Friday would have been the 81st birthday for Murray Rothbard. Aside from celebrating, I decided to devote my class lecture (intermediate macro) to Rothbard on Keynes. The first thing I found was Murray’s “Keynes the Man” article. I read this article again trying to decide if it was appropriate to give my class. As fascinated as I was to hear about how Keynes was a member of secret societies with strange moral beliefs, I don’t think my undergrads would’ve gotten much out of it. Then I searched through Rothbard’s Man Economy and State and found the section on “Hording and the Keynesian System.”

Simply put, this brief discussion of the Keynesian cross is great. The textbook I’m using (Froyen) didn’t go deep into the Keynesian cross, and I needed a way to structure an interesting lecture around it other than just saying that unemployment is important.
After moving from the equilibrium implications of the Classical school and the laissez faire policy suggestions that fall out and onto the Keynesian IS-LM framework with its frequent suggestions to invoke spending by manipulating interest rates, my kids have been wanting to debate the relationships between economics as a positive science and the normative policy suggestions it is used to support.
This piece worked great for that. Murray’s critique grows out of the fact that Keynes and Austrians (or Classicals) see the positive world radically different from one another. While Keynes believes that natural wage rigidities and unyielding labor contracts make the labor supply insensitive to price adjustments, Murray points out that even the labor market can adjust in quality when not allowed to adjust in price. Fringe benefits and working conditions are just a few of the many ways the labor market can respond when aggregate demand falls below full employment.
Rothbard then turns the tables of the debate. If quality adjustments could close the unemployment gap why don’t they? Labor unions control the wage rates and restrict entrants into the labor market. Keynes suggested to expand the money supply and induce investment to fix unemployment because it was caused by wage rigidities. Rothbard began his analysis from the same problem of unemployment but diagnosed the cause differently so there’s a different policy implication from this analysis regardless of ideology.
In closing, this piece is a clear representation of Keynesian unemployment that my students could follow easily, but it was also a great way to spark their interests and get them to think about political economy. What are the long term costs and benefits of different policy suggestions, what description of reality do they rely upon, and how politically feasible are certain policies in different historical contexts? These are just a few of the questions that using Rothbard’s article allowed me to address in class.
Addendum:
More birthday wishes for Rothbard and Molinari from Rough Ol’ Boy, and Austro-Athenian Empire.