Apropos the recent Hayek-Keynes debate (see Keynes vs. Hayek BBC debate at LSE–Redux and Podcast), George Selgin (who represented the Hayek side) points me to The Keynes-Hayek Rematch, a nasty attack on Hayek by Robert Skidelsky, who represented Keynes in the debate (he is sometimes called “Lord” Skidelsky by the Brits). As they say, no publicity is bad publicity.
The Keynes-Hayek Rematch
Robert Skidelsky
LONDON – The Austrian economist Friedrich von Hayek, who died in 1992 at the age of 93, once remarked that to have the last word requires only outliving your opponents. His great good fortune was to outlive Keynes by almost 50 years, and thus to claim a posthumous victory over a rival who had savaged him intellectually while he was alive.
Hayek’s apotheosis came in the 1980’s, when British Prime Minister Margaret Thatcher took to quoting from The Road to Serfdom (1944), his classic attack on central planning. But in economics there are never any final verdicts. While Hayek’s defense of the market system against the gross inefficiency of central planning won increasing assent, Keynes’s view that market systems require continuous stabilization lingered on in finance ministries and central banks.
Both traditions, though, were eclipsed by the Chicago school of “rational expectations,” which has dominated mainstream economics for the last twenty-five years. With economic agents supposedly possessing perfect information about all possible contingencies, systemic crises could never happen except as a result of accidents and surprises beyond the reach of economic theory.
Note this comment there, BTW:
leftcentre 09:06 19 Aug 11
It’s hard to believe that this column was written by the same man who, half a dozen years ago, said of Hayek,
“The particular threats to liberty that he identified may be on the wane—his book has done its work well—but there are other threats, and the victory of liberty is never secure. Hayek’s key message for us today is surely this: every new restriction or regulation should be judged by its effect not just on the problem that it is designed to solve or the danger that it is designed to avert but by its effect on the system of liberty as a whole. If we are blind to this, we will be left with a damaged system of liberty long after the particular problem or danger has passed away.”
That, however, was upon receiving the Manhattan Insrtitute’s $50K “Hayek Prize.” Perhaps they ought to have spread out the payments!
Update: Selgin’s reply is up at Lord Skidelsky’s Late Punch.
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It’s great that people write these types of articles, while making absolutely no theoretical contributions to the debate/science. This articles makes me lose a lot of respect for Lord Skidelsky. It also proves that he has no respect for his intellectual opponents, who he refers to as “Hayek fanatics”.
A charlatan through and through.
Besides contradicting himself a lot, this guy Skydelsky also enjoys being a historicist:
With Keynesians resorting to “Space Aliens” to make their theory work, who knows, perhaps there is a planet somewhere where Keynesian Economics works, it sure as hell does not work on this planet.
The Austrians predicted the crisis in advance that the Keynesians can still not explain after the fact. Keynesians resort to the empirically empty statement that things would be even worse if they had not implemented their flawed policies.
“Perhaps they ought to have spread out the payments!”
They would have been inflated away!
Maybe they ought to ask for it back.
What is Lord Skidelsky lord of? These lords do not understand event the most elementary arguments of Hayek (or Mises).
Lord of teh trollz/pwn/4chan
Or some such garbage.
By the way, where exactly did Keynes “savage” Hayek whilst he was alive? To do that you actually need to successfully unravel your opponent’s views. Where did Keynes do this?
This is what I was wondering as well. As far as I can tell, it was Hayek who went about refuting Keynes, while Keynes evaded by “changing his mind” every few years. If all it takes to savage someone intellectually is the inability to hold consistent views over a period of time, then 99% of the population would be top intellectuals.
Keynes and Hayek were very good friends too. I guess Lord Skidelsky is unable to appreciate that fact.
Hayek “followers” must fight with philosophical arguments. They have no choice as they seem to be nowhere explicitly in power. Everyone can laugh at them now, just as Hitler could laugh at everything Jewish I guess, until everything “Aryan” failed (I figure “laissez faire” turns out to be mostly an insult, in the actual ruling world, just as “Jew” was back then)… .
While Hayek, acknowledges our natural instincts, he doesn’t believe in regulating only “the bad side of Humans” i.e. “greed” like Keynesians do. He wants to write the possibility of that “failure” (or at least its subjectivity) in every human action and does not see the “evil” in “human greed”.
Still, Keynesians always want to “save our souls” and it’s funny to see Krugmann getting so upset at the petty “morality of savings”, while he’s constantly fighting a much greater “evil” than theft: our filthy subconscious instinct.
