Great Throughts Treasury

"Instead of burning out like a fad the General Theory is still gaining adherents and appears to be in business to stay. Many economists who are most vehement in criticism of the specific Keynesian policies?which must always be carefully distinguished from the scientific analysis associated with his name?will never again be the same after passing through his hands. It has been wisely said that only in terms of a modern theory of effective demand can one understand and defend the so called "classical" theory of unemployment. It is perhaps not without additional significance. in appraising the long-run prospects of the Keynesian theories, that no individual, having once embraced the modern analysis, has?as far as I am aware?later returned to the older theories. And in universities where graduate students are exposed to the old and new income analyses. I am told that it is often only too clear which way the wind blows. Finally, and perhaps most important from the long-run standpoint, the Keynesian analysis has begun to filter down into the elementary textbooks; and, as everybody knows, once an idea gets into these, however bad it may be, it becomes practically immortal."

"If you looked at a transcript afterward, it might seem clear that you had won the debate on points. But somehow, with members of the audience, you always seemed to come off as elite, and Milton seemed to have won the day."

"I think, without question, that unemployment of more than 6 per cent is something to be concerned about. You don't push the panic button, but you don't relax and enjoy it either... I myself don't believe in a numbers game in which you give a maximum tolerable percentage, because I think, truly, it does vary with the times... I would hesitate to specify the figure today, but I will say this: it would be, in my mind, less than a 4 per cent figure - that is, for the period ahead. I would not, realistically, think we could hope for a 2 per cent figure in the near future, as certain European countries have been able to do. But I do think that if we are pretty zealous in this matter and insist upon getting low figures - say, 3.5 per cent - then our very success in accomplishing that may lead to a new epoch just beyond when we could hope to go below 3 per cent..."

"It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office."

"Investing should be dull. It shouldn't be exciting. Investing should be more like watching paint dry or grass grow. If you want excitement, take $800 and go to Las Vegas... It is not easy to get rich in Las Vegas, at Churchill Downs, or at the local Merrill Lynch office."

"Man does not live by GNP alone."

"Mea culpa, mea culpa. MIT and Wharton and University of Chicago created the financial engineering instruments, which, like Samson and Delilah, blinded every CEO. They didn't realize the kind of leverage they were doing and they didn't understand when they were really creating a real profit or a fictitious one."

"No author can complete a survey of Keynesian economics without indulging in that favorite in-door guessing game: wherein lies the essential contribution of the General Theory and its distinguishing characteristic from the classical writings? Some consider its novelty to lie in the treatment of the demand for money, in its liquidity preference emphasis. Others single out the treatment of expectations."

"Of course, the great depression of the thirties was not the first to reveal the untenability of the classical synthesis. The classical philosophy always had its ups and downs along with the great swings of business activity. Each time it had come back. But now for the first time, it was confronted by a competing system?a well-reasoned body of thought containing among other things as many equations as unknowns; in short, like itself, a synthesis: and one which could swallow the classical system as a special case."

"Politicians like to tell people what they want to hear - and what they want to hear is what won't happen."

"Scientists are as avaricious and competitive as Smithian businessmen. The coin they seek is not apples, nuts, and yachts; nor is it coin itself, or power as that term is ordinarily used. Scholars seek fame. The fame they seek?is fame with their peers ? the other scientists whom they respect and whose respect they strive for."

"Repeatedly I have denied the great-man or great-work notion of science. Every drop helps, the old farmer said, as he spat into the pond. One does the best one can on the most pressing problem that presents. And, if after you have done so, your next moves are down a trajectory of diminishing returns, then still it is optimal to follow the rule of doing the best that there is to do. Besides, at any time a Schumpeterian innovation or Darwinian mutation may occur to you, plucking the violin string of increasing return."

"That's what I would like to do until the end of time, to go on scribbling my articles on the third floor of the Sloan Building, in between playing tennis and drinking coffee at my other study in the Concord Avenue branch of Burger King."

"The beauty of social insurance is that it is actuarially unsound. Everyone who reaches retirement age is given benefit privileges that far exceed anything he has paid in -- exceed his payments by more than ten times (or five times counting employer payments)! How is it possible? It stems from the fact that the national product is growing at a compound interest rate and can be expected to do so for as far ahead as the eye cannot see. Always there are more youths than old folks in a growing population. More important, with real income going up at 3% per year, the taxable base on which benefits rest is always much greater than the taxes paid historically by the generation now retired."

