J.M. Keynes, F.A. Hayek and the Common Reader
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This paper gives an account of the debate between F.A. Hayek and J.M. Keynes in the 1930s written for the common reader. The purpose for this is twofold. First to provide the general reader with a narrative of what happened, and pointers to further reading that are accessible to the non-specialist. Second, to discuss how academics can fruitfully bridge the gap between their specialist work and the public without reducing complex themes to one-dimensional narratives. I use the Keynes vs. Hayek debate as a case study on how this may be achieved.
This article provides a very interesting perspective of the debate between J.M. Keynes and F.A. Hayek, using also this debate in order to discuss how economic theory can be presented to the general public (the “common reader”) in a simple, but not simplistic, way.
The article fulfills its purpose. It provides an insightful description of the debate between Keynes and Hayek, and it also succeeds in using this debate in order to illustrate how the gap between specialist work and the general public can be bridged. There are only two moments in the article where I wonder whether this description of the debate could/should be undertaken in a different way, and there is a third moment which I found intriguing.
The first moment occurs in pages 7, 8 and 9 of the article, where Hayek’s theory is explained in terms of supply and demand curves (the diagrams are presented in page 22). Certainly, all students of economics are too familiar with the use of supply and demand diagrams, and one can understand their use when presenting Hayek’s theory to economics’ students. I feel, however, that the discussion that takes place in pages 7, 8 and 9 could be undertaken without resorting to the use of supply and demand curves, and would become much easier to follow for the “common reader” if it were explained without supply and
demand curves. Given that the purpose of the article is to use the Keynes/Hayek debate as a case study to show how theory can be presented to the “common reader”, the article could avoid the use of tools that are used by economists in their specialist work. Of course, supply and demand curves are the most well-known analytical tool of neoclassical economics, and many “common readers” will be familiar with it. But the discussion undertaken in pages 7, 8 and 9 does not really need the use of this analytical device, and will be more easily understood by the common reader if words, rather than diagrams, are used. Or so I think.
There are also other reasons why the use of supply and demand diagrams could/should be avoided in this context. In the GT, Keynes provides a critique of the use of supply and demand curves (in particular, saving and investment curves) for the determination of the interest rate. I could imagine some of Hayek’s followers agreeing with the critique Keynes made there, while also believing that Keynes’ critique of supply and demand curves does not affect the validity of Hayek’s argument. In fact, Hayek was quite critical of the use of mathematics in economics in general (he saw its use as the result of the uncritical transference of the habits of thought we develop when dealing with natural phenomena to the social world). To present Hayek’s theory resorting to a mathematical device, especially one that was criticized by Keynes (and by Sraffa too) may be unfair to Hayek, besides being, as noted above, maybe not helpful to the “common reader” also.
The second moment that I would perhaps present in a different way occurs in pages 17 and 18 of the article. In page 17, the New Keynesians are identified as the dominant school of economics amongst those who follow Keynesianism, while the post-Keynesians are identified as “another school of thought that follows Keynes”. The differences between these two schools are then explained, and the reader quickly understands how far apart they are. In page 18, New Classical macroeconomic theory is presented as a school of thought
that, some claim, “is really a continuation of Hayek’s research work”.
However, as it is clear when reading the article, the New Keynesians have really nothing to do with the post-Keynesians (for example, the New Keynesian models use expected values and probability outcomes, while the post-Keynesians, like Keynes himself, believe we cannot know the probability of future outcomes, as it is explained at the end of page 17). And New Classical Macroeconomic theory has nothing to do with Hayek’s theory too. The only analogy between the Keynes/Hayek
debate, and the New Keynesian/New Classical debate (that is, the saltwater/freshwater debate) concerns economic policy: New Keynesians, like Keynes, advocate government intervention to bring the economy back to full employment, and the New Classicals, like Hayek, prefer to avoid government intervention. But the underlying theory is completely different. Indeed, the New Keynesians are not Keynesians at all, and the New Classicals are not classicals at all (if being a “Keynesian” has anything to do with following Keynes, and if being “Classical” has anything to do with following Petty, Cantillon, Quesnay, Smith, or Ricardo, to name a few). I understand that the use of labels such as “New Keynesian” or “New Classical” are now used too widely in the literature. But I would at least signal that the similarities between the Keynes/Hayek debate and the New Keynesian/New Classical debate arise only in their attitude towards government intervention, and have little (if anything) to do with economic theory.
Finally, I was rather intrigued when I read in the first full
paragraph of page 14 a reference to the “natural and premature” end of Keynes’ career. I can understand what is the “natural” end of a career, and I can understand what is a “premature” end of a career. But I see both as two very different things. In fact I would see a “premature” end to be the end of a career before it reaches its “natural” end. So I am puzzled by the reference to the “natural and premature” end of Keynes’ career, and would really like to know what is meant by this?
