Under the Threat of Excommunication, a Keynesian Is Never Allowed to Look at the Matter the Way an Entrepreneur Looks at It

Keynes does not advance in the slightest beyond Cournot is setting up his own “functions” and his own formulas. In fact, as we shall see, he goes backward. His equations are not merely unverified and unverifiable; they are invalid or inadmissible in other ways.

Let us begin, as an example, with the Aggregate Demand Function. “Let D,” writes Keynes, “be the proceeds which entrepreneurs expect to receive from the employment of N men, the relationship between D and N being written D = f(N), which can be called the Aggregate Demand Function.”

The first thing that troubles one about this (as I have pointed out previously) is that entrepreneurs practically never think or act in the way Keynes implies. The entrepreneur usually begins by trying to determine what his net income will be from producing a certain quantity of a certain product and selling it at a certain price. Only when he has made this estimate does he decide how many men will be needed to turn out this product. How many men he hires or keeps, moreover, will also be determined heavily by the wage-rates he is obliged to pay. Instead of thinking what his gross proceeds will be from hiring so-and-so-many men, he decides how many men he will have to hire (or how many he can afford to hire at a given wage-rate) to acquire a certain net income. (His decision will also be governed, of course, by how much capital he has or can borrow.)

But a Keynesian is never allowed to look at the matter the way an entrepreneur looks at it. Under threat of excommunication, he is not even permitted to hint that the amount of employment will have anything to do with wage-rates. That unemployment might be primarily the result of excessive wage-rates in relation to prices or the demand for products is the very doctrine that Keynes started out to disprove and to ridicule.

--Henry Hazlitt, The Failure of the “New Economics”: An Analysis of the Keynesian Fallacies (1959; repr., Auburn, AL: Ludwig von Mises Institute, 2007), 104-105.