Friday, September 19, 2014

Hayek Not Opposed To Keynes On Political Principle

With characteristic cheerful carelessness, Noah Smith misinforms hapless Bloomberg readers:

"Friedrich Hayek tried to argue against Keynes' theories, but for whatever reason, he lost the debate among economists in the 1930s. But Hayek would have the last laugh, because in his book, 'The Road to Serfdom,' he attacked Keynes from a very different angle. Instead of saying Keynes' theories were wrong, Hayek prophesied that Keynesian stabilization policies would lead down the slippery slope to totalitarianism."

As a matter of fact, Hayek said nearly the opposite:

"There is, finally, the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them. This is, of course, one of the gravest and most pressing problems of our time. But, though its solution will require much planning in the good sense, it does not - or at least need not - require that special kind of planning which according to its advocates is to replace the market. Many economists hope, indeed, that the ultimate remedy may be found in the field of monetary policy, which would involve nothing incompatible even with nineteenth-century liberalism. Others, it is true, believe that real success can be expected only from the skilful timing of public works undertaken on a very large scale. This might lead to much more serious restrictions of the competitive sphere, and, in experimenting in this direction, we shall have to carefully watch our step if we are to avoid making all economic activity progressively more dependent on the direction and volume of government expenditure. But this is neither the only nor, in my opinion, the most promising way of meeting the gravest threat to economic security. In any case, the very necessary efforts to secure protection against these fluctuations do not lead to the kind of planning which constitutes such a threat to our freedom." -- Frierich A. Hayek, The Road to Serfdom (1944), Chapter IX.

Both Hayek and Keynes drew on nineteenth-century Liberalism. They agreed that the inherited lines limiting government action needed to be redrawn. Keynes said as much in the 1920s, in his essays republished in Essays in Persuasion. Hayek's reference above, to the "timing of public works" is to Keynes' ideas. Keynes doubtless would have redrawn the lines more broadly then Hayek. But Hayek explicitly says above that Keynes' approach is neither necessarily a threat to freedom, nor a station on the way to totalitarianism. Hayek says his differences with Keynes are pragmatic, a dispute over what is likely to be effective.

1 comment:

Magpie said...

It seems there's a Keynes for every occasion and that everybody has their own version of what "left"/"right" and "liberalism"/"conservatism" means:

Too bad those ideas tend to contradict each other...