From Cafe Hayek, Keynesian Splenetics:

Second, Keynes (at least by the time he wrote his General Theory) utterly failed to appreciate the incomprehensibly vast, nuanced, and ever-changing market details each of which must be accounted for and adjusted to in order for even a non-innovative economy to operate well enough to supply a sustained stream of useable goods and services to millions of people.  Risk and uncertainty cannot be eliminated from any such real-world economy.  No market economy is ever remotely like some machine that, once it’s up and running and all its kinks have been worked out and all changes to it have been exhausted, chugs along period after period doing its thing and needing only a skilled supervisor to ensure that it remains well-oiled and that its fuel supply isn’t interrupted.

A market economy becomes magnitudes more complex when it is innovative. The greater prosperity that ordinary denizens of capitalist societies today regularly enjoy is not chiefly the result of pumping more fuel into the capitalist machine so that its pistons fire faster and its gears spin more rapidly causing it to churn out more of the same output as before but at a faster rate.  A marked feature of modern capitalism is what Schumpeter famously identified as “gale[s] of creative destruction.”

A never-ending torrent of new products, new methods of production, new ways of financing, new means of distribution – these entrepreneurial innovations, introduced and tested in competitive markets, are the main source of our prosperity.  Only someone, such as Keynes, who completely misses this entrepreneurial aspect of capitalist reality would entertain the notion that capitalist enterprises could be run exclusively by competent supervisory managers.  Only someone, such as Keynes, who saw the economic problem as being largely confined to ensuring that the economy-as-machine steadily produces a sufficiently abundant stream of output of familiar goods and services would write that interest rewards no genuine sacrifice.  Only a monumental failure, such as Keynes’s, to understand the essence of capitalism can explain why he and others (such as, today, Thomas Piketty) miss the central role of the creative, innovative entrepreneur.


Keynes understood and spoke of animal spirits, but frowned on a career on money making. I think he failed to appreciate the modern entrepreneurial spirit and the concept of mental capital and the competition of ideas.