video: Hayek on Keynes

The clip is from this Hayek interview with John O’Sullivan.

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4 Responses to video: Hayek on Keynes

  1. Dan Nunan says:

    If I understood correctly, Hayek is saying that it is a mistake to believe (as Keynes apparently did) that there is a correlation between aggregate demand and employment.

    This is probably a very naive question but, why did he think this was mistaken?

  2. Greg Ransom says:

    I believe what Hayek is holding is snuff. The man was addicted to nicotine. He quite smoking his pipe on the advice of his physician in the early 1960s. Hayek talks about the whole issue in the 1978 UCLA interviews.

    Steve writes:

    “I’ve seen a few videos of Hayek being interviewed and he’s always holding something in his hand. What is that object?”

  3. Greg Ransom says:

    Dan, a blog comment section isn’t a good place to explain this. The bottom line is that a demand for consumer goods is not a demand for labor. Hayek points out that even Mill understood this, and the Keynes represents a decline in economic thinking among British economists.

    A quick version of the explanation is that at the turning point of an artificial boom, producers of products with a long time of production frame are facing capital shortages and are bidding up prices, competing for goods with short term consumption processes. “Demand” isn’t simply an aggregate issues, its a structure of production issue and a relative price issue, competition ensures that demand one area will create shortages and uncompleted production processes in other areas at the onset of the inevitable bust — producing unemployment in those areas. And of course, a demand for goods is not a demand for labor, and also, of course, machines are substitutes for labor, etc.

    It takes some study and some understanding of production economics and interest theory to put all this together.

    Dan writes:

    “If I understood correctly, Hayek is saying that it is a mistake to believe (as Keynes apparently did) that there is a correlation between aggregate demand and employment.

    This is probably a very naive question but, why did he think this was mistaken?”

  4. Dan Nunan says:

    Can you point me to any useful resources then?

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