Keynes/Hayek (the review after I finished the book)

by pdxblake

As presumptuous as it seems, reviewing Keynes Hayek a third of the way throught was absolutely the best thing I think I could have done (here’s the link).  I finished the book today and I have to say it was a bit of a snoozer from the point when I wrote the review to the end (I literally fell asleep twice reading it, but that may say more about my couch than it does about the book).  The entirety of the book’s premise is that Hayek was called in to refute Keynes’ argument starting with his Treatise on Monetary Policy. That book, and later editorials and short papers was a predecessor to Keynes’ signature work, the General Theory of Employment, Interest and Money.  However, the initial confrontation in the pages of the journal Economica were the last substantive debate between Keynes and Hayek.

The remainder of the book shapes the sad life of Hayek from the early 1930s through his Nobel Prize in the 1970s (a move by the Nobel committee to prove they didn’t have a liberal bias).  It included a move to Arkansas so he could more easily divorce his wife to marry his cousin (I shit you not) and on to Chicago where the economics department was not interested in hiring him.  His Road to Serfdom was deemed “too popular a work for a respectable scholar to perpetrate [and it was] all right to have him at Chicago so long as he was not associated with the economists”.  Instead, he became professor of social and moral science.

After Hayek’s Nobel prize, the book moves into the Reagan and Thatcher period and more or less ignores Hayek as the creator of new economic thought, but focuses on the rise of Monetarism and supply side economics and how it was or was not based on Hayek’s thinking.  Finally, it concludes with the Lesser Depression that began in 2008, which resulted in a quick readoption of Keynesianism as the economy was on the brink of repeating the Great Depression.  The book concludes with an enticing summary that encapsulates a theme of the book: the optimism that Keynes embodied and the deep pessimism of the libertarian/Hayekian worldview.  The final paragraph of the book is a lengthy quote from John Kenneth Galbraith, a preeminent economist who carried on the tradition of Keynes who noted that:

Keynes was exceedingly comfortable with the economic system he so brilliantly explored.  So the broad thrust of his efforts, like that of Roosevelt, was conservative; it was to help ensure that the system would survive.  But such conservatism in the English-speaking countries does not appeal to the truly committed conservative…Better to accept the unemployment, idled plants, and massive depair of the Great Depression, with all the resulting damage to the reputation of the capitalist system, than to retreat on true principle…When capitalism finally succumbs, it will be to the thunderous cheers of those who are celebrating their final victory over people like Keynes”.

With the fight over raising the debt ceiling, and the Tea Party willingness to allow the US government to default in their pursuit of draconian spending cuts during an already weak recovery from twin real estate and financial bubbles, perhaps we can see clearly the Hayekian ideal, and the wisdom that Galbraith expressed in 1983.

And lest you think this is another Keynes celebrating liberal tome, look at the credentials of the author, Nicholas Wapshott.  He wrote a book called Ronald Reagan and Margaret Thatcher: A Political Marriage, and wrote for the London Times and the short-lived New York Sun, which had as its editorial perspective: “limited government, individual liberty, constitutional fundamentals, equality under the law, economic growth … standards in literature and culture, education.”