Sunday, November 25, 2012

Keynes Hayek, by Nicholas Wapshott


I just finished listening to Keynes Hayek: The Clash that Defined Modern Economics, by Nicholas Wapshott. You won't learn much economics from this book, which is mostly an account of the lives and labors of its two protagonists. But you will learn a lot about what economic debate was like back in the 1920s and 1930s, and you will gain some interesting hints about the intersection between science, politics, and personal egos.

Many of the debates between Keynes, Hayek, and other economists working in the UK at the time were carried out in the pages of economics journals, in particular Economica. Hearing these debates summarized and quoted in Wapshott's book, I was immediately struck by how similar they were to today's econ blog debates. There was a huge amount of people talking past each other, quibbling over definitions, and claiming that they'd been misinterpreted. For example, the incredibly byzantine debate between Hayek and Piero Sraffa put me in mind of the Sumner/Wren-Lewis blog debate from early 2012. The sarcastic, bombastic clash of tempers between Keynes, Hayek, and others like Lionel Robbins and Joan Robinson reminded me distinctly of the recent rhetorical fireworks between Paul Krugman, John Cochrane, and others (with Arthur Pigou playing the part of Tyler Cowen, chiding the other debaters for their incivility while advancing conservative ideas in a genteel fashion).

There are some major differences, of course, between the discourses of then and now. The fiery econ debates of the early 20th century advanced a lot more new ideas, and employed more rigorous analysis, than today's blog debates. Steve Williamson often says that you won't learn any cutting-edge economics from reading blogs; but for the back-and forth debates of the 1930s, that was definitely not the case. These days, of course, ground-breaking theories and rigorous analysis have remained in academic journals, and have taken on a far more detached, scientific tone, while sharp debates have mostly moved to the blogs.

As for Keynes and Hayek, the book taught me much more about the latter than the former. Hayek didn't start out as the Anti-Keynes, it turns out - he was a ringer, brought in by Lionel Robbins, William Beveridge, and other British conservatives to battle Keynes when Robbins & co. felt that they themselves weren't up to the task. They brought in Hayek when their first choice, Ludwig von Mises, proved to be too bad at English (and too downright grumpy).

It seems to me that Hayek took his appointed role as the Anti-Keynes a bit too seriously. During his attempt to formulate alternatives to Keynes' General Theory, Hayek repeatedly flirted with ideas that were - in my opinion - much deeper than the simple theory of aggregates that was being advanced by Keynes. These included the mutual inconsistency of economic plans, and the potential failure of economies to reach stable equilibria. Maybe Hayek bit off more than he could intellectually chew, or maybe he shied away from exploring ideas whose implications ran so counter to the political views of his mentor, von Mises. But in any case, Hayek didn't follow up on his tentative forays into the economics of complexity, instability, and disequilibrium, and instead went into political philosophy.

Hayek's most famous piece of political philosophy was, as we now know, completely wrong. In The Road to Serfdom, Hayek claimed that Keynesian-style macroeconomic management would lead to totalitarianism; in reality, nothing of the sort has ever happened. America, Europe, Japan, Korea, and others became solidly Keynesian after World War 2, and while macroeconomic management didn't always work as advertised, it nowhere and never led to the advent of totalitarian regimes.

It's also interesting that Hayek, despite hating the Nazis and totalitarianism in general, seems to have been somewhat influenced by many of the early 20th century Central European ideas that led to the rise of Nazism itself. For example, he repeatedly asserts that people are not created equal, making reference to "superior people," and stating that he would prefer an economically libertarian dictator to a democratic government that restricted economic freedom. This foreshadowed the unfortunate libertarian support for dictators like Augusto Pinochet, as well as more recent libertarian flirtations with "scientific racist" ideas.

Still, the author of Keynes Hayek credits Hayek with keeping the flame of libertarianism alive through the dark winter of Keynesian dominance, and views the emergence of Milton Friedman as the vindication and apotheosis of Hayek's ideas. In this, I feel that the author makes a major mistake; Friedman's monetarism was a type of macroeconomic management that was more amenable to conservatives of the 1970s and 80s than the type advocated by Keynes, but it was central planning nevertheless (as von Mises pointed out). It was Robert Lucas and Edward Prescott who truly restored Hayekian "classical" economics to dominance in the macro field, with their models of frictionless economies and near-optimal business cycles.

