Hayek on John Maynard Keynes & the Keynesian Economists

Hayek was a close student of the economic of John Maynard Keynes — he was, after all, the one who made the “General Theory” necessary after his seismic detonation of Keynes’ earlier “Treatise”.   So what did this master economist — one of the all time leading students of economic thought — what was his considered view of Keynes the economist and his “Keynesian economics”?

Let’s take a look.  Here’s Hayek on the nature of Keynes’ economics:

  • “the determinants of employment other than final demand are the factors which Keynesian macroeconomics so fatally neglects.” (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)
  • “[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)
  • “[Keynes] was guided [in his theoretical efforts] by one central idea .. that general employment was always positively correlated with the aggregate demand for consumer goods.” (Collected Works, Vol. 9. p. 249)
  • “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)
  • “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)

And what did Hayek think of Keynes as an economist?  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)

Finally, here’s Hayek on the Keynesians and the post-Keynes community of economists more generally:

  • “the community of economists [has] forgotten much that had been fairly well understood before the “Keynesian revolution”. (Collected Works, Vol. 9. p. 247)
  • “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)
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7 Responses to Hayek on John Maynard Keynes & the Keynesian Economists

  1. Greg Ransom says:

    If you read Keynes on the problems of the _Treatise_ it sounds like he’s quoting Hayek.

    I’ve read tons, which means I’ve forgotten tons. It never seemed to me like anything rivaled Hayek’s take down in its significance.

    Tell me specifically, Daniel, what the substance is of your rival item of significance, because I don’t see it.

    Keynes saw an opportunity — long after the detonation of the _Treatise_ to make use of Kahn’s multiplier idea.

    What else?

    Again, it’s been some time since I’ve gone through all this. I assume you have details.

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  3. Daniel Kuehn says:

    Greg – the Circus had been meeting for eight months before Hayek’s critique was even published, and they had finished up their work three months before Hayek published. The change in his thought was already well under way. You ought to know this – Hayek himself complains about this when he says that immediately upon receiving the review Keynes tells Hayek his views have changed.

    Hayekians can’t complain that Keynes changed his mind before Hayek could register his complaint and then turn around and argue that Hayek was the one that caused Keynes to change his mind!!!

    I’m sure Keynes took some of Hayek’s thoughts into account in revising, but don’t let your justifiable appreciation of Hayek distort the history here.

  4. Greg Ransom says:

    Daniel, I asked for content.

    You still haven’t delivered.

    What was the content?

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  7. Lio says:

    All or almost of what Hayek said about Keynes is relevant. Keynes eventually come around to the ideas of Malthus and mercantilist who had been refuted by the classics such as Say, Mill and Ricardo, among others.

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