Keynes Hayek by Nicholas Wapshott, WW Norton, 2011, 382 pp.
On one of those delicious coincidences that history ever throws up, two of the greatest economists of the twelfth century turned in turn to the roof of Kings College to watch the Nazi planes aiming to bomb the revered ivory towers of Cambridge University . The Nazi bombers never came. However, in 1942, when John Maynard Keynes and Frederick Hayek took their turn as rooftop firefighters, they used those quiet hours to plan the new economic order that everyone hoped would prevail in the postwar world.
Keynes at the time was working for the Chancellor of the Exchequer. A rich man, he received no salary, instead considered his job as the nobles compel. Hayek, too, would like nothing more than to contribute to the war effort. However, as an Austrian, he was not trusted and his many attempts to find a job with the government were thwarted.
So as Keynes plunged into the war effort, Hayek planned another battle, which he called the “war of ideas.” By the 1930s, the Keynesian economy had become orthodox, in which the demands of starting a government were considered the best way to deal with economic downturns. This meant governments pumping money into the economy, suppressing as much as was needed to stimulate the need for goods and services. In the wake of the Great Depression, this medicine was taken by many Western governments and historians who believed that Keynes’s economic ideas would lift the world out of the Depression. Hayek, however, disagreed. During the 1930s, he engaged in leading battles with Keynes, in which he argued that markets, if allowed to emerge free, would choose the tops and corridors of the economy. Moreover, he argued that government intervention had exacerbated and prolonged the Depression.
In the aftermath of the global financial crisis, debates over the role of governments in managing the economy could not have been more important. In Keynes Hayek, Nicholas Wapshott not only reproduces many of the arguments between Hayek and Keynes, but also brings these two men to life. The photo he offers brings some surprises.
Keynes was a complex character, whose intellect took over those he met. Hayek was also intimidated by Keynes. Recalling his first meeting, Hayek explained, “He used to go like a steamer on a young man who opposed him. But if you rose up against him, he respected you for the rest of your life. We stayed, even though we changed in the economy, friends to the end “. Hayek really stood up against Keynes, and they became tough friends. And so, while Hayek regarded Keynes as a mediocre economist, he remained intimidated by his intellect, even expressing admiration for his books for “their noise and independence of thought.” Although Keynes died in 1946, Hayek continued to wage his war of ideas, and by the 1980s, neoliberals who embraced Hayek’s ideas in the open market 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 importance.
Wapshott’s book removes the mythologies that have grown up around these two men, promoted by left and right ideologies. We find that Keynes supported the free market and believed that governments should only intervene in exceptional circumstances. He excelled in business, and his investments made him a very wealthy man. Hayek, on the other hand, has never worked outside the academy and was hopeless in managing his financial affairs.
To me, perhaps the most surprising discovery was that Hayek was not against social welfare, and if he were alive today, he might even have supported “Obamacare.” Writing in 1944 at The Road to Slavery, Hayek noted that wealthy nations could afford to provide their citizens with “a comprehensive social security system in insuring those common life risks to which few can make appropriate predictions.”
Wapshott does an excellent job of bringing both men to life. While it takes a bit to show Keynes as a larger figure than life, the author has done an extraordinary job in searching for interesting anecdotes about Hayek, who is a much more dull character. Although the author strives to be equal, Keynes is truly the star of this book.
If the book is to blame, it is the lack of attention to Keynes’s contribution to Bretton Woods, to whom Wapshott devotes half a dozen blank pages. Nor is Hayek’s reaction to the Keynesian model for a new economic order ever mentioned. In light of the spread of globalization, Wapshott’s failure to discuss the last chapter of The Road to Slavery is entitled “Prospects of the International Order”. Inexplicably inexplicable
Wapshott also fails to describe how Hayek helped create a generation of ideological fighters who supported the free market economy and overthrew Keynesian orthodoxy. While Wapshott cites the Mont Pelerin Society, he neglects to give an account of Hayek’s influence on Antony Fisher, who created a model for a neoliberal think-tank that was replicated in the US, the UK and other Western countries and that should be credited with inspiring the free market policies of Ronald Reagan and Margaret Thatcher.
At the end of the book we see that Hayek lived in the ivory tower of theories, which made his ideas not fit well with the world of practical politics. While living to see the neoliberal revolutions Thatcher and Reagan, he never took credit for them. Very purist, he thought his ideas were never taken seriously. Keynes, on the other hand, 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 insecure world where circumstances are constantly evolving, I think I would rather have a dose of Keynesian pragmatism than one of Hayek’s purist economic recipes.