In any case, I definitely recommend Keynes Hayek, especially the audio version.

59 comments:

  1. ... the emergence of Milton Friedman as the vindication and apotheosis of Hayek's ideas. In this, I feel that the author makes a major mistake...

    Bob Solow recently published an excellent book review that address this exact issue. (Although, he comes to a rather different conclusion in suggesting that Friedman was a more avid proponent of "unmitigated laissez-faire" than Hayek.)

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  2. Amusingly, while your interpretation of "The Road to Serfdom" is the standard one (that it was an argument against Keynesianism as the beginning of a slippery slope towards tyranny), Keynes himself liked the book, saying "In my opinion it is a grand book...Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement." (quoted here). I think the distinction between Keynes and the later Keynesians might provide some traction here: Keynes, and many of his contemporaries, were worried about finding workable capitalist alternatives to prevent the spread of socialism, which had seemingly weathered the Great Depression. Keynes was arguably not an advocate of the scientific macroeconomic management philosophy that came to be called Keynesian (and what DeLong, I think, calls the Hicks-Hansen-Samuelson IS-LM school or something like that). Keynes himself, like Hayek, was quite fixated on the complexities and uncertainties (see Keynes 1937, a favorite of various post/neo-Keynesians who like to make a version of the argument I am advancing here).

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    1. True - this Keynes quote is quoted in Wapshott's book - but Keynes' expression of approval for Hayek's book preceded a fairly comprehensive disagreement. Keynes thought that British morality would be sufficient to prevent creeping totalitarianism. Not a perspective I agree with, but definitely not in agreement with Hayek's warnings.

      In any case Hayek was dead wrong.

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  3. Did Hayek say that Road to Serfdom was preaching against Keynes? To me his attack on "central planning" reads much more like preaching against Soviet style 5 year plans, etc., which of course existed then. Not against Keynesian intervention, which is intended as correctives to problems, not central planning of an economy.

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  4. Anonymous6:23 PM

    Economica is "defunct"?
    http://www.wiley.com/WileyCDA/WileyTitle/productCd-ECCA.html

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    1. Oh wow, I was mistaken! Thanks! Fixed.

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  5. "he was a ringer, brought in by Lionel Robbins, William Beveridge, and other British conservatives to battle Keynes"

    umm. Beveridge was the liberal that gave Britain the National Health Service.

    "Hayek's most famous piece of political philosophy was, as we now know, completely wrong. In The Road to Serfdom, Hayek claimed that Keynesian-style macroeconomic management would lead to totalitarianism; in reality, nothing of the sort has ever happened. America, Europe, Japan, Korea, and others became solidly Keynesian after World War 2, and while macroeconomic management didn't always work as advertised, it nowhere and never led to the advent of totalitarian regimes."

    TRTS is a claim that a centrally planned economy would lead to totalitarianism. It doesn't attack Keynesianism. Keynes even strongly endorsed the book! (fwiw, it's pretty good as an account of Latin American politics over the following 50 years).

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  6. In 1977, Hayek explained how Keynesianism became so popular:

    You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you are doing good to the people in general. The politicians didn’t want to hear anything more than that -- to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential.

    http://www.youtube.com/watch?v=N364sN5E0hQ&feature=plcp

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    1. This always strikes me as nonsense. History is full of ill-fated attempts at austerity. In fact, implementing effective stimulus policies has proven to be incredibly difficult.

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    2. Once irresponsible spending has begun, the recipients like it, adjust to it and plan on it. The recipients vote for the crooks that supply it. It's proponents deny that the spending is irresponsible and/or is changing mores for the worse and no facts can change their mind. The recipients are centralized and are familiar with the program. The opponents are dispersed. The momentum in favor of the irresponsible spending is like Dark Helmet's ship going at ludicrous speed. And now we have Keynes telling us that the irresponsible spending is "scientific".

      Of course it's always painful to cut back irresponsible spending to a sustainable regime.

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  7. The point of TRTS was that the socialism of GERMAN National SOCIALISM with its central economic planning was the cause of the murderous and totalitarian nature of National SOCIALISM similar to the central planning of Soviet SOCIALISM (back when socialism was cool).

    However, it's no coincidence that the past decade of Keynesianism on steroids has been coextensive with the decent into the kleptocratic surveillance state and perpetual war.

