Question

COMPARE AND CONTRAST the Keynesian and Hayekian views on the following issues:

The effects of war on the economy (Do Hayek's view's remind you of opinions of another economist whose work we studied in the course? Who is that? What similarities do you see?)

The validity and role of government stabilization policy aimed at stimulating the economy

The efficiency and performance of free markets.

https://www.youtube.com/watch?v=GTQnarzmTOc

Answer 1

JOHN MAYNARD KEYNES and Friedrich Hayek. The names conjure opposing poles of idea about making monetary policy: Keynes is on the whole held up because the flag bearer of lively government intervention in the markets, at the same time Hayek is regarded as the champion of laissez-faire capitalism.

What these guys actually concept concerning the economic climate and each other is extra complicated, as Nicholas Wapshott demonstrates in Keynes Hayek: The conflict That defined modern-day Economics (W. W. Norton, $28.95). This lively book explores one of the most pressing monetary questions of our time: To what extent will have to government intervene in markets? And in that search, it traces the interaction of the two guys most accountable for the way we method this question: the British economist Keynes and the Austrian economist Hayek.

Both guys came of mental age within the aftermath of World struggle I. They lived by means of the boom of the Twenties and via the exceptional melancholy and arrived at radically one of a kind views of the wisdom of letting free-market capitalism run its course.

Keynes concluded that markets would no longer automatically furnish full employment and that for the duration of downturns there might be long periods of huge-scale unemployment. He argued that it was the federal government responsibility to alleviate the plight of the jobless through growing mixture demand for items and services.

Mr. Wapshott, a Reuters contributing columnist and a former senior editor on the instances of London, skillfully reconstructs the context wherein Keynes formulated his theory. For the duration of the Twenties, Britain persevered constantly high unemployment. Successive policy makers, worried about rising fees and falling tax income, not noted Keynes requires public spending, setting off what he called a vicious circle.

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We do nothing when you consider that we now have not the money, Keynes mentioned in 1930 to a executive committee investigating the factors of the fiscal hindrance. but it is exactly due to the fact we do not do anything that we have now not the money.With the unemployment fee now at 9.1 percentage, I gulped long and tough as I learn these pages.

Hayek got here to an extraordinarily different conclusion. After serving in World conflict I, he determined his cherished Vienna devastated and its persons self belief damaged, Mr. Wapshott writes. For the duration of the ensuing decade, hyperinflation pummeled the Austrian economic system, melting away the financial savings of millions of people.

This expertise, Mr. Wapshott argues, hardened Hayek against individuals who encouraged inflation as a healing for a damaged economic system. And he came to suppose that individuals who recommended colossal-scale public spending programs to cure unemployment were inviting no longer simply uncontrollable inflation but political tyranny.

as a consequence, the author writes, the fight traces between Keynes and Hayek had been drawn. But it was a duel characterised through mutual admire. Keynes, for instance, shared Hayek's distrust of socialism, even as Hayek conceded that in the case of continual unemployment, planning could play a role without leading to oppression.

Snapshot

credit Patricia Wall/the brand new York times
but it was still a duel. In 1936, Keynes released the final concept of Employment, interest and money,which took on classical economics and humans like Hayek who subscribed to its tenets. Keynes's targets incorporated a couple of long-approved suggestions: that employment stages are determined with the aid of the rate of labor, that provide creates its possess demand and that savings routinely translate into investment.

Keynes didn't anticipate that his findings would result in an infringement of personal liberty. Alternatively, the creator writes, Keynes believed that a affluent society wherein each person is employed was the most beneficial approach of maintaining the independence of thought and action he considered the guarantor of actual democracy.

Hayek didn't publicly element any criticisms of the final concept. however in 1944, he brought out The street to Serfdom, which has emerge as a libertarian traditional. Hayek aimed to expose socialism and fascism as twin evils, warning of the expertise risks of significant fiscal planning within the aftermath of World conflict II

it's Germany whose destiny we're in some danger of repeating, Hayek wrote.

Keynes was once swift to reply, reminding Hayek that the upward push of countrywide Socialism used to be fueled no longer with the aid of massive govt but by mass unemployment and a failure of capitalism.

