Peter Boettke shares a paper that reviews a mock trial held in 1933 at LSE. It's a trial of economists for "conspiracy to spread mental fog".
I'm reading through the paper and there's a lot of interesting stuff in here. One particularly interesting this is a letter to The Times in 1932 that was in response to the LSE letter that got a lot of coverage in the blogosphere when Mario Rizzo shared it several months back (see this if you're not sure what I'm referring to).
The Cambridge response is really fantastic, although until today I didn't know there was one (I've added some emphases for what I particularly like):
"THE TIMES, FRIDAY, OCTOBER 21, 1932
SPENDING AND SAVING
WHAT ARE NATIONAL RESOURCES?
THE ECONOMISTS‘ REPLY.
TO THE EDITOR OF THE TIMES.
It is not possible for six people in their collective capacity to carry on a continuing correspondence. We wrote to you in reply to which given prominence was given in your columns categorically inviting the opinion of economists in the matter of private spending, and we had no intention of carrying the matter further. In certain comments, however, that have been made upon our letter there is revealed, as it seems to us, a fundamental confusion which, unless it can be dissipated, must render discussion futile and paralyse remedial action.
We are told that the vital thing to do at the present time is to ―concentrate such resources as we have upon works that are absolutely necessary, or which, when completed, will give the maximum of employment; while expenditure now upon libraries, museums, and so on ―must inevitably reduce the funds available when confidence returns. What are these ―resources and ―funds? It seems to be thought that there exists a stock of stored-up wealth the amount of which is fixed independently of our action and which we can only employ in setting people to work now, on pain of having less of it available to set them to work later on. This conception, though since its burial by Adam Smith it has enjoyed many resurrections, is an illusion. The resources out of which workpeople and all other persons are paid in any year consist almost entirely of what is produced – either directly or through purchase aboard – by the brains, hands and capital equipment of the country. In so far as this labour and capital are idle, the resources available for paying income to their owners are not conserved; they simply do not come into existence.
The purpose of our letter to you was to urge that, while in normal conditions money economy of individuals and groups of individuals means that labour and capital are set to producing capital goods instead of consumption goods, in present conditions it often means that they are reduced to idleness. A reply which, ignoring the conclusive evidence of unemployment statistics, tacitly assumes that this reduction to idleness is impossible, misses the whole point of our contention.
We are your obedient servants,
D. H. MACGREGOR (Professor of Political Economy in the University of Oxford)
A. C. PIGOU (Professor of Political Economy in the University of Cambridge)
J. M. KEYNES
J. C. STAMP."
Keynesian economics in a lot of ways is a rebirth of Smithian economics after a long classical dormancy. It's an economics that rejects the production possibilities frontier as anything like reality. Smith told contemporary protectionists that in fact the normal order of things is to transcend the production possibilities frontier - that we are not stuck in a zero-sum world. Keynes told contemporary goldbugs that we occasionally fall below the production possibilities frontier and a zero-sum mentality will produce poor assessments of how to get us out. Both men resisted the view of a zero-sum society and the simultaneously stagnant and Panglossian equilibrium of the classical economists.
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