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    1. Typo: "decent" above should have been "descent".

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    2. Just because the Nazis call themselves the National Socialist party meant that they were. They rounded communists too, remember. And the Soviet state was plenty kleptocratic before communism came. As was China.

      The fact that Sweden, India, the UK et al. has never come close to totalitarianism should be enough to falsify this idea.

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    3. *doesn't meant they were. \
      *rounded up communists

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    4. It's always fun to draw out supporters and apologists for Stalin, csning.

      Both the Nazis and the USSR had central economic planning and if you objected to the plan, you were murdered. The USSR under Stalin was like one big open air Auschwitz. We completely understand that the Nazis allowed people to maintain title to their property unlike the USSR. The Germans were just required to employ their property according to the plan. Or else. Further, since the plan would invariably fail, the thugs in control would need a group to blame for their own failure, like "saboteurs", "capitalist roadies" or Jews.

      The point of TRTS was that a state that maintained such a centralized economic plan required an intrusive surveillance state and threats to opponents of the plan to carry it out. That is why Hayek addressed the book to "Socialists of all parties".

      The book was and is so effective in correctly pinning the blame for genocidal totalitarianism upon socialism and central economic planning that even today, people like Noahpinion find it necessary to misrepresent what the book said and smear libertarians with a nonexistent flirtation with "scientific racist" ideas. WTF is that all about?

      And don't forget that today's Keynesianism-on-steroids is leading directly to the total surveillance state and perpetual war.

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    5. Don't talk rubbish.

      Nobody likes the Soviets. The fact is that they started out bad. It wasn't like they were a stable democratic state, started having a welfare state and ended up a dictatorship.

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    6. 'And don't forget that today's Keynesianism-on-steroids is leading directly to the total surveillance state and perpetual war.'

      That would be why Australia's in a war then. And why George Bush Senior and Junior avoided war.

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  8. "Hayek's most famous piece of political philosophy was, as we now know, completely wrong. In The Road to Serfdom, Hayek claimed that Keynesian-style macroeconomic management would lead to totalitarianism; in reality, nothing of the sort has ever happened."

    I'm not sure Greg Ransom's forehead vein will be able to withstand the pressure created by reading those two sentences.

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  9. "Hayek's most famous piece of political philosophy was, as we now know, completely wrong. In The Road to Serfdom, Hayek claimed that Keynesian-style macroeconomic management would lead to totalitarianism"

    Come on, Noah, Hayek was "completely wrong" only if we commit to this almost childish misinterpretation of what he was saying. I'm no Hayek fanboy, but I also don't like to see him smeared, and this interpretation has been thoroughly debunked by a top-notch historian of thought like Bruce Caldwell. First of all, Hayek was talking about "central planning," not monetary of fiscal policy! And second of all, as he made very clear, he was claiming that central planning set in place a *tendency* that, if not countered, would lead to totalitarianism.

    So, the tendency was countered! That proves he was "completely wrong"?!

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  10. "Prescott who truly restored Hayekian "classical" economics to dominance in the macro field, with their models of frictionless economies and near-optimal business cycles."

    Oh my, this is even worse than the misinterpretation of TRTS! Noah, read a good leftist like Tony Lawson on Hayek (try _Ontology and Economics_), so you're sure your are not getting some libertarian propaganda. You will realize you have no idea what you are talking about.

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    1. Anonymous12:42 AM

      Yes, this is hysterical incompetence on the shoulders of idiotic Fleet Street fake economic history.

      Nearly Onion perfect satire of incompetent Hayek explication.

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  11. Anonymous12:27 AM

    Wapshott's book is *horrible* history .. you will know more about the Hayek - Keynes engagement that is NOT true than you will what is true after reading it.

    Count yourself mal-informed.

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  12. Anonymous12:31 AM

    Your account of the Hayek - Keynes engagement manages to be even more fabulously unconnected to reality than Wapshott's very bad book.

    Congratulations!!

    You confirm everything David Colander has ever reported about the 'education' of newly minted econ PH.D's

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  13. Perhaps this will summon some ire on my head, but to me TRTS was a really horrible book. I've had trouble reading it to the end despite its easy style. I have my own hypothesis why - that Hayek came across some military/special propaganda manual during WWII and decided to cram each and every single propaganda trope and technique into each page of his book. TRTS rams its arguments into the reader's brain with all the subtlety of a sledgehammer, especially if you are aware of how this propaganda works.
    That said, Hayek was a truly important thinker of the century (even if his ideas were not always on the mark). But I think that TRTS was one of his worst works.