The last third of the e-book focuses on the economists legacies. Keynesian ideas have been ascendant within the postwar generation, however with the aid of the mid-Nineteen Seventies, with the onset of low financial growth and inflation a mixture beforehand deemed not possible Mr. Wapshott says it gave the impression that the Age of Keynes was once in its dying throes.

For the following few many years, Hayek's ideas and proponents like Milton Friedman, who argued that monetary and now not fiscal policy used to be the important software for managing the economy, received consistent have an effect on. Within the creator view, Hayek' have an impact on was once seen within the 1994 Contract With america, the Republican pledge to reduce massive govt; in the later balanced-price range legislation of President bill Clinton; and in the operations of the Federal Reserve beneath Alan Greenspan.

In 2007, the subprime personal loan market commenced to implode, suggesting that the many years-lengthy test in allowing barely restrained markets to generate development and prosperity had failed, Mr. Wapshott writes. A speedy return to Keynesian prescriptions occurred within the next two years, culminating in President Obama's $787 billion recuperation program in early 2009.

By means of then, nonetheless, the historic ideological struggle had re-emerged. no longer a single Republican voted for the stimulus, the booklet notes. And with barely a semi-quaver leisure, the ancient Keynes-Hayek arguments broke out again. It was once as if the intervening eighty years had now not taken position.

Mr. Wapshott has written an predominant guide. It is compelling now not only as a history of two exceptional thinkers and their impact, but additionally as a narrative of political selection-making and its underlying priorities. At times, it sounds as if the creator is as so much beneath Keynes's charismatic thrall as some of his disciples; it will had been even better with extra concentration to Hayek and the evolution of his proposal.

However these are quibbles. Underlying Mr. Wapshott's evaluation are important questions for this second in American historical past: What variety of society do we wish? How a lot religion do we now have in individual company? And what will we owe to our fellow residents and our collective future? As Mr. Wapshott writes, these very questions It is Germany whose fate we are in some danger of repeating,” Hayek wrote.

Keynes was swift to respond, reminding Hayek that the rise of National Socialism was fueled not by big government but by mass unemployment and a failure of capitalism.

The last third of the book focuses on the economists’ legacies. Keynesian ideas were ascendant in the postwar era, but by the mid-1970s, with the onset of low economic growth and inflation — a combination previously deemed impossible — Mr. Wapshott says it seemed that “the Age of Keynes was in its death throes.”

For the next few decades, Hayek’s ideas and proponents like Milton Friedman, who argued that monetary and not fiscal policy was the major tool for managing the economy, gained steady influence. In the author’s view, Hayek’s influence was seen in the 1994 “Contract With America,” the Republican pledge to shrink big government; in the later balanced-budget legislation of President Bill Clinton; and in the operations of the Federal Reserve under Alan Greenspan.

In 2007, the subprime mortgage market began to implode, suggesting that “the decades-long experiment in allowing barely restrained markets to generate growth and prosperity had failed,” Mr. Wapshott writes. A rapid return to Keynesian prescriptions occurred in the next two years, culminating in President Obama’s $787 billion recovery program in early 2009.

By then, however, the old ideological struggle had re-emerged. “Not a single Republican voted for the stimulus,” the book notes. “And with barely a semi-quaver rest, the old Keynes-Hayek arguments broke out again. It was as if the intervening 80 years had not taken place.”

Mr. Wapshott has written an important book. It is compelling not only as a history of two distinctive thinkers and their influence, but also as a narrative of political decision-making and its underlying priorities. At times, it seems that the author is as much under Keynes’s charismatic thrall as some of his disciples; it would have been even stronger with more attention to Hayek and the evolution of his thought.

But these are quibbles. Underlying Mr. Wapshott’s analysis are vital questions for this moment in American history: What kind of society do we want? How much faith do we have in individual agency? And what do we owe to our fellow citizens and our collective future? As Mr. Wapshott writes, these very questions animated Keynes and Hayek during a time when the stakes were also very high. Keynes and Hayek during a time when the stakes have been additionally very high.