Keynes Hayek:
The Clash that Defined Modern Economics

by Nicholas Wapshott
Norton, 400 pages, $17.95

In a work that will be enjoyed by specialists and generalists alike, English journalist Nicholas Wapshott brings to life a century of economic debates, the personalities that animated them, and the public policies they produced, from the aftermath of World War I through the current debates over bailouts, stimulus, deficit, debt, and budget.

Wapshott moves from biographical sketches of John Maynard Keynes and Friedrich Hayek to a detailed yet accessible account of their early academic debates on the causes of and remedies for the business cycle’s boom and bust, the nature of money, inflation, unemployment, and more. Their central disagreement was on what, if anything, the state could do to reverse economic downturns. “Keynes believed it was a government’s duty to do what it could to make life easier, particularly for the unemployed. Hayek believed it was futile for governments to interfere with forces that were, in their own way, as immutable as natural forces.”

Keynes was declared the victor in these exchanges and enjoyed immense popularity within the academy, popular press, and government. His ideas”and those of his many devotees”influenced public policy for a generation or more. But Hayek’s liberty-defending politics, if not the particulars of his economic theories, grew to prominence with the rise of Milton Friedman, Alan Greenspan, and the Reagan Revolution.

Wapshott sees Friedman as the key to discerning who the winner really is: “In economics, Friedman was closer to Keynes and often praised Keynes’ economics . . . . When it came to politics, however, Friedman was closer to Hayek . . . . Friedman agreed with Hayek that whenever the state intervened in the economy, it hampered the free market’s ability to create wealth. Friedman approved of cutting taxes, not to pump more money into the economy, as Keynes recommended, but because he believed that government would shrink as a result.” The standoff between Barack Obama’s Democrats and the Tea Party Republicans brings the debate into the twenty-first century.

It’s perhaps worth noting what’s missing from this debate: attention to values other than efficiency, full employment, economic growth, and liberty. For all the merits of debate between Keynesians and libertarians, much is left out. Keynes Hayek offers little to no discussion of how state intervention can support family autonomy and voluntary associations”or how it can undermine them. Beyond economic calculations, there are also moral judgments to be made about how state action can promote or discourage a healthy civil society.

”Ryan T. Anderson, a member of First Things
Advisory Council, is editor of
Public Discourse .