Keynes Hayek: The Clash that Defined Modern Economics, by Nicholas Wapshott

Discussions of the economy, especially by all-knowing gurus like Milton Friedman and Alan Greenspan, can be fascinating, or grimly unbearable.  The economy, the nation’s economic health, moves in ways that directly affect our lives, jobs, and national welfare, yet often the economy seems to function like some mystical force beyond the ken of mortal individuals.  Is it some globally based ecological force, like the weather, that moves with Nature’s intricate whims, or is it the manifestation of millions of individual wills that purchase, buy, sell, invest, save, earn, and squander, like a beehive?  Is the economy beyond the control of governments and economic experts, or can it be manipulated by controlling taxes and deficits and large-scale governmental surges of support?

Such questions have been debated for years, and they have certainly been at the fore since the beginning of the Great Recession in 2008, and during the recent presidential election.

The economy is mystifying to me, and, frankly, not the most gripping of subjects, but the recent book Keynes Hayek: The Clash that Defined Modern Economics, by Nicholas Wapshott, on the career-long debate between two rival economists, John Maynard Keynes and Freidrich Hayek, undertakes to offer some insight.  Keynes, a British economist, came to believe that governments could direct the flow of the economy, while Hayek, of the Austrian economic school, believed that governments could do only damage by such efforts.  Keynes believed that governments could protect the lives of citizens through active economic manipulation of the economy while Hayek believed in minimal government controls.  Hayek believed in balanced budgets while Keynes believed that governments could live with deficit spending as long as they could afford to pay the interest on their loans.  For much of the mid-twentieth century, from Roosevelt through Carter, we lived in a Keynesian economy.  Under Reagan, the first Bush, Clinton, and well into years of the second Bush, Hayek was in the ascendant.  But when the Great Recession began, Bush fils became a Keynesian, along with Obama, pumping billions of federal dollars into the economy, significantly increasing the national deficit, and probably saving the nation from a major depression.  We’re living now under economic controls and principles that combine aspects of both Keynes and Hayek’s thinking. 

As a person who tends to think in humanistic terms, I found the accounts of Keynes and Hayek as human personalities fascinating, perhaps more so than their economic theories.  Bitter rivals throughout their careers, they became friends and colleagues in their later years.  Wapshott’s accounts of the last thirty years in American politics and economics were especially illuminating.  In explaining finer points of economic theory, Wapshott is not always clear, but who could be?