Saturday, January 28, 2012

BOOK REVIEW: "KEYNES/HAYEK"


That's John Maynard Keynes above, the economist who popularized the idea that government intervention in the economy could prevent slumps and depressions. Keynes is one of the pillars of modern liberalism and progressivism.


That's Keynes' opposite above...Friedrich von Hayek, the Nobel Prize winning economist who believed that slumps and depressions are made worse by government intervention. Together with Mises, Hayek became one of the fathers of the modern libertarian and conservative movements.

The two men defined the economic battle of our time: whether governments should intervene in markets.


Now I know absolutely nothing about economics, but like most people that doesn't deter me from having an opinion about it. I'm a Hayek man (sort of)...though if you disagree, and have read a comic book on the subject recently, you could probably embarrass me in an argument.

If you're a Keynesian you'll probably love the book I'm reading now: "Keynes/Hayek: The Clash That Defined Modern Economics" by Keynesian Nicholas Wapshott. I like the way the author argues. At every step he digresses to explain what his opposite thinks, at least half the time fairly, and the biographical details go a long way in fleshing the ideas out.



If I were a book writer, that's the way I'd do it. You learn more from the intelligently laid-out clash of opposing ideas than from a book advocating a single idea. My own term for this type of thing is "conflict learning." This is one way I'd teach a class if I was a liberal arts teacher. I'd debate my opposite for half the class just to air the subject, then at the half way mark invite the class to participate. This could work, even for the discussion of literature.




But I digress. Keynes believed in government intervention in the economy to create demand.  Hayek believed that intervention would lead to a deepening of economic woes, which would create the need for still more intervention til we end up with a totalitarian state. Keynes thought that was silly. Look at Sweden and Switzerland...no totalitarian state there. Hayek pointed out the path taken by interventionist states like Germany and Italy in the thirties. That system was prevented from spreading only by war. I could go on, but you get the idea. The book is full of interesting back and forth like this.



Oddly, neither Hayek nor Keynes might recognize themselves in their modern disciples. Hayek is beloved by modern conservatives and libertarians, but he wrote an essay called, "Why I Am Not a Conservative," where he argued against nationalism, and laid out his belief that a culture should not be sentimentally attached to traditional ways of doing things. Keynes repudiated socialism as unworkable and believed that his system should only be applied at times of crisis when downturns in the business cycle brought about unemployment. Many of his modern disciples disagree and see government intervention as a constant. A fascinating book!




BTW: Who's the man in the cartoon (above)? He looks like both Keynes and Hayek.

Also BTW: Many, Many thanks to Kelly Toons and Jonathan Mastron for the great videos!!!!!!!! Both are worth watching.

14 comments:

mike fontanelli said...

I prefer KEYES and HAYEK, myself. To each his own.

Eddie Fitzgerald said...

Mike: Haw! Yeah, I see your point!

Anonymous said...

Best post of the year and coincidentally what I want to study later on in college. I personally like both of Keynes and Hayek's approach to economics. Both of them work depending on the context of the slump, the monetary policy, tax system, and the inflation and unemployment rates. Have you ever listened to The Dave Ramsey Show or listened to people like Gerald Celente? Just wondering. Discovered the latter on the College Conspiracy documentary and the former in my economics course. Need to check out these books soon.

Kelly Toon said...

I'm a Ludwig Von Mises gal myself www.mises.com but of the two I certainly prefer Hayek.

I actually mentioned Hayek and Kenes today at the cinema with my dad and brother. I brought up this excellent rap battle video between said gentlemen: http://www.youtube.com/watch?v=d0nERTFo-Sk

The film we saw was "A Dangerous Method," and would you believe it? It's all about the sordid tale surrounding the relationship of psychoanalysists Carl Jung and Sigmund Freud :o You may recall I have an abiding admiration for Carl Jung and I was apprehensive that the film would get it all wrong. Much to my delight, it was a very successful film. I don't want to take up your time with a drawn-out review, but suffice it to say I have a feeling you would greatly appreciate this film Eddie and I hope you may take the time to go see it. It's a doozy! And there's some naughty spanking too, which always keeps things interesting. Kiera Knightly is a force to be reckoned with, lets just say.

here's the trailer: http://www.youtube.com/watch?v=664eq7BXQcM

JM said...

