Keynesian economists .. fail to understand what the great Austrian economist F.A. Hayek understood, namely, that markets allocate resources by relative prices. For example, suppose consumers’ taste for fish intensifies while their taste for beef weakens. Consumers will then spend more money buying fish and less buying beef.
The resulting higher price of fish relative to the price of beef will signal to entrepreneurs, investors and resource owners to produce more fish and to produce less beef. This change in production patterns is precisely what should happen.
Specialized beef producers, though, aren’t so keen on this little piece of economic change. Some workers in the beef industry will lose their jobs.
Would it be a sound economic diagnosis to attribute these job losses to a reduction in total consumer demand? Of course not. Would it be sound economic policy for government to save those jobs by entering the beef market and buying more beef? Of course not, for to do so would divert scarce resources from other uses more valuable to consumers.
Politicians, ever eager to justify meddling further into the economy, jump on this Keynesian bandwagon. The result is that the normal corrective adjustments in the market are thwarted and government’s power over the private economy grows dangerously.