Hayek on Keynes

Let’s start with some quotes.  I’ll be updating this posting through the month.

Hayek on Keynes as an economist:

  • “His ideas were rooted entirely in Marshallian economics, which was in fact the only economics he knew.” (Collected Works, Vol. 9. p. 241)
  • “[H]is aim was always to influence current policy, and economic theory was for him simply a tool for this purpose.”  (Collected Works, Vol. 9. p. 248)
  • “Keynes was not a highly trained or a very sophisticated economic theorist.”  (Collected Works, Vol. 9. p. 242)
  • “his knowledge of nineteenth-century history and even of the economic literature of that period was somewhat meager.” (Collected Works, Vol. 9. p. 228)
  • “John Stuart Mill’s profound insight that demand for commodities is not demand for labour, which Leslie Stephen could in 1878 still describe as the doctrine whose “complete apprehension is, perhaps, the best test of a sound economist”, remained for Keynes an incomprehensible absurdity.” (Collected Works, Vol. 9. p. 249)
  • “[Keynes] was neither a highly trained economist nor even centrally concerned with the development of economics as a science.” (Collected Works, Vol. 9. p. 248)

Hayek on the nature of Keynes’ economics:

  • “[Keynes] was guided [in his theoretical efforts] by one central idea .. that general employment was always positively correlated wit the aggregate demand for consumer goods.”  (Collected Works, Vol. 9. p. 249)
  • “[Keynes] based his own argument on what may be called the assumption of full unemployment, i.e. the assumption that there normally exists unused reserves of all factors and commodities .. But the assumption that all goods and factors are available in excess makes the whole price system redundant, undetermined and unintelligible.”  (Collected Works, Vol. 9. p. 243)
  • “[Keynes started from] the naive assumption of a direct dependence of investment on final demand.”  (Collected Works, Vol. 9. p. 249)
  • “the determinants of employment other than final demand are the factors which Keynesian macroeconomics so fatally neglects.”  (Collected Works, Vol. 9. p. 250)
  • “The volume of investment is far from moving proportionally to final demand.  Not only the rate of interest but also the relative prices of the different factors of production and particularly of the different kinds of labour will affect it, apart from technological change.”  (Collected Works, Vol. 9. p. 250)
  • “This constant reallocation of resources is wholly concealed by the analysis Keynes chose to adopt.”  (Collected Works, Vol. 9. p. 251)
  • “John Stuart Mill’s profound insight that demand for commodities is not demand for labour, which Leslie Stephen could in 1878 still describe as the doctrine whose “complete apprehension is, perhaps, the best test of a sound economist”, remained for Keynes an incomprehensible absurdity.” (Collected Works, Vol. 9. p. 249)
  • “In the course of the years I had several occasions to discuss these issues with Keynes.  It became quite clear that our differences rested wholly on his refusal to question [Keynes' naive assumption of  a direct dependence of investment on final demand] .  On one occasion I succeeded in making him admit .. that in certain circumstanced, preceding investment might cause an increase in the demand for capital.”  (Collected Works, Vol. 9. p. 249-250)

Hayek on the Keynesians:

  • “It was [Keynes'] revival of this underconsumptionist approach [long preached by cranks and radicals] which made his theories so attractive to the Left.”  (Collected Works, Vol. 9. p. 249)
  • “some of the most orthodox disciples of Keynes appear consistently to have thrown overboard all the traditional theory of price determination and of distribution, all that used to be the backbone of economic theory, and in consequence, in my opinion, to have ceased to understand any economics.”  (Collected Works, Vol. 9. p. 243)
  • “the community of economists [has] forgotten much that had been fairly well understood before the “Keynesian revolution”.  (Collected Works, Vol. 9. p. 247)

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Nothing distinguishes more clearly the conditions in a free country from those in a country under arbitrary government than the observation in the former of the great principles known as the Rule of Law. — F. A. Hayek

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