I love the way the two of them are contrasted in these videos:
http://www.youtube.com/watch?v=d0nERTFo-Sk
http://www.youtube.com/watch?v=GTQnarzmTOc

Raven Onthill said...

Business and economics journalist David Warsh on Keynes & Hayek, here.

The conflict between Keynes and Hayek is largely one talked up by conservatives; in his day, as a working economist, Keynes won the field, and is still doing so: predictions made based on Hayek's theories do not hold water, while Keynesian predictions do. Yet Hayek's attitude towards economics--his philosophy--has influenced generations of economists.

Severin said...

The Economist did a nice article about the East India Trading Company recently. The East India Company worked under a Keynesian model: the company was privately run, but chartered by the crown of England. The effect was that the company flourished in boom times, but leaned on royal support when the economy went bust. The system worked for centuries.

I think the reason it worked was because the EITC was well managed during its entire existence. When a company goes broke, there should be some analysis into why the company was doing poorly. Giving money to a company that's fallen upon hard times could keep a good company afloat during a couple years of turmoil. Giving money to a company that's floundering under poor management is just throwing money away.

Eddie Fitzgerald said...

Kelly: Wow! A terrific video! I added it to the post. Many thanks!

The Jung film looks great. I just saw a three part miniseries on Freud that was terrific, and Jung plays a large part in it. Freud was played by...Aaaargh, I can't remember the name...the actor who aced the part of Poirot a few years back. Netflix has it.

Eddie Fitzgerald said...

Jonathan: A second Keynes Hayek video, and its as good as the first one...my cup runneth over!!! Many thanks!!! I'll add it to the post.

Eddie Fitzgerald said...

Raven: I think we could both make a long list of bad ideas which won the field in their day. And the predictions you mentioned...I'd have to see them. Maybe the book I'm reading will get into that.

I don't enough about technical economics to know if Keynes' ideas could work in the short run. For the sake of argument I'll concede that if they were adminstered by rational, fair-minded experts, that some good might come of it...but really, how likely is that?

Democratic governments are run by politicians, and it's in their nature to buy votes with favors and to make extravagant promises and giveaways. If you give these people a blank check you shouldn't be surprised if they abuse the power.

Anyway, thanks for the interesting link!

Severin: The East India Company? It sounds like an interesting article.

Of course the East India Company was arguably an extention of the British government, and might be a special case.

You seem to believe that tax payer support for well run companies in hard times is justified, but is it? Do you trust politicians to make those decisions? What impact would selective giveaways like that have on better run competitors? Giveaways would mean higher taxes, and higher taxes =fewer jobs. Do the benefits outweigh the liabilities?

Severin said...

It's true, just about the last person I'd trust with government money would be a politician. As for the EITC, it was effectively separate from the British government. In many ways it was its own country, with its own laws and a standing army. The EITC was managed by a meritocracy, which was revolutionary for the time.

Again, though, I completely agree that money given to a poorly-run company is no better than throwing it away, but sometimes a company faces problems outside of its ability to cope. A country can lose many of its industries in times of economic troubles. By issuing low-interest loans (which a government can do because of its ability to levy taxes and print money), the state can keep some of its industries afloat until the economy turns better.

Then there's China, which uses state money to accelerate growth for companies run by former state employees, which then compete in the global market. It's worked very well in the past couple decades, but many economists point to signs that this model could backfire. I think China is where the largest Keynes/Hayek experiment is yet to occur.

The Aardvark said...

Eddie, I believe David Suchet is the actor you were thinking of.

Out of curiosity, what was the econ. comic to which you referred?

Quoth The Raven: "...predictions made based on Hayek's theories do not hold water." Excellent unfounded assertion. If this is true,could it be that his predictions require playing the game by the rest of his rules?

The Aardvark said...

http://mises.org/books/TRTS/

Here is the illustrated "Road to Serfdom" from Look magazine.

Eddie Fitzgerald said...

Aardvark: Sorry I didn't reply right away. I don't know where the comic came from, but I suspect there's a comic version of Hayek's serfdom book making the rounds out there. I checked Amazon and wasn't able to find it.

Thanks a million for the Look magazine comic. It's hard to imagine a large circulation magazine taking a free market stand nowadays. How things have changed!