Fair or not, today’s economic theory gets simplified in popular understanding as a binary between two influential leaders: English economist John Manyard Keynes (1883-1946) and younger Austrian-British economist Friedrich Hayek (1899-1992).
One way to understand economic theory then is understand these two men, and how they debated and intersected. That’s the goal of Keynes Hayek: The Clash That Defined Modern Ececonomics, the 2011 book by British journalist Nicholas Wapshott.
Keynesian economics gets simplified as describing government as the spender of last resort; In the face of recession, government spending can reverse those threats (think of the initial pandemic era); Hayek helped establish the Austrian School of economic theory (which greatly influenced the University of Chicago school, including Milton Friedman), which can be simplified as arguing for government to set the rules and little else. Like so many silly binaries, there are lessons from both.
Below I share my notes from the book for future reference.
- The two famous rivals protected Cambridge’s rooftops from Nazi bombs; They were to use shovels to remove bombs from rooftops, but fortunately this never happened
- Keynes first made famous after WWI (“European Civil War”) with a book critical of the overly aggressive peace, which was a bestseller and made him famous which is how younger Hayek first heard of him. Keynes warned it would cripple Germany and lead to dangerous outcomes
- Keynes and his Bloomsbury group were highly sexual (good for dude)
- Hayek returned from WWI only to live through hyperinflation, deeply shaping his worldview
- Keynes: in the long run we are all dead
- Hayek’s Austrian School
- Hayek left his early Democratic-Socialism inclinations after reading books by Ludwig von Mises (1881-1973), who became his mentor
- “Socialism promises to fulfill our hopes for a more rational, more just world ,” Hayek wrote. “Socialism told us that we have been looking for improvement in the wrong direction “
- Mises: socialism loses the price function
- Mises: “Every step that takes us away from private ownership of the means of production, and from the use of money, also takes us away from rational economics.”