Keynesian Doctrine Is Breathtakingly Simple: Recessions Are Caused by Underspending and Inflation Is Caused by Overspending

Keynesian doctrine is, despite its algebraic and geometric jargon, breathtakingly simple at its core: recessions are caused by underspending in the economy, inflation is caused by overspending. Of the two major categories of spending, consumption is passive and determined, almost robotically, by income; hopes for the proper amount of spending, therefore, rest on investment, but private investors, while active and decidedly non-robotic, are erratic and volatile, unreliably dependent on fluctuations in what Keynes called their “animal spirits.”

Fortunately for all of us, there is another group in the economy that is just as active and decisive as investors, but who are also—if guided by Keynesian economists—scientific and rational, able to act in the interests of all: Big Daddy government. When investors and consumers underspend, government can and should step in and increase social spending via deficits, thereby lifting the economy out of recession. When private animal spirits get too wild, government is supposed to step in and reduce private spending by what the Keynesians revealingly call “sopping up excess purchasing power” (that’s ours).

--Murray N. Rothbard, "Keynesianism Redux," in Making Economic Sense, 2nd ed. (Auburn, AL: Ludwig von Mises Institute, 2006), 46.