"THE MULTIPLIER" 149

authorities on all accounts, whether on capital account or

to meet a budgetary deficit." (My italics.)
What is really necessary to get the "multiplier" effect, in
short, when we start calling things by their right names, is
not "investment" but inflation.
"Investment" is irrelevant to the multiplier. If, to take
another illustration, we find that the community is spend­
ing only eleven-twelfths of its income on goods whose names
begin with the letters A to W, inclusive, then we get every­
thing to come out right by having the community spend
the other twelfth of its income on the goods beginning with
the letters X, Y, Z. And it is of no importance whatever,
for this effect, whether the A-W goods or XYZ goods con­
sist wholly or partly of consumer goods or capital goods.
The word "investment" is merely being used in a Pick­
wickian, or Keynesian, sense. And the great advantage of
"loan expenditure" is not that it involves investment out
of past income, but that it involves the printing of more
money.
We shall have enough to do in this volume dissecting the
errors of Keynes himself, without going into the supple­
mentary or derivative errors introduced by some of the
Keynesians. For that reason I shall make no effort here to
analyze the "foreign-trade multiplier," which contains, in
addition to all the fallacies in the "multiplier" concept it­
self, additional fallacies based on crude mercantilistic con­
cepts of the effects of imports and exports respectively.
But two criticisms of the "multiplier" remain to be
made, and both are basic. In the first place, even granting
all of Keynes's other peculiar assumptions, it is difficult to
understand just why the multiplier (except by sheer as­
sertion) should necessarily be the reciprocal of the marginal
propensity to save. If the marginal propensity to consume
is lo, we are told, the multiplier is 10. Why? How?
We have already tried to guess (p. 139) how Keynes might
have arrived at this astonishing notion. But let us take an
imaginary illustration. Ruritania is a Keynesian country
150 THE FAILURE OF THE "NEW ECONOMICS"
that has a national income of $10 billion and consumes only
$9 billion. Therefore it has a propensity to consume of /0 •
But as in some way it manages to "save" 10 per cent of its
income without "investing" the 10 per cent in anything at
all, it has unemployment of 10 per cent. Then the Keynes­
ian government comes to the rescue by spending, not $1
billion, but only $100 million on "investment." For as the
"multiplier" is 10 (because Keynes has written out a mathe­
matical formula which makes it 10 when the marginal pro­
pensity to consume is /0), this $100 million dollars worth
of direct new employment somehow multiplies itself to $1
billion of total new employment to "fill the gap," and lo!
"full employment" is achieved.
(Expressing this in terms of employment, we might say:
When the propensity to consume of Ruritania is lo, then,
unless something is done about it, only 9 million of Ruri­
tania's working force of 10 million are employed. It is then
simply necessary to spend enough to employ directly 100,-
000 more persons, and their spending, in turn, will ensure
a total additional employment of 1 million.)
The question I am raising here is simply why such a
relationship between the marginal propensity to consume
and the multiplier is supposed to hold. Is it some inevitable
mathematical deduction? If so, its causal inevitability some­
how escapes me. Is it an empirical generalization from
actual experience? Then why doesn't Keynes condescend
to offer even the slightest statistical verification?
We have already seen that investment) strictly speaking,
is irrelevant to the "multiplier"-that any extra spending
on anything will do. We have already illustrated this by
dividing commodities into those beginning with the letters
from A to W, and those beginning with the letters X, Y,
and Z. But a still further reductio ad absurdum is possible.
Here is a far more potent multiplier, and on Keynesian
grounds there can be no objection to it. Let Y equal the
income of the whole community. Let R equal your (the
reader's) income. Let V equal the income of everybody
152 THE FAILURE OF THE "NEW ECONOMICS"
equivalent to an added money supply and would raise prices
and wages again.
I am not arguing here that prices and wages are in fact
perfectly fluid. But neither, as Keynes assumes, are wage­
rates completely rigid under conditions of less than full
employment. And to the extent that they are rigid, they
are so either through the anti-social policy of those who
insist on employment only at above-equilibrium wage-rates,
or through the very economic ignorance and confusion in
business and political circles to which Keynes's theories
themselves make so great a contribution.
But this is a subject that we shall develop more at length
later.
5. Paradox and Pyramids
In Section VI of Chapter 10 on the multiplier, Keynes
lets himself go in one of the irresponsible little essays in
satire and sarcasm that run through the General Theory
as they run through all his work. As these essays rest on
obviously false assumptions, and as Keynes writes them
with his tongue more or less in his cheek, it might seem to
be as lacking in humor to "refute" them seriously as to
"refute" a paradox of G. K. Chesterton or a epigram of
Oscar Wilde. But these little essays are the most readable
and the most easily understood part of Keynes's work. They
are quoted by many laymen with chuckles of approval and
delight. So we had bette� give them a certain amount of
serious attention.
Keynes begins Section VI by assuming "involuntary un­
employment" without explaining how it comes about. At
the same time he assumes that the only way to cure it is by
"loan expenditure" -no matter how wasteful. "Pyramid­
building, earthquakes, even wars may serve to increase
wealth, if the education of our statesmen on the principles
of the classical economics stands in the way of anything
better" (p. 129). (If our statesmen were really educated in