A Tiger by the Tail. The Keynesian Legacy of Inflation - A 40-Years' Running Commentary on Keynesianism

F.A. Hayek said that his biggest regret in a lifetime of writing was that he never wrote a book-length refutation of Keynesian economics. He seriously doubted that Keynesian style planning would ever captivate governments, so he focused on different things. Economist Sudha Shenoy decided to rectify the problem. As a Hayek scholar, she noted that Hayek had in fact addressed Keynesian policy in scattered places throughout 40 years of writing. She decided to select the most poignant passages. She linked them all together with marvelous commentary and analysis. And voila! Here is the book on Keynesian economics that Hayek never wrote. It first came out in 1972, to wide acclaim. The Hayek parts are fantastic, of course. The surprise is the expert editing job by Professor Shenoy, which adds enormous value. In 192 pages, the book ended up being a total demolition by Hayek of the most baneful influence on economic science in the 20th century. It was published by the Institute of Economic Affairs but fell out of print. The Mises Institute cooperated with IEA to completely reset the book and publish it anew. It adds something even more wonderful: a massive introduction by monetary theorist Joseph T. Salerno. In total, then, this is a priceless collection, one that will enlighten and save you from hopping up and down to your bookshelf. It strikes you as you read what a brilliant mind Hayek had, how tough minded he really was, and just how off base is Keynesian theory. You can get the metaphor from the title. What Keynesianism unleashes is wicked inflation that no one can control. This might be the essential guide to our future. Cover 1 A Tiger by the Tail 4 © 2009 5 Acknowledgements 6 Contents 8 Guide to Extracts and Articles 12 Introduction to the Third Edition by Joseph Salerno 14 Preface by Arthur Seldon 22 Preface to the Second Edition by Arthur Seldon 26 The Authors 28 I. The Debate, 1931-1971 (Sudha Shenoy) 30 Challenge to Keynes 31 The Approach to an Incomes Policy 34 ‘Micro’ Dimensions Acknowledged 38 Is There a Price ‘Level 39 Further Implications of Hayekian Analysis 42 II. The Misuse of Aggregates 44 1. Inflationism 44 2. No Causal Connection Between Macro Totals and Micro Decisions 45 3. Fallacy of ‘The’ Price Level 46 4. Economic Systems Overleap National Boundaries 47 Misleading Concepts of Prices and Incomes 48 5. Dangers of ‘National’ Stabilisation 49 Theoretical Case Not Argued 50 Relative Price and Cost Structures 51 6. Monetary Danger of Collective Bargaining 53 III. Neglect of Real for Monetary Aspects 56 7. Keynes’s Neglect of Scarcity 56 Investment Demand and Incomes 57 Final Position of Rate of Return 58 Mr. Keynes’s Economics of Abundance 59 Basic Importance of Scarcity 62 8. Importance of Real Factors 63 Significance of Rate of Saving 64 9. Dangers of the Short Run 66 Betrayal of Economists’ Duty 68 IV. International versus National Policies 70 10. A Commodity Reserve Currency 70 An Irrational but Real Prestige 71 11. Keynes’s Comment on Hayek 72 Conditions for National Price Stability 73 Different National Policies Needed 74 12. F.D. Graham’s Criticism of Keynes 76 The ‘Natural Tendency of Wages 77 Gold Standard ‘Dictation 79 Unanchored Medium of Exchange 80 The Real Problem of Unemployment 82 Professor Hayek’s ‘Intransigence 83 13. Keynes’s Reply to Graham 85 V. Wage Rigidities and Inflation 88 14. Full Employment, Planning and Inflation 88 Full Employment the Main Priority 89 Unemployment and Inadequate Demand 90 Main Cause of Recurrent Unemployment 92 Expansion May Hinder Adjustment 94 15. Inflation Resulting from Downward Inflexibility of Wages 96 Importance of Relative Wages 97 Inflation—A Vicious Circle 99 The State of Public Opinion 101 16. Labour Unions and Employment 102 Changed Character of the Problem 103 Union Coercion of Fellow Workers 107 Wage Increases at Expense of Others 109 Harmful and Dangerous Activities 111 Acting against Members’ Interests 113 A Non-coercive Role 116 Minor Changes in the Law 119 Responsibility for Unemployment 122 Progression to Central Control 125 ‘Unassailable’ Union Powers 128 17. (a) Inflation—A Short-term Expedient (b) Inflation—The Deceit is Short-lived 130 17. (a) Inflation—A Short-term Expedient 130 Inflation Similar to Drug-taking 131 Accelerating Inflation 133 The Path of Least Resistance 134 17. (b) Inflation—The Deceit is Short-lived 135 Limited Central Bank Influence 136 Weak Opposition to Inflation 137 VI. Main Themes Restated 140 18. Personal Recollections of Keynes 140 Keynes Changes His Mind 141 Thinking in Aggregates 143 Full Employment Assumption 144 Wide Intellectual Interests 146 19. General and Relative Wages 148 Unpredictability and the Price System 149 Wage Rigidities 151 Importance of Relative Wages 152 20. Caracas Conference Remarks 154 VII. The Outlook for the 1970s: Open or Repressed Inflation? by F.A. Hayek 156 Long-run Vicious Circle 156 Repressed Inflation a Special Evil 158 Central Control and ‘Politically Impossible’ Changes 159 Profit-sharing a Solution 161 Basic Causes of Inflation 161 VIII. Addendum 1978 164 Introduction by Sudha Shenoy 164 Guiding Role of Individual Price Changes 165 21. Good and Bad Unemployment Policies 167 Maladjustments 168 Wages and Mobility 169 Dangers Ahead 170 22. Full Employment Illusions 171 Money Expenditure and Employment 172 An Old Argument in New Form 173 The Shortcomings of Fiscal Policy 174 Cyclical Unemployment 175 Consumers’ Goods Demand and Investment Activity 177 Purchasing Power and Prosperity 177 Why the Slump in Capital Goods Industries 177 23. Full Employment in a Free Society 180 Hayek’s Writings: A List for Economists 186 Index 188 1933550406,9781933550404 Macroeconomics, Keynesianism, Keynesian economic planning, Inflation