"The niceties of existence were not a matter of concern, yet everything around was closed down most of the time. If you lived in a middle-class community in Chicago, children and adults came daily to the door saying, 'We are starving, how about a potato?' I speak from poignant memory."

"The recent market run-up that appreciated run-of-the- mill shares also chanced to send up those token gold holdings. Pure luck, undeserved and unlikely to reoccur. Good questions outrank easy answers."

"The stock market has forecast nine of the last five recessions"

"Social Security is squarely based on what has been called the eighth wonder of the world -- compound interest. A growing nation is the greatest Ponzi game ever contrived."

"The General Theory caught most economists under the age of 35 with the unexpected virulence of a disease first attacking and decimating an isolated tribe of south sea islanders. Economists beyond 50 turned out to be quite immune to the ailment. With time, most economists in between began to run the fever, often without knowing or admitting their condition."

"The history of the twentieth century - America's century! - has been pretty much a history of rising prices... inflation is itself a problem. But the legitimate and hysterical fears of inflation are - quite aside from the evil of inflation itself - likely, in their own right, to be problems. In short, I fear inflation. And I fear the fear of inflation. Avoiding inflation is not an absolute imperative, but rather is one of a number of conflicting goals that we must pursue and that we may often have to compromise. Even if the military outlook were serene - and it is not - modern democracies must expect in the future to be much of the time at, or near, the point where inflation is a concern. Our greatest economic problem will be to face that concern realistically, to weigh inflation's quantitative evil against the evils of actions taken against it, to develop methods of adjusting to the residue of inflation which attainment of the 'golden mean' might involve. The challenge is great but the prognosis is cheerful."

"The investor who runs a portfolio of five to fifty asset items is (usually) being self-indulgent. The hobby can be an expensive one over forty years of the individual's life cycle. Blowing a thousand dollars a year at the gaming tables of Las Vegas might be a comparative bargain, but of course the gratifications to the ego may be less for many temperaments that are not so much desirous of taking risks as of proving an ability to beat life's odds by personal cleverness."

"The General Theory is an obscure book, so that would be anti-Keynesians must assume their position largely on credit unless they are willing to put in a great deal of work and run the risk of seduction in the process. The General Theory seems the random notes over a period of years of a gifted man who in his youth gained the whip hand over his publishers by virtue of the acclaim and fortune resulting from the success of his Economic Consequences of the Peace."

"The Keynesian system is indispensable to an understanding of conditions of over-effective demand and secular exhilaration; so much so that one anti-Keynesian has argued in print that only in times of a great war boom do such concepts as the marginal propensity to consume have validity. Perhaps, therefore, it would be more nearly correct to aver the reverse: that certain economists are Keynesian fellow-travelers only in boom times, falling off the band wagon in depression. If time permitted. it would be instructive to contrast the analysis of inflation during the Napoleonic and first World War periods with that of the recent War and correlate this with Keynes' influence. Thus, the "inflationary gap" concept, recently so popular, seems to have been first used around the Spring of 1941 in a speech by the British Chancellor of the Exchequer, a speech thought to have been the product of Keynes himself."

"The modern saving-investment theory of income determination did not directly displace the old latent belief in Say's Law of Markets (according to which only "frictions" could give rise to unemployment and over-production). Events of the years following 1929 destroyed the previous economic synthesis. The economists' belief in the orthodox synthesis was not overthrown, but had simply atrophied: it was not as though one's soul had faced a showdown as to the existence of the Deity and that faith was unthroned, or even that one had awakened in the morning to find that belief had flown away in the night: rather it was realized with a sense of belated recognition that one no longer had faith, that one had been living without faith for a long time, and that what, after all, was the difference? The nature of the world did not suddenly change on a black October day in 1929 so that a new theory became mandatory. Even in their day, the older theories were incomplete and inadequate: in 1815, in 1844, 1893, and 1920. I venture to believe that the eighteenth and nineteenth centuries take on a new aspect when looked back upon from the modern perspective, that a new dimension has been added to the rereading of the Mercantilists, Thornton, Malthus, Ricardo, Tooke, David Wels, Marshall, and Wicksell."

"There are very few people or organizations who have any presumptive edge over a low-cost, no-load set of indices, particularly on a risk corrected basis. People used to say that you're settling for mediocrity. Isn't it interesting that the best brains on Wall Street can't achieve mediocrity?"

