Many may have noticed that The Economist is running an online debate
over the proposition, "we are all Keynesians now." This is only a
small part of an intense ongoing international controversy about the
role of stimulus packages in the current economic environment. I think
all of this is something that ought to be of interest to historians of
economic thought for a variety of reasons.

(1)	Brad DeLong is taking the affirmative side in this on-line
debate. And in making his case, he wrote about the views of those
economists who were opposed to the fiscal stimulus, and chose as his
examples William Poole, Robert Barro, John Cochrane, Edward Prescott and
Eugene Fama. These economists, DeLong wrote, were following Say's Law.
About their arguments, he wrote:

"The argument that Messrs Fama, Prescott, Cochrane, Barro, Poole and
company are making is what economists call Say's law. It is the claim
that decisions to increase spending-whether they come from the
government or anybody else-cannot spur the economy and raise employment
and production because demand must be created by supply. If the
government spends, somebody else must cut back on their spending."

This is, properly in my view, to plunge this debate on what policies to
follow in the world's economies at this time into the very depths of the
history of economic thought.

(2)	I have just written an article, published this month in the
Australian monthly publication, Quadrant, titled "The Dangerous Return
of Keynesian Economics" which is about the way in which economic
theory has lost its ability to offer sound policy guidance because of
the disappearance of Say's Law. Many on this website will have seen
previous postings of mine on this issue, but until now they were of only
"academic" interest. They are now matters of the most urgent public
importance. Keynes never refuted Say's Law in any genuine way and the
models he inspired have been notoriously wrong in providing advice to
policy makers. Economists chose to follow Keynes, but not because he had
demonstrated that classical principles were wrong or because Keynes's
theories had brought the Great Depression to an end. Anyone interested
in reading this article on Say's Law, its history and its
implications, can find it at:

https://www.quadrant.org.au/blogs/qed/2009/02/the-dangerous-return-to-keynesian-economics


(3)	The history of economics for economic theory generally is
crucially important. Historians of economics, possibly because they have
been shunned for so long, have retreated towards simply thinking of
themselves as engaged in an arcane study of the history and philosophy
of science with no real world relevance. This is positively wrong. My
earlier books both published by Elgar on Say's Law (take your pick:
Say's Law and the Keynesian Revolution (1998) or Two Hundred Years
of Say's Law (2003)) are about issues relevant today. Brad DeLong,
even though he cites what he refers to as Say's Law, fundamentally
misunderstands what classical economists had written and therefore
cannot understand what classical economists were trying to argue. It is
no wonder that he thinks we should still be following Keynesian
prescriptions even as these very policies are leading the economies of
the world into very troubled waters. Because he can see this as well as
anyone else, he retreats to writing that "even though Say's law is
not true in general, could it possibly be true in this particular
case?" How many questions does this then raise? Such a statement is
a very very long way from a robust defence of Keynesian theory and a
major step back towards classical economic thought.

(4)	The history of economics is a necessary part of economics.
Trying to flounder around with our present economic problems without
having the ability to mine the theories of the cycle that existed before
the publication of the General Theory means we as economists do not have
the intellectual resources to think broadly enough about our current
economic problems. For a defence of HET, have a look at the latest issue
of History of Economic Ideas in which there is a symposium commenced by
myself and my Australian colleague, Alex Millmow, on the role of the
history of economic thought in keeping economic theory on track. This
ought to be a time for historians of economics to remind their more
mainstream colleagues why HET is essential to the study of economics
proper.

Steven Kates