it was a question of combating deflation. If inflation ever becomes a danger, I'm going to turn public opinion around like this."

Six weeks later he was dead and couldn't do it.

In response to Hayek's statements, Wenzel poses the following question, "If Keynes had lived to refute the inflationist thinking of many of his followers, would Bernanke and Krugman be inflationsits now?"

To answer, one must know Keynes, the man. The definitive essay was written by Murray Rothbard and titled, no less, "Keynes, the Man". It is worth reading in its entirety, and Rothbard aptly introduces us to him:

John Maynard Keynes, the man — his character, his writings, and his actions throughout life — was composed of three guiding and interacting elements. The first was his overweening egotism, which assured him that he could handle all intellectual problems quickly and accurately and led him to scorn any general principles that might curb his unbridled ego. The second was his strong sense that he was born into, and destined to be a leader of, Great Britain's ruling elite.

Both of these traits led Keynes to deal with people as well as nations from a self-perceived position of power and dominance. The third element was his deep hatred and contempt for the values and virtues of the bourgeoisie, for conventional morality, for savings and thrift, and for the basic institutions of family life.

In the interview (about 3:15 in), Hayek discusses Keynes' adoption of the long-since refuted relationship between aggregate demand and employment (a modern refutation may be found here). Sir Leslie Stephen is quoted and sourced, which is notable because of his connection to Keynes through his children, Virginia Wolf and Vanessa Bell. Rothbard writes:

After graduation from Cambridge, Keynes and many of his Apostle colleagues took up lodgings in Bloomsbury, an unfashionable section of north London. There they formed the now-famous Bloomsbury Group, the center of aesthetic and moral avant-gardism that constituted the most influential cultural and intellectual force in England during the 1910s and 1920s.

The formation of the Bloomsbury Group was inspired by the death of that eminent Victorian philosopher and classical liberal, Sir Leslie Stephen, in 1904. The young Stephen children, who felt liberated by the departure of their father's stern moral presence, promptly set up house in Bloomsbury and began to hold Thursday evening salons.

...

In late 1909, Keynes moved to a Bloomsbury house very close to the Stephens', sharing a flat there with Bloomsbury artist Duncan Grant, a cousin of Strachey's.

Bloomsbury's values and attitudes were similar to those of the Cambridge Apostles, albeit with more of an artistic twist. With a major emphasis on rebellion against Victorian values, it is no wonder that Maynard Keynes was a distinguished Bloomsbury member. One particular emphasis was pursuit of avant-garde and formalistic art — pushed by art critic and Cambridge Apostle Roger Fry, who later returned to Cambridge as Professor of Art. Virginia Stephen Woolf would become a prominent exponent of formalistic fiction. And all of them energetically pursued a lifestyle of promiscuous bisexuality, as was brought to light in Michael Holroyd's (1967) biography of Strachey.

As members of the Cambridge cultural coterie, the Bloomsbury Group enjoyed inherited, although modest, wealth. But, as time went on, most of the financing for the various Bloomsbury exhibits and projects came from their loyal member Maynard Keynes. As Skidelsky writes, Keynes "came to give Bloomsbury financial muscle, not just by making a great deal of money himself [largely through investment and financial speculation], which he spent lavishly on Bloomsbury causes, but by his ability to organize financial backing for their enterprises." Indeed, from the first World War onwards it was almost impossible to find any enterprise, cultural or domestic, in which members of Bloomsbury were involved, which did not benefit in some way from his largesse, his financial acumen, or his contacts. (1983: p. 250; see also pp. 242–51).

It seems that Keynes' reversion to primitive and debunked economic thought might have been an intentional backlash against conservative Victorianism. To Keynes, deductive logic and moral principles were impediments to expedient state management by the elite ruling class. As Hayek's final interaction with Keynes suggests, the General Theory was simply the ad hoc response of an interventionist who believed he was smarter than everyone else. It might also be the ultimate case of talking one's book, as he was known to use his clout for personal gain.

Had Keynes lived longer to witness an environment of high price inflation (in marked contrast with the deflation of the Great Depression), he likely would have postulated an entirely different ad hoc response that would have necessarily contradicted his General Theory (though he would weasel his way out of a direct contradiction). However, this merely would have expanded the base of incoherent drivel that gives cover to the machinations of the likes of Krugman and Bernanke.

If there is a lesson here, it is that Keynesianism is not about money printing so much as the arrogant faith in central planning by self-styled intellectuals. They failed in the 1930's and they are failing now. All the more reason to shame Krugman into a economic sparring match with Bob "Baby Face" Murphy. Pledges are over $50,000 and counting. Make yours today at KrugmanDebate.com