"There is really nothing more pathetic than to have an economist or a retired engineer try to force analogies between the concepts of physics and the concepts of economics. How many dreary papers have I had to referee in which the author is looking for something that corresponds to entropy or to one or another form of energy. Nonsensical laws, such as the law of conservation of purchasing power, represent spurious social science imitations of the important physical law of the conservation of energy; and when an economist makes reference to a Heisenberg Principle of indeterminacy in the social world, at best this must be regarded as a figure of speech or a play on words, rather than a valid application of the relations of quantum mechanics."

"Various experts, here and abroad, believe that the immediate postwar inflationary climate has now been converted into an epoch of price stability. One hopes this cheerful diagnosis is correct. However, a careful survey of the behavior of prices and costs shows that our recent stability in the wholesale price index has come in a period of admittedly high unemployment and slackness in our economy. For this reason it is premature to believe that the restoration of high employment will no longer involve problems concerning the stability of prices."

"Two factors explain our success. One, MIT's renaissance after World War II as a federally supported research resource. Two, the mathematical revolution in macro- and micro-economic theory and statistics. This was overdue and inevitable, MIT was the logical place for it to flourish."

"To prove that Wall Street is an early omen of movements still to come in GNP, commentators quote economic studies alleging that market downturns predicted four out of the last five recessions. That is an understatement. Wall Street indexes predicted nine out of the last five recessions! And its mistakes were beauties."

"When the economy was going up, [Milton Friedman and I] both gave the same advice, and when the economy was going down, we gave the same advice. But in between he didn't change his advice at all."

"The very name of my subject, economics, suggests economizing or maximizing. But Political Economy has gone a long way beyond home economics. Indeed, it is only in the last third of the century, within my own lifetime as a scholar, that economic theory has had many pretensions to being itself useful to the practical businessman or bureaucrat. I seem to recall that a great economist of the last generation, A. C. Pigou of Cambridge University, once asked the rhetorical question, ?Who would ever think of employing an economist to run a brewery?? Well, today, under the guise of operational research and managerial economics, the fanciest of our economic tools are being utilized in enterprises both public and private."

"This message (that attempting to beat the market is futile) can never be sold on Wall Street because it is in effect telling stock analysts to drop dead."

"We have long been a nation of over-indulgence. Many of us think nothing of spending $300 on a pair of shoes or $500 on a purse, while others can barely make ends meet. Now, as the economy takes a turn for the worse, more and more of us are seeing the benefits of living frugally. But how do you go from living the "high life" to living on a budget without going insane? Here are some frugal living tips to help you tighten the belt without choking your lifestyle."

"What good does it do a black youth to know that an employer must pay him $2 an hour if the fact that he must be paid that amount is what keeps him from getting a job?"

"With respect to the level of total purchasing power and employment, Keynes denies that there is an invisible hand channeling the self-centered action of each individual to the social optimum. This is the sum and substance of his heresy. Again and again through his writings there is to be found the figure of speech that what is needed are certain "rules of the road" and governmental actions, which will benefit everybody, but which nobody by himself is motivated to establish or follow. Left to themselves during depression, people will try to save and only end up lowering society's level of capital formation and saving; during an inflation, apparent self-interest leads everyone to action which only aggravates the malignant upward spiral"

"You know what happiness is: 'Having a little more money than your colleagues.' And that's not so tough in academic life."

"Yes, 1932 was a great time to be born as an economist. The sleeping beauty of political economy was waiting for the enlivening kiss of new methods, new paradigms, new hired hands, and new problems. Science is a parasite: the greater the patient population the better the advance in physiology and pathology; and out of pathology arises therapy. The year 1932 was the trough of the great depression, and from its rotten soil was belatedly begot the new subject that today we call macroeconomics."

"Women are men without money."

"With the assistance of mathematics, I can see a property of the ninety-nine dimensional surfaces hidden from the naked eye. If an increase in the price of fertilizer alone always increases the amount the firm buys of caviar, from that fact alone I can predict the answer to the following experiment which I have never seen performed and upon which I have no observations: an increase in the price of caviar alone will increase the amount the firm buys of fertilizer. In thermodynamics such reciprocity or integrability conditions are known as Maxwell Conditions; in economics they are known as Hotelling conditions in honor of Harold Hotelling?s 1932 work."

"You shouldn't spend much time on your investments. That will just tempt you to pull up your plants and see how the roots are doing, and that's very bad for the roots. It's also very bad for your sleep."

"You could be disqualified for a job [at Harvard] if you were either smart or Jewish or Keynesian. So what chance did this smart, Jewish, Keynesian have?"