A Brief History of Political Economy

A Brief History of Political Economy

Tales of Marx, Keynes and Hayek

Lars Magnusson and Bo Stråth

Investigating the ideological dimension and exploring the continued impact of Marx, Keynes and Hayek, the authors demonstrate how these three economic narratives became entangled over time and under increasing complexity, overlapping and competing with each other. The book reflects on the meaning of the historical legacy of the three narratives and investigates their significance today. All three outlined the prospects for a better and more economically efficient world with increased social justice. Magnusson and Stråth argue that they constitute a legacy on which a new economic tale must be based, a legacy to draw on or confront.

Chapter 3: The tale of Hayek

Lars Magnusson and Bo Stråth

Subjects: economics and finance, history of economic thought, political economy


The first meeting between Friedrich Hayek and Keynes was a brief one in London in 1928. They came from different worlds – the chalk-striped suit-clad bohemian don from Cambridge and the rather stale Vienna aristocrat and son of an officer in the Austrian municipal ministry of health. Although Hayek admired Keynes for his bold critique of the Versailles peace treaty, they seem to have clashed immediately over some minor issue concerning the causes of the interest rate change. In 1931 they both published reviews of each others’ recently published books. Hayek’s review in Economica of Keynes’s A Treatise of Money mixed flattering remarks (“the appearance of any work by Mr J M Keynes must always be a matter of importance”) with harsh criticisms (“peculiar method”, “obscure theme”). Keynes was more head-on. In his rejoinder he characterised Hayek’s Prices and Production as “one of the most frightful muddles I have ever read with scarcely a sound proposition”. As an aftermath they shared letters but the discussion faded out. However, Keynes continued his polemics – but with the help of his younger followers (the Cambridge apostles) and especially Piero Sraffa who wrote a sarcastic and brutal critique of Hayek’s book in Economic Journal in 1932 ridiculing his bad English and faulty reasoning. After a couple of rejoinders this discussion also faded out. And then there was silence. Although Keynes sent Hayek copies of his General Theory (1936) for comments he never responded.

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