Economics of Illusion: A Critical Analysis of Contemporary Economic Theory and Policy

by L. Albert Hahn

L. Albert Hahn was one of the most highly regarded economists and bankers in Germany before the war but he was unknown in the US until this translation of his work appeared in 1949. He immigrated to the US in 1940. This book is his frontal attack on the Keynesian system, which he calls the economics of illusion. He shows how government spending creates a false prosperity, and never more than in wartime. He explodes many of Keynes's fallacies, and with great precision too since, it turns out, Hahn himself once advanced these same fallacies before he saw their errors. So he writes with the passion of a convert. Mises thought very highly of Hahn's work, and none other than Henry Hazlitt has written the introduction to this classic anti-Keynesian work.

Genres: Economics

273 pages, Paperback

First published January 1, 1949

Reviews

[Pedro Jorge]

Mr Hahn was obviously very well read and of great sensibility to economic topics. His point in this book is that, while it cannot be rejected that we can stimulate economic activity in a Keynesian sense, by conjuring an illusion of prosperity, it will, nevertheless, end up as an inflationary dead end if real reforms are not put into place. Furthermore, as he shows, most classic and modern economists before Keynes did not deny that money could have an impact in economic activity. To imply that they were unaware of that fact is really inaccurate and fosters the fallacy that Keynes was really ahead of his time. As Hahn puts it: "what is new in Keynes's work is not good, and what is good is not new."

This review should read as 3.7 stars.

I maintained the 3 stars because this is a tough read, specially for readers that are not that much into the topic. I didn't find some essays to be that clarifying. The value of this book lies in its main idea and in some specific paragraphs along the chapters that prove to be real gems. Overall the book is good but it's not brilliant. I expect better thinks from Common Sense Economics, which I'm about to start.

[Sean Rosenthal]

Interesting Quote:

"The thriftier the government, the lower will be the taxes on production and consumption. The lower consumer taxes, the higher the standard of living; the lower the taxes on production, the greater the possibilities of expanding production, thus increasing the wealth of nations."

-L. Albert Hahn

[Robin]

My rating for this book is not for the economic theory, but rather for the reading experience. The author is in a unique place of being able to critique Keynesian economics because he was, earlier in his life, a published economist who espoused Keynesian economic theory (in some cases even before Keynes did). Later in life, Hahn eventually came to reject those ideas (no small feat for a published academic) and embrace a more Austrian/classical economic approach, which he uses as the basis of his critique here. What makes this book a bit more difficult to read is the fact that it was written in the 1940s, and therefore makes reference or allusion to a lot of the prevailing economic feelings and arguments of the day with perhaps an assumption that the reader is somewhat familiar with them. The economic issues discussed in the book are still shockingly relevant today, but somehow the reading experience doesn't fully translate.

[Harry]

The author, who made the unusual transition, not from Keynesianism to its alternatives, but the other way around, argues that Keynesians, if not necessarily Keynes himself, ignored the responses that individuals make to fiscal and monetary policy, that is, what he calls "compensating reactions."