Only a psychiatrist can conciliate those points of view if you ask me.
“Only a psychiatrist can conciliate those points of view if you ask me.” And that is fundamentally what Mises says in the beginning of Human Action. The economist goal is never to study ends, but means. Paul Thugman, our superman.
I recall Jonathan Catalan finding a couple of shrouded yet uncomprehending references to what appears to be Hayekian theory in “The General Theory”. Other than those, there was no direct challenge to or even an attempt at refutation of Austrian concepts by Keynes. I assume that was because Keynes suspected he would lose such a direct challenge or debate, as is the case today.
Here is Hayek (on Firing Line, 1977) explaining how scientific Keynesianism swept the world:
Hayek: You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you are doing good to the people in general. The politicians didn’t want to hear anything more than that — to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential.
http://hayekcenter.org/?p=2701
Also, Keynes could not read German so didn’t understand what Mises wrote.
Essentially it boils down to Keynes providing pseudo-intellectual framework for the statist pigs to do what they always wanted to do. Keynes’s inconsistency is a manifestation of serving the Leviathan.
Keynes never savaged Hayek. He ignored him, or ridiculed Hayek’s ideas, but never offered any substantive discussion. The quotes below are from Skidelsky.
“Keynes (and Keynesians today) would think of the crisis as resulting from the opposite cause: under-investment relative to the supply of saving…”
That’s not the opposite of Hayek. Hayek wrote that the depression was caused by “under-investment relative to the supply of saving”, too. The difference between Hayek and Keynes was in the cause of the underinvestment: Keynes blamed it on animal spirits and Hayek blamed it on the destruction of wealth in the boom.
“: in Germany, it brought Hitler to power.”
Good grief! Anyone who has an axe to grind clames the enemy’s theory brought Hitler to power. A little more cleverness, please! Hitler came to power because the only alternative to Hitler in Germany at the time were communists! There were no free marketeers.
“As Keynes pointed out, if everyone – households, firms, and governments – all started trying to increase their saving simultaneously, there would be no way to stop the economy from running down until people became too poor to save.”
And if people saved everything and consumed nothing they would starve to death! A stupid analogy doesn’t prove anything. It never has been the case and never will be the case that everyone “households, firms, and governments” saved at the same time. Hayek’s Ricardo Effect is one reason why.
Another is simple price theory, which Keynes never understood. If everyone tried to save at the same time, prices would fall dramatically. Eventually, some would decide that prices represented a good bargain and begin to buy and invest. Prices never have and never will fall to zero for everything.
“It was this flaw in Hayek’s reasoning that caused most economists to desert the Hayekian camp…”
No it wasn’t because it wasn’t a flaw. Hayek was a poor speaker with a heavy accent and he was shy. Keynes was a terrific snake oil salesman. Economic cranks had been promoting “Keynesian” economics for decades before Keynes’ GT. Hoover promoted it a decade before! All Keynes did was give academic cover for the cranks. Because everyone already wanted to believe what Keynes wrote, they did.
“Except to Hayekian fanatics, it seems obvious that the coordinated global stimulus of 2009 stopped the slide into another Great Depression.”
Hayek said that Keynes understood very little economics or economic history. Apparently neither does the author. Between 1790 and 1929 the US enjoyed 45 depressions and recovered from every single one of them with no government stimulus whatsoever. The Great D was the first in which the state tried to “save” us and it became the worst and longest in the history of mankind.
As the 45 pre-29 depressions prove, free markets have an amazing ability to recover, mainly through the Ricardo Effect and price movements. Attributing the lack of a 1930’s style depression to Keynesian policies is just dishonest.
It has nothing to do with Marxism or doing poor people a favour! It’s about the nation’s prosperity. Even the rich and the bourgeois want a stable economy. Indeed, “it is increasingly recognized that public-sector austerity at a time of weak private-sector spending guarantees years of stagnation, if not further collapse.”
The current situation shows traits of both Hayek’s and Keynes’ economic theory. The financial instruments on the market are getting so complex and speculators so creedy, that their shortsightedness has many times led to crisis. Governments have no choice but to step in, as some colossi are simply too big to fail.
“speculators are getting greedy? ”
Amen. So what were they like before, father?
“Governments have no choice but to step in, as some colossi are simply too big to fail.”
Amen again. What’s too big? Who decides this? Obviously not “the market”.
But consider father, when the government gets “too big to fail” would you allow us to call it arbitrary ruling for the sake of the people?
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