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  14. Oh, look. All the Hayek supporters are out, denouncing anybody who doesn't apply the correct number of epicycles in analyzing Hayek. The heck with wether the big picture is correct or not: if you didn't get every jot and tittle correct according to multiple, conflicting standards, then obviously you are callow, presumptuous, and deserve to be denounced! So what if Hayek himself couldn't meet those standards (how dare he say conflicting things within his lifetime!)

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    1. Six or seven years ago, when I was a libertarian, I thought Mike Huben was a real person, and I could tell myself "Look what idiots the critics of libertarianism are." But after years of being an ex-libertarian, I can see that Huben is undoubtedly a sock puppet, set up by some libertarian to re-assure other libertarians that all of their critics are clueless.

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    2. I think you have librarians and libertarians confused.

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    3. Huben:

      Someone has got to speak truth to Keynes' fans, who denounce anyone who doesn't toe the party line about him.

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    4. I'm quite pleased to be a litmus test for whether libertarians (or people like Gene Callahan) have any intelligence or contact with reality. Maybe one day Callahan will learn to use the phone book.

      But much more likely, he will infinitely regress into paranoid suspicion that the plot is much more sophisticated than he thought.

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  15. Hayek didn't start out as the Anti-Keynes, it turns out - he was a ringer

    Best short and accurate statement ever written about the man. Why do we ever hear about him?

    Further, its time to understand that Hayek is a repudiation of the entire American experiment under the Constitution of our being a Democracy that promotes the General Welfare. I doubt that Hayek, or his followers, ever read the Preamble:

    We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America.

    The Commerce Clause is a charter for central planning. Read Hamilton on the power of Congress to create companies like the East India Company or the national bank so as to promote growth. Chartering banks is an much central planning as any other aspect of government. Zoning the location of branch banks is central planning but such common sense means we don't have to live next door to a meat packing plant and can do something about the nuisance of an industrial pig farm.

    What is really amusing now are Hayek followers who no longer want direct election of senators (wanting instead election by state legislators, apparently, with the states have unlimited police power---amazing duplicity)

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  16. It seems to me that Hayek took his appointed role as the Anti-Keynes a bit too seriously. During his attempt to formulate alternatives to Keynes' General Theory, Hayek repeatedly flirted with ideas that were - in my opinion - much deeper than the simple theory of aggregates that was being advanced by Keynes. These included the mutual inconsistency of economic plans, and the potential failure of economies to reach stable equilibria. Maybe Hayek bit off more than he could intellectually chew, or maybe he shied away from exploring ideas whose implications ran so counter to the political views of his mentor, von Mises. But in any case, Hayek didn't follow up on his tentative forays into the economics of complexity, instability, and disequilibrium, and instead went into political philosophy.

    Very interesting take Noah. Only thing I might object to, as a guy from a philosophy background, is that exploring deep issues about complexity, instability and disequilibrium is political philosophy. So maybe what Hayek did is skirt those philosophical investigations to instead hew to a dogmatic political ideology - which is not the same as political philosophy.

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  17. For example, he repeatedly asserts that people are not created equal, making reference to "superior people," and stating that he would prefer an economically libertarian dictator to a democratic government that restricted economic freedom.

    This isn't just a reflection of 20th century central European thought. It was unfortunately a frequently voice theme in the French and continental enlightenment as well.

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  18. Wonks Anonymous12:41 PM

    Why attribute support for Pinochet to "libertarians" broadly without mentioning that Hayek himself was perhaps the most notable supporter? Here is a paper on Hayek's view of the necessity of some "transitional" dictatorships.

    My recollection of the Hayek quote on preferring a dictator is that he distinguished a "liberal" dictatorship from an "illiberal" democracy without specifying what attributes, economic or otherwise, determined a categorization as "liberal".

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    1. And yet today Chile is the most free and prosperous Latin American country. I wonder how many Chileans would prefer to be more like the Brazilians or the Venezuelans. How wrong were Hayek and Friedman after all?

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    2. So you think if instead of Pinochet, Chile had held democratic elections, the country's economic progress and economic liberty would have been held back?

