on 12 March 2014
This book has lots to recommend itself to the general reader with an interest in modern history, politics and economics. The author does a wonderful job of explaining how the Keynes and Hayeks views on how an economy works/should work differed and gives a brief summary of their earlier lives that suggests how, to some extent these views were conditioned by their experience of things like war and economic depression earlier in their lives. I found it really informative of how (in Europe and the USA anyway) the political left and right have been divided, post-WWII along Keynesian and Hayekian economic lines.
There's also a lovely treatment of their clashes in economic and academic publications - it's really well written so that you get a sense of the passion and emotion behind their letters and publications even though they're couched in very academic and measured terms. Can't recommend this book highly enough.
on 26 January 2013
An excellent account of the differences between Keynes and Hayek. A blow by blow account of their interactions and a most readable delivery of their economic policies. A good read for anyone interested in economic theory. Very informative.
on 22 December 2011
The book tries to suggest that the whole of economic agrument on policy falls into two camps. Austrian and Keynesian. This is simplistic and misleading. However the idea of seeing the debate on policy from the two camps is interesting and entertaining.
The book lacks depth of explanation of either Keynes or Austrian theory. This means that anyone who does not already know them (and by this I mean what Keynes wrote, not what Keynesians wrote after his death) will find the significance of many of the comments reported from the debate difficult to understand properly.
The author also fails to consider the complexity of the various schools of economics. While he explains that Keynes successfully introduced the idea of looking at the economy from 'the top down' - macroeconomics - he does not clearly explain the reliance of Keynes on the demand side alone. Consequently he misses an important aspect of the criticism of Keynes in terms of markets and understates the important move to reconsider the supply side as a policy issue. Instead the author seems to think it is part of the monetarist counter-revolution, which it is not.
But perhaps the most disappointing aspect of the book is the sloppy mistakes. The author attributes views to people they never had in broad generalizations and makes mistakes on dates and people. For example, getting the date of Margaret Thatcher becoming Prime Minister wrong, which was not the same day as Hayek's birthday as he claims (a month and four days out respectively), and making Ben Bernanke Chairman of the Fed on Friedman's 90th birthday, over three years before he actually got the job! Such mistakes makes one wonder how many other inaccuracies got past the proof readers and has devalued the entire work.
Despite some misgivings based on a review warning that Keynes's theories had been misrepresented, I finally decided the subject matter of this book was a little too compelling to overlook.
Having now read it, I have to say that, although I will not claim total familiarity with the theories, those I did have knowledge of seemed well presented, and much of the rest is given as direct quotations.
Which isn't to say that the original review was wrong, just that possibly any errors that may be in the text do not detract from the overall story.
And it is quite a story, of a battle of minds, and ideologies, that is still raging many years after the protagonists' death.
Both men are presented by Wapshott as extraordinary thinkers. But Keynes, in life and in death, is seen as overall the more influential, his ideas adopted by governments both obvious and surprising. It's no secret that successive Labour and Democratic governments have followed the Keynesian path. But that more-or-less Keynesian policies were adopted by Eisenhower, Reagan and Bush Junior carries a little more irony. Even one of the supposed cornerstones of conservative Reaganomics, the Laffer curve, transpires to be lifted from Keynes.
However, Reagan also professed a Hayekian belief in small government, and Thatcher was supposedly a true disciple, although both leaders' policies were effectively characterised by the man himself as "Hayek Lite". The only other regimes Wapshott associates with Hayekian principles are Pinochet's in Chile and the Conservative part of the current UK coalition government, shortly, it appears, to lead us into a triple-dip recession.
Keynes is presented as a towering intellect with a desire to improve society whose persuasive skills enabled him to gain access to and influence the movers and shakers of his day. He was not above a little academic skirmishing, even apparently enjoying his correspondence with Hayek in the thirties when the two discussed their respective ideas in correspondence.
Hayek comes over as slightly less satisfactory, as the sometimes mean-spirited, devil-take-the -hindmost type. Some of his debating tactics seem unpleasantly underhand, and there's something rather tacky in the story of how he dumped his wife (though it was a little early for him to be able to do it by text).
Ultimately, what stands out is how contemporary the issues are, as with Keynes warning of the danger of extremism in Austria in the face of austerity imposed by allied reparations (think Greece), or the dangers of hording money in times of crisis when what is needed is consumption, the paradox of thrift, although Wapshott does not call it that. And towards the end of the book there is a comment that Schumpeterian "creative destruction" has never been given a chance, which is open to dispute. On a micro scale, the fact that the likes of Woolworths, Comet and HMV have gone under is creative destruction in action. However, to have left the world economy to its own devices when Lehman Brothers went bust would have been a social experiment too far.
In conclusion, then, despite the possibility that the author may have at least not made the theory clear, this is a book worth reading, one which will help readers understand one of the principal ideological struggles in politics today, and give food for thought.
