In 1874, the economist John Stuart Mill commented on what is now called Keynesian theory — the idea that government spending can, and must, stimulate the economy in order to prevent or end recessions. He wrote:
The utility of a large government expenditure, for the purpose of encouraging industry, is no longer maintained…. It is no longer supposed that you benefit the producer by taking his money, provided you give it to him again in exchange for his goods. There is nothing which impresses a person of reflection with a stronger sense of the shallowness of the political reasonings of the last two centuries, than the general reception so long given to a doctrine which, if it proves anything, proves … that the man who steals money out of a shop, provided he expends it all again at the same shop, is a benefactor to the tradesman whom he robs, and that the same operation, repeated sufficiently often, would make the tradesman’s fortune. (Mill, 1874 [1974])
Why did Mill write that this central idea [1] of the later economist Keynes, was “no longer maintained” in 1878?
In 1820, the world’s pre-eminent political economist, Thomas Malthus published a famous book promulgating the idea that capitalist societies tend to fall into a state of “general glut” because of a lack of aggregate demand. Mill and Malthus were key figures in the debate over the general glut and the cause of recessions that raged among political economists from 1820 to 1838, when Mill’s counter-theory won the day. Thus, “Keynesianism” went into a long slumber, only to be awakened by Keynes himself a century later.
So the quote about the silliness of the benefits of serial armed robberies was written forty years after it had been discarded by the community of economists.
The source for this Conversation is Steven Kates, “Why Your Grandfather’s Economics Was Better than Yours: On the Catastrophic Disappearance of Say’s Law,” a lecture given at the Ludwig von Mises Lecture Austrian Scholars Conference, 2010.
[1] This is the theory which Keynes rediscovered in 1932 by studying Malthus. It became the basis for the Keynesian revolution, which began in 1936 with the publication of “The General Theory of Employment, Interest, and Money”.
The theory was popularized by the textbook author Paul Samuelson, and taught to every economist from the 1960s on. It has formed the basis of economic policy of the administration of every president since that time, including Barack Obama and Donald Trump. It is the basis of the model of the economy, and its “needs” for stimulus, of every popular writer on economics, from leftists like Paul Krugman to conservatives like James Pethokoukis.
References:
Published in GeneralMill, John Stuart. 1874. “Of the Influence of Consumption on Production.” In Essays on Some Unsettled Questions of Political Economy. 2nd ed. Clifton, New Jersey: Augustus M. Kelley, 1974, pp. 47–74.
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