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    3. Hayek's and Friedman's argument was that economically free societies will eventually reform and inevitably become politically free societies also. The histories of Chile and Taiwan certainly match this prediction. I am not sure they suggested that the opposite is also true, that reduced economic freedom will result in less politically free societies. Nevertheless, the experiences of Argentina, Venezuela, and Brazil among others should at least raise this question, as politically incorrect as it sounds.

      As far as my opinion goes, I do think that populist movements in Latin America in the 1970s and 1980s lead to economically less free societies at the detriment of their economic performance. Pinochet gave markets time to yield results, so that when elections were allowed in 1990 voters elected officials who governed by the same economic principles. Had he allowed elections ten years earlier, I am not sure what the outcome would have been.

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    4. 'Hayek's and Friedman's argument was that economically free societies will eventually reform and inevitably become politically free societies also. '

      I'm not sure that's an especially truthful argument - particularly if you're implicitly arguing that a free market dictatorship is better than a socialist democracy. I don't know a lot about Chile, but I do know that a very socialist democracy was overthrown, and a lot of people were killed with others subject to torture, kidnappings etc. Whatever the gains, it's only any good to you if neither you nor your loved ones are the ones who suffer. The Economist, of all magazines, put it the best when they said whatever good things Pinochet did, he was a bad man.

      As for Taiwan, Chiang Kai Shek had already subjected one populace and been thrown out for it, so being smart enough not to repeat his mistake is not exactly proving your point. Not to mention China under Chiang was what Hayek implicitly argued for - a capitalist dictatorship.

      Which brings me to China - a communist dictatorship. People usually bring China and compare it to India, and then go 'see what you can do when democracy doesn't stop you.' Which ignores the atrocities of the Cultural Revolution and the Great Leap Forward. Something like 30-50 million people died in that. If 6 million Jews is a tragedy, what is 50 million Chinese? India had nothing remotely close in their history as an independent nation, despite their cultural heterogeneity. I believe you can attribute that to India's democracy, kleptocratic though it is.

      An Indian economist (I think?) made the point that democracies have never suffered famine. Thatcher made the point that no democracies have ever gone to war with each other. I don't know the full truth of either, but they're sufficiently rare. Surely democracy is precious enough that it should not be blthely sacrificed for an ephemeral promise of a more efficient economy?

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    5. Your comparison between a free-market dictatorship and a socialist democracy is static. At a snapshot, of course a socialist democracy is better. But suppose we found that, over time, a socialist democracy more likely than not will drift to a politically oppressive regime, while a free-markket dictatorship will move the opposite way. Would we still conclude that a socialist democracy is better? From the perspective of the people who lost their lives or had loved ones tortured, you are right. But if we always focus on the victims, no war or revolution would ever be justified under any circumstances. One has to weigh the suffering against the benefits. Chile today is a free-er and more prosperous society than all its neighbours. This means that fewer kids live and die in favelas or fall victims to gangs (as in Brazil), and political dissidents are no longer inprisoned like in the "democratic" Venezuela. So, in the long run, the jury is still out.

      All of the above have nothing to do with whether Pinochet or Chiang Kai Shek were good men. We are not judging their character, but rather the outcome of their economic policy choices. I know of no Taiwanese who lived during Chiang Kai Shek's rule who would have chosen instead to have lived in mainland China. Had China been a free-market dictatorship you wouldn't have a cultural revolution or the Great Famine, and China would be both politicaly free and more prosperous today.

      Having said that, I always favor democracy as a matter of principle. At the same time, I can't ignore what is hapenning for example in my home-country Greece (currently under IMF-German occupation) and wonder if the country would not have been economically and politically better off if its population had been deprived of the ability to vote during the 1980s by a Pinochet-like dictator. Democracy, depending on the institutions that support it, can in some instances become the gateway to hell, and I think it is always important to remember that. This is precisely why we have constitutions that limit the ability of the majority to rule within certain parameters.

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    6. '. At a snapshot, of course a socialist democracy is better. But suppose we found that, over time, a socialist democracy more likely than not will drift to a politically oppressive regime, while a free-markket dictatorship will move the opposite way. Would we still conclude that a socialist democracy is better?'

      When has this ever happened? A socialist democracy becoming a really repressive regime?

