keynes hayek by Nicholas Wapshott, W. W. Norton, 2011, 382 pp.
In one of those delightful coincidences that history sometimes throws up, two of the greatest economists of the 20th century took turns on the roof of Kings College keeping an eye on Nazi planes trying to bomb the venerable ivory towers of Cambridge University. The Nazi bombers never arrived. Yet in 1942, when John Maynard Keynes and Frederick Hayek took their shifts as firemen on the roof, they used those quiet hours to plan the new economic order that each hoped would dominate the postwar world.
Keynes at the time was working for the Chancellor of the Exchequer. A rich man, he took no salary, but considered his work as the nobility obliges. Hayek, too, would have liked nothing more than to contribute to the war effort. However, as an Austrian, he was not trusted and his numerous efforts to get a government job were rebuffed.
So, as Keynes plunged into the war effort, Hayek planned another battle, which he called the “war of ideas.” During the 1930s, Keynesian economics had become the orthodoxy, in which government preparedness demands were seen as the best way to deal with economic downturns. That meant governments pumped money into the economy, printing more as needed to stimulate the need for goods and services. In the aftermath of the Great Depression, this remedy was adopted by many Western governments and historians who believed that Keynes’s economic ideas would lead the world out of the Depression. Hayek, however, disagreed. During the 1930s, he engaged in battles with Keynes, in which he argued that markets, if allowed to run freely, would resolve the peaks and troughs of the economy. Furthermore, he argued that government interference had worsened and prolonged the Depression.
In the aftermath of the global financial crisis, debates about the role of governments in managing the economy could not be more relevant. In Keynes Hayek, Nicholas Wapshott not only reproduces many of the discussions between Hayek and Keynes, but also brings these two men to life. The image he offers throws up some surprises.
Keynes was a complex character, whose fickle intellect overwhelmed everyone he met. Even Hayek felt intimidated by Keynes. Recalling their first meeting, Hayek explained, “He had a habit of going like a steamroller on a young man who opposed him. But if you stood up to him, he respected you for the rest of your life. We stayed, though we differed.” in economics, friends to the last.” Hayek clashed with Keynes and they became unlikely friends. And so, although Hayek considered Keynes a mediocre economist, he was amazed at his intellect, even expressing admiration for his books for “his openness and independence of thought.” Although Keynes died in 1946, Hayek continued to wage his war of ideas, and by the 1980s, neo-liberals, accepting Hayek’s free-market ideas, were on the rise in both London and Washington. Since the beginning of the global financial crisis, the conflict between the ideas of these two great economists has gained new relevance.
Wapshott’s book strips away the mythologies that have grown up around these two men, promoted by ideologies on the right and left. We found out that Keynes supported free markets and believed that governments should only intervene in extraordinary circumstances. He excelled in business and his investments made him a very rich man. Hayek, on the other hand, never worked outside of academia and was hopeless in handling his financial affairs.
For me, perhaps the most surprising discovery was that Hayek was not opposed to welfare, and if he had been alive today, he might even have supported “Obamacare.” Writing in 1944 in the way of servitudeHayek remarked that rich nations could afford to provide their citizens with “a complete system of social insurance to cover those common perils of life against which few can make adequate provision.”
Wapshott does an excellent job of bringing both men to life. While little is needed to portray Keynes as a larger-than-life figure, the author has done an outstanding job of seeking out interesting anecdotes about Hayek, who is a much duller character. Although the author tries to be unbiased, Keynes is really the star of this book.
If the book has one flaw, it is the lack of attention to Keynes’s contribution to Bretton Woods, to which Wapshott devotes barely half a dozen pages. There is also no mention of Hayek’s reaction to Keynes’s model of a new economic order. In light of the expansion of globalization, Wapshott did not discuss the latest chapter of the way of servitude is entitled “The perspectives of the international order”. It’s inexplicable
Wapshott also fails to describe how Hayek helped forge a generation of ideological warriors who championed free market economics and overthrew Keynesian orthodoxy. While Wapshott mentions the Mont Pelerin Society, he declines to account for Hayek’s influence on Antony Fisher, who created a model for a neoliberal think tank that replicated itself in the US inspiring Ronald Reagan’s free-market policies. and Margaret Thatcher.
At the end of the book we see that Hayek lived in the ivory tower of theories, which made his ideas ill suited to the world of practical politics. While he lived to see the neo-liberal revolutions of Thatcher and Reagan, he never took credit for them. Too purist, he felt that his ideas were never taken seriously. On the other hand, Keynes was the ultimate pragmatist. When asked about his lack of consistency, Keynes replied: “When the facts change, I change my mind. What do you do, sir?” Now that we live in an uncertain world where circumstances are constantly evolving, I think I would rather have a dose of Keynes’s pragmatism than one of Hayek’s purist economic prescriptions.