The most damning thing that Keynes said about Hayek's work was that it was "an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam". His logic was thus an irrelevant abstraction, its beauty purely formal. The most damning thing that Hayek later found to say about Keynes's general theory was that it was "a tract for the times".
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Interestingly, as Wapshott notes, Hayek applied the same phrase, in the same pejorative tone, to his own most famous publication. His popular book The Road to Serfdom , published in , suddenly gave the austere Austrian a degree of name-recognition in the same league as Keynes, not least in the US. With the New Deal and subsequent wartime prosperity as object lessons, liberals on both sides of the Atlantic adopted the Keynesian mantra that full employment could only be guaranteed by government.
Conservatives seized on Hayek's tract as a timely warning of the perils down the road. But whereas Keynes surfed his wave of fame, Hayek quickly became alarmed at having inadvertently written a bestseller — "a very corrupting experience", he decided. Hayek was not always the fastidious scholar. As Wapshott notes, he was guilty of "misappropriating" the aphorism with which Keynes had reproached the sterility of orthodox inertia in policy-making — "in the long run we are all dead".
- The Tale of the Dueling Economists.
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Hayek refused to come up with any policy option, preferring to trust the market, however long it took to show its self-correcting tendency. He refused, too, to take seriously the general theory's insistence that the outcome for the economy as a whole, in aggregate, may defy analysis purely in terms of the behaviour of individuals. Yet everyone recognises this dimension as macro-economic today, even those who are strongly opposed to Keynesian policies for stimulating and regulating effective demand.
This poses a problem for an account of the eighty years war that polarises it between Keynesians and Hayekians. For in policy terms, it was surely Milton Friedman who, in the s and 70s, seized the moment to proclaim a counter-revolution against Keynesianism.
It is a point that Wapshott well recognises. From their first face-to-face encounter to the heated arguments between their ardent disciples, Nicholas Wapshott here unearths the contemporary relevance of Keynes and Hayek, as present-day arguments over the virtues of the free market and government intervention rage with the same ferocity as they did in the s.
The battle between growth versus austerity today is a rerun of Keynes v Hayek.
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In Britain, in the Eurozone and in America, the political world is divided about how to lift the world economy out of the doldrums, whether to funnel more cash into the system through cheap money, tax breaks, public borrowing, and public works, as Keynes recommended, or whether to pay off public debt fast and hunker down until a recovery emerges through market forces. Political forces are lined up behind those, like Keynes, who detested the waste of human lives in protracted unemployment, and those, like Hayek, who yearned for a lost order in a market economy pulled out of shape by persistent intervention by governments.
Nicholas Wapshott will talk about his book and the relevance of the Keynes-Hayek clash today, and take questions from guests. Although a great deal of cash was wasted and ended up benefiting businesses outside of America, the stimulus halted the precipitous economic decline that threatened to drag the country into a Great Recession. The November election marks a fork in the road: whether to continue trying to pursue Keynesian remedies; or whether to follow the British example and start quickly paying down public debt.
Keynes Hayek : The Clash That Defined Modern Economics (Reprint) [Paperback]
So the ideas that Keynes and Hayek engaged in 81 years ago persist to this day. He is a Reuters contributing columnist and an online content consultant to a number of media and private clients.
Five extracts from the book are also available here. Do modern economics students even read Keynes or even know about Hayek? Click here to cancel reply. Email address:. Experts analyse and debate recent developments across UK government, politics and policy.
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