Is the Paradox of Thrift Actually a Paradox?

by Henry Farrell on November 2, 2013

Paul Krugman mentions that Keynesian staple, the “paradox of thrift”: in passing on a post on Germany. Which I read as giving me license to quote one of my favorite paragraphs from Albert Hirschman’s work (this from his piece, “How the Keynesian Revoution was Exported from the United States, and Other Comments,” in Peter Hall (ed.) The Political Power of Economic Ideas.

But while rehabilitating common sense, Keynes hardly presented his own theory in commonsensical terms. Rather, his message was delivered in a book whose text was uncommonly difficult. Moreover, he frequently presented his propositions as counterintuitive rather than as confirming common sense: for example, instead of telling his readers that converging individual decisions to cut consumption can set off an economic decline (common sense), he dwelt on the equivalent but counterintuitive proposition that a spurt of individual decisions to save more will fail to increase aggregate savings. In this manner, he managed to present common sense in paradox’s clothing and in fact made his theory doubly attractive: it satisfied at the same time the intellectuals’ craving for populism and their taste for difficulty and paradox.

I’m not sure if it’s entirely fair, but it is surely beautifully put. Unfortunately, this essay doesn’t appear in the new volume of The Essential Hirschman (Powells, Amazon). But there are many other wonderful essays that are there (including my favorite, “Rival Views of Market Society). A wonderful book, and a treat if you haven’t read Hirschman before.