Audio-book Review
By Chet Yarbrough


keynes hayek-The Clash That Defined Modern EconomicsKeynes Hayek: The Clash That Defined Modern Economics

By Nicholas Wapshott

Narrated by Gildart Jackson

 “Keynes Hayek”, written by Nicholas Wapshott, is a liberals-eye-view of modern economics.  John Maynard Keynes was a genius of economics that practiced what he preached.  Friedrich Hayek was a scholar of economics that wrote a popular political treatise titled “The Road to Serfdom”.  Hayek’s “Road to Serfdom” is a road not taken by the United States; in fact, America’s road is paved by Keynesian capitalist companies.


Economics, the dismal science, is rarely thought of as an interesting subject.  It lies somewhere below a layman’s interest in quantum mechanics and the belly of a bug.

To offer some level of objectivity, one should know Wapshott is characterized in Wikipedia as a British liberal that graduated from college with a degree in Politics.  Wapshott is not an economist.  His occupation is as a journalist, author, and broadcaster. His examination of these two economists is not a technical examination of either Keynes’ or Hayek’s abstruse economic theories; i.e. Wapshott explains the history of Keynes’ and Hayek”s macroeconomic impact on world economies, particularly the American economy.


However, Wapshott manages to give a terrific account of the fundamental difference between John Maynard Keynes’ and Friedrich Hayek’s view of economics, a subject that generates today’s bitter conflicts in the American Congress.

The sad truth of these conflicts is that elected officials are confused by the subject and rarely read or listen to books like Wapshott’s for informed opinion.  One doubts that many legislators have read this book or Hayek’s famous book, “The Road to Serfdom”.  After listening to “Keynes Hayek”, Keynesian economics appear critically relevant to sustainable recovery of faltering capitalist economies.

Wapshott characterizes Keynes as a brilliant economist with a pragmatic genius for integration of economics and government.  He views Hayek as a well-meaning but primarily theoretical professor of economics.  In contrast to Hayek’s academic use of economic theory at universities, Keynes was employed by the British during WWI to practice economic theory in government.  Keynes used his academic understanding of economics in the real world.


Keynes and Hayek lived through the great depression and WWII but Keynes worked with high level government officials during all three social upheavals. Hayek sat on the “economics” sidelines, explaining why Keynes’ actions were wrong.  Hayek was thinking while Keynes was acting.

To give an example of Keynes genius, he correctly predicted WWII because of the economic imbalance caused by the Versailles treaty that required unrealistic war reparations from Germany.  Rather than reparations, reinvestment was recognized by Keynes as the cure for world economic pain and failure.  (America learns that lesson after WWII with the Marshall Plan to rebuild Europe.)

FRANKLIN D. ROOSEVELT (1882-1945, 32ND PRES. OF U.S.,1933-1945)

Keynes met with Franklin Roosevelt and helped move America toward a government sponsored public works program to mitigate unemployment after the 1929 crash. Though Roosevelt is unconvinced by Keynes’ economic theory, he experimented with it to create jobs. This early 1930’s sponsorship successfully reduced unemployment to 1929 levels.  After this success, Roosevelt caved to congressional pressure for deficit reduction.  He drastically cut government funding for public works.  With that change of policy, unemployment rapidly increased and the economy began to falter.  Roosevelt reversed course again by re-instituting Keynesian stimulus to increase public works spending.

Critics suggest that entry to WWII, not government public works’ stimulus, pulled the United States out of the depression.  Pearl Harbor’s attack, in one sense, muddies the truth of Keynes’ economic belief in the good of deficit spending in economic crises.  On the other hand, it proves Keynes’ point; i.e. war preparations created full employment through more deficit spending.  The difference is that deficit spending improved the economy through war preparation rather than public works.

1914-1918, Ypres, Belgium — Belgium: Destruction In World War I. The Cloth Hall at Ypres again the center of interest. — Image by © Bettmann/CORBIS

Hayek experienced the devastation of WWI in his native country of Austria.  Severe inflation destroyed his family’s wealth.  He was a disciple of Ludwig von Mises, a leader of the classic liberalist school of economics.  The classic liberalist school of economics taught that a free market will eventually right itself and that any government intervention to mitigate an economic recession or depression will delay economic recovery.

Hayek focused on microeconomic theory to support his classic liberalist belief.  Keynes focused on macroeconomics because of his role in government administration.  Keynes had a real-world laboratory to test his economic theories; Hayek did not.  Keynes famously said that those who believe the economy will right itself in the long run may be right but in the long run, we are all dead.


Hayek is several years younger than Keynes.  Hayek dealt with the theory of economics while Keynes dealt with the implementation and administration of economics in the real world.  It is not that Hayek did not exist in a real world but the consequence of theory is not proven like the consequence of action.  The laboratory of Hayek’s economics was of the mind while Keynes was of the real world.

Wapshott argues that Keynes’ insistence on creating jobs through government support of public works successfully reduced unemployment in America after the 1929 crash.  Keynes argument, according to Wapshott, is that deficit spending when unemployment is rampant is critical to economic recovery.  Keynes argued that when people are employed, they spend money, pay taxes, and create more jobs.

In a faltering economy, Keynes argues raising interest rates is a mistake because money becomes idle.  Money is not reinvested in the economy because high interest rates keep money in the bank.  With savers’ idle money, unemployment increases and the economy continues to fall until the economy collapses.  The rich are eventually drawn down by the same faltering economy that already decimated the middle class and poor.


How is this different from what exists in today’s economy?  Keynes would ask why are countries willing to create huge deficits to go to war while they are reluctant to create deficits in peace when the economy is collapsing.  In reading “The Road to Serfdom”, even Hayek acknowledges the importance of government support for the unemployed.  George W. Bush, an avowed small government laissez faire Republican, knew that a stimulus program had to be passed to avoid American’ economic collapse.


Hayek argues that Nazi Germany came into being because of socialist state control of the economy.  He concludes that government planning distorts the free market.  One can easily agree with his argument but Hayek’s argument is not a disagreement with Keynesian economics.  Keynes proves his economic arguments in the real world by showing how economies recover with government intervention.  Hayek theorizes that government intervention in state economies always damages capitalist society.  History suggests otherwise.


Hayek makes no distinction between a state that controls private enterprise and a state that supports private enterprise.  Even Margaret Thatcher had some understanding of the difference.


Examination of historical events proves Hayek wrong.  Even with Reagan, huge deficit spending propped up the economy.  Though Reagan dramatically reduced government expenditures for social services, government spending for national defense nearly doubled.  One might call Reagan’s actions Hayek’ economics, but it was Keynesian economics in practice because American debt nearly doubled in the Reagan years.

“Keynes Hayek” should be required reading for American legislators.  America is not sacrificing the future with deficit spending for public works.  Public works, like much-needed bridge repairs and power grid improvements, creates jobs, increase American wealth, and insure the future of American prosperity.  Keynesian economics rescued America twice, once in 1929 and now in the 21st century.  How much more proof is needed?

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