      'But if we always focus on the victims, no war or revolution would ever be justified under any circumstances. One has to weigh the suffering against the benefits.'

      Very, very few wars or revolutions, in my personal view, have ever been justified. It's easy to talk about weighing suffering against benefits when it's not you who's doing the suffering. I don't disagree with the principle, but this has to be calculated very carefully, and not just on an ad hoc basis.

      There's also the hidden costs of suffering. Just as there is a time value of money, surely there is something similar in terms of the human rights abuses. People talk about generational povery and alcohlism, do they not?

      'We are not judging their character, but rather the outcome of their economic policy choices.'

      And their political choices, of course - how they treat the people they rule.

      ' I know of no Taiwanese who lived during Chiang Kai Shek's rule who would have chosen instead to have lived in mainland China. '

      That's because those who ran there were the economic elite. The ordinary people suffered tremendously under Chiang. There's a reason why the Communists had the support of the people. Read the Soong Dynasty - it's a really good read as to what was happening in China at that period in time. The Communists were the lesser of two evils at the time.

      'Had China been a free-market dictatorship you wouldn't have a cultural revolution or the Great Famine, and China would be both politicaly free and more prosperous today.'

      Can I borrow your alternate Earth crystal ball?

      'This means that fewer kids live and die in favelas or fall victims to gangs (as in Brazil), and political dissidents are no longer inprisoned like in the "democratic" Venezuela. So, in the long run, the jury is still out. '

      I'm not arguing that democracy produces growth. Good economic policies, stable environments, rule of law produces growth. I'm saying democracy more often than not produces stability and safeguards against tyranny. (And no, I don't think Venezuela is really a democracy either).

      The best argument I can think of for your position is Singapore, and that is probably just because of Lee Kuan Yew. But among all the dictators there, you's probably get 9999 Mugabes and their equivalents, and 1 Lee Kuan Yew.




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    7. "That's because those who ran there were the economic elite. The ordinary people suffered tremendously under Chiang."

      Not in Taiwan. I would advise you to watch "Globalization is good" by Johan Norberg, which is available on google videos, about how the ordinary people prospered as a result of his economic policies.

      "Can I borrow your alternate Earth crystal ball?"

      You don't need a crystal ball. You just need to look at the causes. For example, the Great Famine was the result of social planning and the centralized attempt to industrialize. It would not have happened under a market system.

      "I'm saying democracy more often than not produces stability and safeguards against tyranny.'

      If that was the case, we wouldn't need constitutions. Among the counter-examples, Hitler comes to mind. Venezuela did have ellections; what is your definition of democracy? Mugabe? Come on, Mugabe never endorsed a free-market system, he did the opposite. The whole argument is about free-market dictatorships, remember? I agree that these are hard to find, precisely because economic freedom leads inevitably to political freedom (and prosperity) and is therefore unpopular among dictators.

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    8. I'll just pop in to agree with California...er, Constantine, that "authoritarian modernizers" sometimes seem to achieve good results. But I wonder if this might be less because of the "economic freedom" allowed by those dictators, and more because of their ability to push through large improvements in infrastructure, education, international trade (which I guess falls under "liberty"), and bureaucratic reform.

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  19. Blue Aurora2:49 PM

    Good review, Noah Smith. However, there is a fundamental rift between Keynes and Hayek that you also didn't quite cover - the role of speculative activity. Keynes and Hayek were diametrically opposed to each other on this part.

    http://www.amazon.com/review/R3SYHVKESKHER1/

    Also, one could make the argument that the debate between Keynes and Hayek is also foreshadowed by another debate between two economists going back to the Enlightenment...

    http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1728225

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  20. Keynes wrote in the preface to the Nazi edition of "The General Theory: “the theory of output as a whole, which is what the following book purports to provide, is much more easily adapted to the conditions of a totalitarian state…”

    In addition to being both an anti-Semite and pedophile, Keynes, whose work popularized government-directed planning, was an endorser of eugenics and the centralized control of the world’s population. Regarding eugenics, Keynes at times gave the appearance of indecision: “the time may arrive a little later when the community as a whole must pay attention to the innate quality as well as to the mere numbers of its future members.”