Finally, a note on the writing and editing. Overwhelmingly this is clear and holds the interest, and is largely well proof-read, though for the pernickety there are a couple of errors to enjoy. Early in the book (page 10) the author tells us that Keynes appealed on behalf of starving Austrian women and children in May 1918, which should surely be May 1919. The past participle of slay is slain, not slayed (page 37). And on page 258 Friedman is said to have "donned" his cap at Hayek, not "doffed". But just three ain't bad.
on 30 January 2012
Keynes and Hayek got to know each other well, and had many of the most
basic ideas about economics in common. How they argued and failed to
resolve their differences is a tale well told by this skilled storyteller.
I couldn't put it down, not many books about economics have that effect, except perhaps on economists! The book also bridges the gap between academic economic thought, and it's application by politicians in desperate times.
There is a vast cast of characters involved in both men's lives, most
especially in Keynes, who was part of fashionable literary and artistic cliques, whose investments he looked after, which allowed them to be free from the constraints of earning a living.
I felt in the end enormous respect for both Keynes and Hayek as men, and for their professional commitment and courage, both in their working and in their personal lives.
Don't look at the ending, it will have much more punch if you wait till you get there.
Is the conclusion justified? Well, that's your call.
on 4 September 2012
This fine book is easy to read and very well-written. It tells the gripping story of the conflict between Friedrich Hayek and John Maynard Keynes.
Hayek, who never worked in the private sector he idolised, started from the idealist assumption that "to explain any economic phenomenon it was convenient to assume that over time an economy would reach a state of equilibrium in which all resources would be fully employed." He did not have to prove it, since it was an assumption, but he then treated it as true of the real world.
By contrast, Keynes started from the real world, where "It is a complete mistake to believe that there is a dilemma between schemes for increasing employment and schemes for balancing the Budget - that we must go slowly and cautiously with the former for fear of injuring the latter. Quite the contrary. There is no possibility of balancing the Budget except by increasing the national income, which is much the same thing as increasing employment."
In their debate in the 1940s, Hayek admitted in The road to serfdom that "the case for the state's helping to organize a comprehensive system of social insurance is very strong." Keynes pounced, "as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that so soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice." Wapshott comments, "Hayek did not attempt to answer the points raised in Keynes' letter ..."
Further, it is not undemocratic to plan if democratically-elected governments follow a people's desire for planning, as we do with our NHS.
Wapshott notes, "Another strand of Hayekian thinking, that the free market, left to its own devices, would correct its own mistakes and ensure prosperity for all, suffered a near mortal blow in the summer of 2007." Robert Lucas, the Nobel Prize winner whose life's work was to attack Keynes, admitted in 2008, "I guess everyone is a Keynesian in a foxhole."
Class interests and affiliation decide what happens to ideas. Finance capitalists love Hayek. At a 1970s Tory meeting, Margaret Thatcher waved a copy of his The Constitution of Liberty, slammed it down on a table and shouted, "This is what we believe!"
on 2 October 2012
This is a very readable narrative which compensates for minor error in detail. It's a good primer for those not familiar with the story, and a refresher for those who are.
There is some mixing of issues which need separate treatment, ie i) macroeconomic demand management which is an economics issue, ii) the role of the state which is political, and iii) whether demand management should be by fiscal or monetary instruments, a technical economic issue.
On the first of these, Keynes emerges as undoubtedly correct, and Nicholas Wapshott is wrong to say (p286) that `the application of all three of Keynes' remedies simultaneously for three decades resulted in stagflation'. It was the exogenous shock of the OPEC oil price rise which led to the unexpected result of stagflation, ie Keynesian policy was disrupted by such a major commodity price shock which did not fit into any `ceteris paribus' assumption. On the second point, Hayek was also wrong. Good decisions can be made by good communities, and the concept that only individuals and not communities of individuals can make decisions is clearly nonsensical. On the third, the supply of money became an unmeasurable and uncontrollable monetary instrument, leading to attempted monetarist control by its price, ie the interest rate. But this proves far too blunt an instrument. Where extensive mortgages are held by consumers as in the UK economy, it effectively acts as an instant tax instrument, whilst also affecting the cost of production and hence competitiveness and inflation, the exchange rate and hence the balance of trade etc.
Supply side economics in fact focuses on the money supply, and fails to consider the real supply side of the economy. We now face a crisis where due to pervasive technology deployed in the real supply side of the economy, productivity exceeds real wages, leading to a deficiency in macroeconomic demand. Plugging this with consumer credit and/or government debt is unsustainable. It is a Keynesian problem requiring a modified Keynesian solution. Only a citizen's income or universal credit will solve the current widespread demand crisis. It requires an inevitable role for the state in dispensing citizen's income, but leaves the citizen free as to how to spend it, allowing Hayek some consolation.
Author `A Managerial Philosophy of Technology' Palgrave Macmillan 2012
on 4 June 2015
Tremendously interesting. Well written.
on 7 December 2015
on 23 September 2013
It's interesting that Wapshott fails to mention any of the things the Chicago Boys got up to in South America. I wonder why?