The Fatal Conceit: The Errors of Socialism (The Collected Works of F. A. Hayek Book 1)

by Friedrich A. Hayek

Keynes also argued against the moral tradition of the ‘virtue of saving’, refusing, along with thousands of crank economists, to admit that a reduction of the demand for consumers’ goods is generally required to make an increase of the production of capital goods (i.e., investment) possible. And this in turn led him to devote his formidable intellectual powers to develop his ‘general’ theory of economics – to which we owe the unique world-wide inflation of the third quarter of our century and the inevitable consequence of severe unemployment that has followed it (Hayek, 1972/1978). Thus it was not philosophy alone that confused Keynes. It was also economics. Alfred Marshall, who understood the matter, seems to have failed to impress adequately upon Keynes one of the important insights that John Stuart Mill had gained in his youth: namely, that ‘the demand for commodities is not a demand for labour’. Sir Leslie Stephen (the father of Virginia Woolf, another member of the Bloomsbury group) described this doctrine in 1876 as a ‘doctrine so rarely understood, that its complete appreciation is, perhaps, the best test of an economist’ – and was ridiculed for saying so by Keynes.