    Shortly before his death, Keynes would call eugenics ‘the most important and significant branch of sociology” and served on the governing council of the Eugenics Society from 1937 to 1944. Needless to say, his fascination with central planning went far beyond the “socialization of investment.”

    http://mises.ca/posts/blog/george-will-john-m-keynes-and-totalitarian-eugenics/

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    1. What dreck, Roddis. Yes, JMK was anti-Semitic and a pedophile, but what has this to do with central planning, please? Lots of people were for eugenics prior to the end of WW II, but this also leads to a general policy about a very specific social matter, not general central planning.

      His "socialization of investment" remained just a vague statement, again not anywhere near general central planning. JMK did briefly initiate the idea of what would later be called indicative planning, which was always of a non-command variety, and he never brought it up after that 1920s essay on The End of Laissez-Faire.

      Really, this is a shamefully ignorant and propagandistic comment of the most nauseating sort. Are you not aware that FAH and JMK were personal friends, and as noted above JMK praised TRtS? Keynes was never a supporter of the sort of command central socialist planning that Hayek criticized in that book, and, oh yes, Noah is off on his claim that Hayek blasted Keynesian macro in that book as well.

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    2. I never knew that Hayek and Keynes were friends....before 1977.

      http://www.youtube.com/watch?v=gaQcbGoW2C0&feature=plcp

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    3. Mr. Buckley: Well, how would you account for the almost unanimous opinion of liberal Democrats that in order to reduce unemployment it is necessary for the government to pursue vast spending projects? Since you speak of this as being almost manifestly ill-advised, the question arises why such superstitions should survive?

      Mr. Hayek: Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation. Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level. Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market. The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages. Notice these real wages had been artificially increased by increasing the value of the pound. So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more. Wages had not come down.

      Now, his first argument was wages must come down. Then he found that was politically impossible, so he must find another way. Instead of getting money wages down, we must depreciate the pound so that given money wages should correspond to a lower level of real wages and then by a curious intellectual somersault I would almost say he led himself to believe that even bringing down money wages was not of any use. It involves a complex economic argument and all he concluded was that – well, we must inflate, in short.

      Now notice several things. Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew. But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory. In fact, the last time I talked to him was after the war. I knew him very well. When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:

      “Oh, don’t mind. My theory was frightfully important in the 1930s. Then, we needed an expansion to correct a situation. Do trust me. If this theory becomes dangerous, I’m going to turn public opinion around like this”.

      Six month later, he was dead. And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation. The only thing I blamed Keynes for is to making his theory more attractive and effective, he called it THE general theory. In fact, he knew precisely that it was not a general theory, but it was an argument to persuade government in the 1930s to do particular things.

      Mr. Buckley: It was an ad hoc?

      Mr. Hayek: It was entirely ad hoc. He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists. And if I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.

      Mr. Buckley: Like Nixon.

      Mr. Hayek: No, no. (laughter).

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    4. It is true that Bob Roddis's comments are much more disgustingly wrong than Noah's were! But Noah, here you have another man of the left, Barkley, telling you you are off base here. This is not a matter of "defending" Hayek: I like some Hayek, don't like other parts. But to criticize him you have to get him right, and you haven't.

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    5. Roddis, they certainly were friends. What the heck does that interview have to do with the matter?

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    6. There was a statement that suggested I did not know that Hayek knew Keynes.

      Hayek: "I knew him very well."

      I've had the audio recording of that interview since 1977 and I've never heard anything to make me change my mind about Keynes, Keynesians and Keynesianism since that time.

      Then there was the implication that Austrians were fans of Pinochet and Smith's statement about "more recent libertarian flirtations with "scientific racist" ideas." Nothing wrong with that, right?

      Of course, that Hayek thought the entire Keynesian enterprise to be an ad hoc hoax designed to trick people in the 1930s into lowering their wages and prices without them knowing what hit them is a totally worthless piece of information. Right, Mr. Callahan? How gauche of me. It's all best left unsaid in polite company. Mr. Smith, who knows nothing, is simply a better man than I am with my silly interviews and evidence.

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    7. Evidence IS rendered silly when it bears no relationship to (unhinged) claims.

      Today's "Keynesianism on steroids"? Are you abusing substances?

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  21. Roddis' comments regarding Keynes are uncomfortably correct. Callahan and Barkley are historically ignorant.

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    1. Anonymous7:11 PM

      Yah. Where's the actual evidence that Keyens was a pedophile? A pedophile being someone who molests children or had molested a child. I've never seen that substantiated. Of course the Roddis troll refuses to substantiate it here.