Other than these small remarks, I have nothing further to add, other than repeating that I found this article a most enjoyable reading, from which I learned much, and I definitely recommend publication.
Page 3, footnote 3, line 2: where it reads “brake” it should read “break”
Page 8, first full paragraph, line 5: where it reads “shift out”, it should read “shift of”
The author begins with a sensible question: what is the role of the historian of economics in bringing ideas and debates in economics to the attention of the common reader? How does one mediate the dividing line between over-simplification and losing the reader in boring details or difficult theoretical concepts? Note that this is an easily generalizable problem for any popular scientific writing. One answer might be for an author to provide first a simplified narrative, followed by a more detailed reader’s guide to literature that can take the reader deeper. The author uses the Keynes-Hayek debate as an example of how this might be done, and defends the approach from some evident counter-arguments, e.g., why not just use footnotes (or endnotes)?
I like the idea of this paper more than I liked its execution.
Perhaps understandably, I cringed a bit when reading the simplified narrative. It seems to me that the basic facts could be more accurately told even here. Thus for example, the 1920s was not a period of unparalleled prosperity in England (p. 6), where unemployment was, in Keynes’ perfect phrase, “stuck in a rut” at around 10%. This is not just a detail: it explains why he began thinking about and writing about policy more than a decade before the publication of the GT. Also on p. 6, I think it would be better to include statistics from more recent times about the period than from Robbins’ 1934 book (unless the author is sure that nothing has been changed in updating). In describing the opening shots of the battle (p. 7), I think it makes more sense to say that when Hayek arrived in London he published the first half of a review of JMK’s Treatise on Money that, as Skidelsky tells us, was he most marked up item in all of Keynes’ papers. He was apoplectic! It was in his reply that he attacked Hayek’s P&P with his usual rapier wit (the “Bedlam” sentence is quoted everywhere), prompting Pigou to compare it to body-line bowling and the method of the duello. This is good stuff, and only a paragraph or two would need to be added. The summary of Hayek’s ideas about the differences between an increase in savings versus an increase in the money supply is good enough, though I think that the Austrian vision of the role of the interest rate in coordinating inter-temporal consumption could be emphasized: that people save more for something, something they will have in the future, and the interest rate coordinates this desire with the production plans of producers. The linking of Keynes and the fear of totalitarianism that is criticized in The Road to Serfdom (pp. 10-11) is in my mind just wrong historically, something that Wapshott manufactured because he wanted to continue the theme of his book that the Keynes Hayek debate framed the debate over big government and small government throughout the century. Hayek was criticizing central planning and nationalization, and Keynes agreed with that (the author acknowledges that). The dogmatic versus practical assessment seems to me to be out of place. Hayek was less concerned with the size of government than with it having constitutional and other limits placed on it. The last bit might better be placed in the second part of the paper but it is essential.
I have gone into detail here because I think that it is fine to offer a simplified narrative, but that it must be accurate. Some readers will stop with it.
Moving to the second part of the paper, it seemed to me that the author was not quite sure in which direction to take things. Most of the time the comments were simply pointing out the main books that have been written about each figure and his views. Then there was some historiography: how Keynes and Hayek were treated in various time periods. (Shackle, by the way, tore up the thesis he started under Hayek and started all over again, so there is more to the story – and interesting stuff – than the author tells.) Then there is one correction of the simplified story: (p. 14) that the story of how FAH came to the LSE was more complicated than Robbins looking for a counterweight to Keynes. Finally there is a bit about later followers of Keynes and Hayek, and a few lines on why the debate got so much attention in later years.
I think that it is fine to mention the main books and the historiography, but these sections (and they could be put in sections) should be short. Far more important are the additions to the simplified story (unfortunately by my count there was only one of these). Readers are probably not going to go out and read Skidelsky’s 3 volumes, or even the 850 page one. They need to be teased with snippets of a more detailed account and told in each case where they can find more. And instead of books, shorter articles could be used. For Keynes I might recommend two articles, both found in History of Political Economy, 1994, volume 26, no. 1. Bradley Bateman, “In the Realm of Concept and Circumstance,” talks about how he went from writing thin internal history to more full bodied history. Peter Clarke, “Keynes in History,” talks about the real story of the development of Keynes’ ideas in the 1920s, showing how his intuition kept racing ahead of his ability to model the ideas. Bateman’s essay in the Cambridge Companion to Keynes basically tells the reader that everything that they think that they know about Keynes and the Keynesian revolution is wrong. The author could list the things that Bateman lists, explain one or two, then invite further reading. That gets people’s attention!
