John Maynard Keynes and Friedrich von Hayek published their groundbreaking works over 75 years ago, but why are their ideas still so controversial today? Critica & Context has published a special issue reassessing these two giants of 20th century economic thought. One is a strong advocate of government intervention in the market, the other a champion of free entrepreneurial capitalism.
A series of essays and profiles by the two thinkers To dispel persistent myths and misunderstandings about the relationship and thought of Keynes and Hayek, and reinterpret them in the context of modern paradigms. As Bradley W. Bateman’s editorial points out, the persistent debate over the merits of the ideas expressed by these two thinkers demonstrates their continued relevance in a world where “there is little agreement about what effective capitalism requires.”
At the heart of this issue is an essay written by American economist Steven G. Medema in response to debates by leading scholars and politicians in the field, centering on eight questions about the influence of Keynes and Hayek. The questions cover a range of issues about contemporary capitalism and economic policy, from market volatility and income inequality to government responses to the 2008 financial crisis and COVID-19.
Medema examines how the two economists are constantly used as weapons in the ongoing ideological battle between left-wing intellectuals and supporters of neoliberalism, where they are presented as symbols of their respective positions, often in a superficial way that misrepresents the complexity of their theories.
“Keynes and Hayek have become the symbols, the poster children, of this recent shift in our time. They are victims of the inevitable impulse to portray economic life in terms of markets versus the state. We got to this point through a historiography in which close reading is sacrificed to caricature and nuance is not allowed to get in the way of a good story,” Medema writes, adding that “neither Keynes nor Hayek would acknowledge the men their critics, and even many of their nominal disciples, called them.”
Medema believes it is “absurd” to think that only Keynes or Hayek can provide the answers to the challenges facing society, and he calls on us to embrace “an intellectual eclecticism that is all too rare, and perhaps always has been rare.” “The uncomfortable truth is that reality tramples and legitimizes the ideas of Hayek and Keynes, one after the other, and we ignore each one at our peril,” he writes.
Dismantling Aunt Sally
In his essay “Composite Aunt Sally of Uncertain Age,” Bradley W. Bateman points out that much of the current debate about Keynesian economics is based on misunderstandings and tends to place the debate on shaky ground from the outset.
“The man confidently referred to as ‘Keynes’ often turns out to be an ahistorical abstraction, and quotes from his various writings of various dates are used with meanings that were rarely intended, rather than in the context of actual debates over policy or actual discussions over theory,” Bateman explains.
While he acknowledges the legitimacy of the debate between Keynes and Hayek, he emphasizes that it must take place between “a historically accurate Hayek and a historically accurate Keynes” so that the “economic, methodological and moral differences” can be analysed and conclusions drawn that are meaningful to us today.
Bateman argues that the “Aunt Sally” term often used to describe Keynes is based on some significant misunderstandings about his ideas on fiscal and monetary policy and their implementation after the Great Depression, and that in fact the economist (often portrayed as a socialist) had a lot in common with Hayek, who is often misunderstood as an “anti-state ‘barbarian'” who had no interest in the welfare state.
Two Imperfect Systems
Roger E. Backhouse, in “Using Hayek to Defend Keynes,” repeats Bateman’s argument that Keynes and Hayek should not necessarily be seen as advocating opposing ideologies. “The most important arguments in Hayek’s economic theory can, paradoxically, be used to support Keynesian conclusions,” he argues.
Backhaus acknowledges that Hayek’s The idea of markets as a mechanism for the distribution of information undermines the credibility of a centrally planned economy. He emphasizes that Hayek’s theory also has theoretical flaws that can be seen as criticism of markets.
“There is good reason to believe that planned economies, without markets or prices, are generally inefficient for the reasons Hayek gave. But individualistic capitalism is also likely to be inefficient,” he writes. “We need to find evidence of how different systems actually work.”
Reviewed by Alastair Gill