      According to these Austrians, the driving factor behind Keynesian economics was his need for eugenics and control? WTF... (Considering that Robert Murphy's students here are now denying Carbon-14 I wonder if they know they're crazy.)

      By the way, the Nazis actually relinquished control of factories in the day to day operations and according to historians and political scientists the only industries that were under more strict control were military industries. The Nazis actually gave complete power over the corporation to business owners, just the same way Austrian economics does. And Ludwig Mises claimed that the Nazis weren't driven by racial theory and the belief in the inferiority of others, though every serious historian says that they were. So, perhaps was Mises Austrian economics driven by his own racial theories, and his attempts to make excuses for totalitarian regimes? If we use the "logic" of the Austrians, it was.

      One more thing: Mike Huben's criticisms of Libertarians are actually quite good and are repeated by many people and many people seem to understand intuitively that property rights are not absolute.

      With people like Bryan caplan, Hoppe, etc., going around claiming that there are groups of "superiors" who "deserve" the right to rule over the "inferiors" because the "superiors know what's best not only for themselves, but the inferiors," Libertarianism should be considered a totalitarian doctrine on the Internet mixed in with conspiracy theories. Nothing more. Sanity requires you pay as much attention to "Libertarian theory" as holocaust denial, global warming denial, and so on.

      -successfulbuild

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    2. A rule that meticulously and absolutely prohibits the initiation of force against even (and especially) the most powerless people in society is totalitarian.

      I guess you told me.

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    3. This "rule" you speak of, it is the sum total of libertarian thought? Also, how do we reconcile your "rule" with, say, people who don't care to abide the law?

      Not that I'm interested in debating this here with you, just that your simple bromides are incoherent.

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  22. Geoff,

    Aside from asserting that Roddis is "uncomfortably correct" you provide a fat zero of evidence that either I or Callahan are "historically ignorant." I published a paper on the 60th anniversary of the publication of TRTS in European Journal of Political Economy that was commented on by Hayek's editor, Bruce Caldwell and also current leading Austrian economist, Peter Boettke with respect. I also published the definitive final paper by Paul Samuelson on Hayek in JEBO in which PAS agreed with Melvin Reder that in terms of anti-Semitism, it was Keynes worse than Schumpeter worse than Hayek, although none of them completely free from it.

    So, I was not defending Keynes personally. He was for eugenics, although that is not the same thing as supporting general command central planning. Some of his consensual male lovers were reportedly underage, although more like just barely so, technically a pedophile, but not exactly of the sort one thinks of when this term is used. Again, none of these flaws support the claim that JMK supported command central planning of the sort criticized by FAH in TRTS.

    The bottom line, Geoff, is that with the exception of his vague nod in the direction of indicative planning in the 20s, he did not support command central planning and explicitly criticized it in the case of the Soviet Union. Roddis's reporting that Hayek thought Keynes's theory was "ad hoc" certainly is not evidence at all that he thought Keynes supported central planning.

    Oh, and just what parts of history do you think I am ignorant of, Geoff? Put up or shut up.

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    1. Anonymous12:02 PM

      I have yet to see *any* plausibly founded support for the repeated effort to slander Hayek as anti-Semitic.

      It simply does not exist.

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  23. "Still, the author of Keynes Hayek credits Hayek with keeping the flame of libertarianism alive through the dark winter of Keynesian dominance, and views the emergence of Milton Friedman as the vindication and apotheosis of Hayek's ideas."

    This strikes me as odd. If memory serves (and it very possibly doesn't), Friedman thought very little of Hayek and in fact prevented the University of Chicago from hiring him when he moved to the U.S.

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  24. "The dark winter of Keynesian dominance" That would be the winter where starvation, overwork and dire poverty were the lot of the average westerner, no?

    What this misses is that Keynes was very much a British liberal, and worked hard to find a way the liberal virtues and liberal state could be preserved against the corporatist or reactionary right and the communist left at a time when many intellectuals thought liberalism doomed. Keynes thought that liberal principles had to give a bit to the left to survive - indeed that the centre-left actually advanced the liberal agenda (in that he saw no reason why ordinary people should not have a good intellectual and material life). Hayek and a good many others seem to have preferred the right.

    Yet again illustrating the point that economics is a form of politics.

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