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Edited by Roger W. Garrison and Norman Barry
Chapter 5: Hayek and Keynes
Friedrich Hayek and John Maynard Keynes have come to represent two sharply opposed political philosophies, thereby creating the danger that their economic theories will be interpreted against the background of the ideas currently associated with their names. The claim made in this chapter is that to read their work this way is mistaken, for their economic ideas changed significantly, even if (at least once Hayek had abandoned his youthful socialism) there was considerable continuity in their political positions. Keynes’s economic theory changed, as is well known, with the General Theory ( 1973), though the extent of his break with the past should not be exaggerated. Hayek’s ideas changed significantly with his article ‘Economics and knowledge’ (1937), though in his case too, earlier ideas were not abandoned completely. However, although the two facets of their thinking need to be separated, their political philosophies provide important background to their economic theories. Keynes never had great faith in the self-regulatory powers of capitalism (see Backhouse and Bateman, 2009, 2011 for more extensive discussions of his view of capitalism). The pre-1914 prosperity had been inherently fragile, as he had argued in The Economic Consequences of the Peace ( 1971), a view confirmed by the interwar experience of economic dislocation and, eventually, mass unemployment. Throughout his career, he was concerned to find a way to manage a capitalist economy so as to mitigate its worst features.
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