In sum, the approach that the author recommends is worth further consideration. If he wants to get his own reader to think seriously about it, he has to do a more careful job in both the simplified narrative and in the guide to further literature.
This is a fine paper, first in the attempt to reach the common reader by partitioning the story told into a (simplifying) short narrative and suggestions for further reading and second for the insight and even-handedness with which both protagonists have been treated. I will therefore restrict my comments to some specific and minor points as principally I concur with most of what the author has brought forward.
Of course, such an attempt as the author’s is compelled to simplify and to leave out some potentially important aspects. A point that should be supplemented in this regard is the different (“methodological”) starting point from which Hayek and Keynes proceed – Hayek starts his analyses from a state of general (full employment) equilibrium, while Keynes appears to generally assume the presence of unused resources. Consequently, one might find that Hayek’s theory has more explanatory power when applied to the situation of a boom and Keynes’s as an “Economics of Depression” (Hicks). Then, the crucial questions to ask, respectively, would have been to Keynes: if monetary expansion in a fully employed economy could not indeed give rise to the structural problems pointed out by Hayek; and to Hayek: if with unemployed resources in the depression phase the primary concern should indeed be combating the structural causes of the crisis instead of the secondary (multiplier) effects of the depression?
Coming to the more specific points, Lionel Robbins is quoted (on p. 6) describing the 1920s as a decade of “unparalleled prosperity”. I’d argue that this picture of the 1920s is true mainly for the experience of the United States and its long boom, but is more doubtful when looking at Europe. The United Kingdom during this period was caught mostly in stagnation, in particular after the ill-guided return to gold; the upturn in Germany in the mid-1920s was relatively weak and transitory, and this was still more true for most Central European countries that had been hurt by hyperinflation at the beginning of the decade.
On p. 8, the credit expansion that fuels the upturn is attributed, in Hayek’s view, to the commercial banks’ “blind pursuit of profit”. The key word here should be “blind”, because in his early work (Monetary Theory and the Trade Cycle 1933 ) Hayek explained the behaviour of the banks by their lack of knowledge, not by any kind of malevolence.
With regard to unemployment and the crisis (p. 9) it might be noted that although the crisis must, according to Hayek, in any case lead to a decrease in output and in the standard of living, the simultaneous presence of unemployment and idle capacity is due to the heterogeneity and restricted mobility of the capital goods employed in the different stages of production.
On Hayek’s use of the distinction between “fox” and hedgehog” (p. 12n.7): The reference, not in the text, is “Two Types of Mind” (chapter 4 of New Studies, 1978). Here, in fact, the two types that Hayek contrasts are those of the “master of the subject” and the “puzzler”, which do not exactly correspond to the distinction between “foxes” and “hedgehogs”. Furthermore, I am not aware that Hayek associated Keynes with the first type. The examples that he gives refer to Böhm-Bawerk vs Wieser and to Viner vs Knight only.
Furthermore, I am totally unconvinced by the suggestion that the Road to Serfdom was written as a response to Keynes. For the circumstances that led Hayek to write it one might consult Bruce Caldwell’s introduction to the Collected Works volume. As regards the partial and superficial concurrence of views between Keynes and Hayek on the Road to Serfdom one must point to the vital difference between them in their (dis-)belief into the principal wisdom and benevolence of government.
One might also emphasize that already during the 1930s (before Keynes’s General Theory) public discussion between Hayek and Keynes (and his associates) had in fact petered out. The rapid defeat of Hayek (in the 1940s) could be attributed to the fact that he had before stressed the necessity to base business cycle theory (of his special type) on a firm capital theoretic foundation, yet the product he did deliver in the end (The Pure Theory of Capital, 1941) was not up to fulfil this claim; and in addition his attempt to make his capital theory bear fruit for his analysis of the cycle, the “Ricardo effect”, ended in disaster.
The author is right when pointing out (p. 15) the awkward fact that Hayek is not even mentioned in Shackle’s Years of High Theory. Yet, there is one contemporary exception, namely John Hicks’s “The Hayek Story” in his Critical Essays in Monetary Theory (1967); it could be cited as a forerunner of the later Hayek-Keynes-literature.
With regard to the “New Keynesians” (p. 17) I’d question the extent to which they have anything in common with Keynes but the name.
In conclusion, I think that the nit-picking character of my criticisms is just a demonstration that the author has left not much for me to criticize, anyway.
I would like to thank the three reviewers for taking the time to read and give feedback to my paper. I have found their extensive reviews penetrating and extremely stimulating, both in making improvements to this paper and for future research.
I also want to thank the editors of the Journal for securing so distinguished a list of reviewers across the Hayek/Keynes divide.