Question

In his Treatise on Money (1930) John Maynard Keynes adopted definitions of saving and investment which also recognized the possibility of their divergence. How does Keynes’s logic contrast with Hayek’s logic?

economics

Answer 1

Keynes theory : Persistent or high unemployment comes as a result of insufficient demand.While in most cases markets are self correcting,there are times when it faila to correct and requires government can spend money in the short term ,stimulating aggregate demand.As income rises,the consumer will increase activity,further stimulating demand,leading to a self-sustaining recovery.

The core disagreement between Keynes and Gaye was whether government should try to address a recession by spending(if interest rates are already low as low as lossible) This is a normative question,and as such does not have a single "correct " answer.

However,they based their views on various empirical arguments,so we can judge which one of them was right more often on those.On the issue where they flatly contradicted each other,most often Keynes was right and Hayek was wrong.However,Hayek did raise several valid points that Keynes failed to address at all,and so his position does still have some validity.

the core of their disagreement was over public spending.Keynes argued that,in times of high unemployment and low interest rates,the main problem is a lack of demand.

Hayek disagreed he believed public spending at best tends to drive up the rate of interest-a process which is surely particularly undesireableundesireableat this juncture when the revival of the supply of capital to private industry is an admittedly urgent necessity.