Keynes overwhelmed Hayek


The truth is that Keynes overwhelmed Hayek, simply by making more interesting and relevant statements. Of course, the roundaboutness of production under capitalism may sometimes lead to waste, but that does not justify government inactivity. Economists have squabbled about many things since the 1930s, including the relative effectiveness of fiscal and monetary policies in a world where governments “do something” about deep recessions. But the case for policy activism of some kind is fairly uncontroversial. The concepts and ideas that figured in the Keynes–Hayek debate of 1931 have hardly ever been mentioned in the subsequent debates. By the 1950s, Hayek was a marginal figure in Anglo-American macroeconomics. Wapshott tries to substantiate the significance of the 1931 spat by seeing it as the source of a later multiplicity of disputes between the Keynesians and free market enthusiasts. But this is neither correct as an account of how the various disputes began and developed, nor as an appreciation of Hayek’s greatness. (And my interpretation – which may be wrong – is that Wapshott is keener on Hayek than on Keynes. As with a good detective novel, the suspense is maintained to the very last page.) Hayek surrendered to Keynes and the Keynesians on money and macroeconomics, and from the mid-1940s rebuilt his reputation by magnificent contributions to political philosophy and the philosophy of law. These contributions have only a tenuous relationship with Austrian capital theory and theorizing about roundabout production methods. Wapshott should not pretend that there was some sort of continuity between Hayek’s early work on money and his later work on the philosophy of the State, or that the 1931 debate had a special role in initiating later arguments.

more from Tim Congdon at the TLS here.