THE PROGRESSIVE CONSERVATIVE, USA
An Online Journal of Political Commentary & Analysis
Volume XIII, Issue # 221, September 11, 2011
Dr. Almon Leroy Way, Jr., Editor
Government Committed to & Acting in Accord with Conservative Principles
Ensures a Nation's Strength, Progress, & Prosperity
A HIGH STAKES CLASH OF ECONOMISTS
By Alan Caruba
WHAT IS THE GOVERNMENT'S PROPER ROLE IN PROMOTING ECONOMIC RECOVERY FROM A RECESSION OR DEPRESSION?
THE ANSWER TO THIS QUESTION GIVEN BY JOHN MAYNARD KEYNES -- THE ANSWER GIVEN BY FRIEDRICH AUGUST
HAYEK -- TWO SHARPLY CONFLICTING THEORIES OF POLITICAL ECONOMY -- THE STATE INTERVENTIONISM OF KEYNES
VERSUS THE LAISSEZ FAIRE, CLASSICAL LIBERALISM OF HAYEK
FULL STORY:
“We need an impulse, a jolt, an acceleration…. Let us experiment
with boldness on such lines, even though some of the schemes
may turn out to be failures, which is very likely.”
Who said that? Was it President Barack Obama? Franklin Delano Roosevelt? Neither. It was John Maynard Keynes, a
British economist. The year was 1924 and England, still struggling to recover from the cost of World War One, was trying
to figure out what steps to take. The British economy was suffering from high interest rates, falling prices, and high
unemployment.
Keynes’ view was that the government had to spend lots of money on public housing, better roads, and improvements to
the electricity grid to get money into general circulation, stimulate the economy, and restore business confidence. The
unemployed had to be given work, even if it was the government, not private enterprise, that would provide the capital.
Keynes was already world famous because of his role as a British Treasury negotiator at the Paris Peace Conference, a
precursor to the Treaty of Versailles. He had written a book, The Economic Consequences of the Peace, that
revealed the disastrous path the treaty had set Europe upon, the beggaring of Germany and Austria, which led to the rise
of Adolf Hitler and World War Two.
His economic theories would eventually take his name and, ultimately, his magnum opus, A General Theory, would
enshrine him in the pantheon of the most famed economists. Succeeding generations of economists and even politicians
would call themselves Keynesians.
A quite thoroughly unknown economist, Friedrich Hayek, an Austrian who was sixteen years younger, took a far different
view. While Keynes thought economics must be applied to improve the lives of people through government programs,
Hayek thought that the less government interfered with the free market, the better. Indeed, the smaller the role of
government, the better.
All this is told brilliantly in a new book, Keynes Hayek: The Clash That Defined Modern Economics ($28.95, W.W.
Norton & Company) by Nicholas Wapshott, a biographer of film actors and directors, as well as political figures, Ronald
Reagan and Margaret Thatcher.
While one might assume that economics had to be the driest of topics and two economists most people have never heard
of, the least of interest, Wapshott pulls it off, explaining some fairly daunting theories, mixing in lots of history to the
present day, and bringing Keynes and Hayek to life in a way that is very entertaining.
What emerges is the recognition that politicians, whether it was Franklin Roosevelt in the depth of the Depression years,
George W. Bush with a huge financial crisis in 2007, or Barack Obama struggling with high unemployment in 2009, all tend
to look for the shortest route out of their problem because they want to be reelected or vindicated for the steps they took.
They all think government is the answer.
Hayek reflects the Conservative, or Classical Liberal, view that government should get out of the way and let a recession
yield to natural economic forces. History demonstrates that, without government involvement, recessions eventually go
away in relatively short order.
Government, Hayek argued, is more likely to make a mess of the economy than fix it. He has been proven correct over and
over again, but that doesn’t matter because it is politics, not economics, that drives politicians. Politicians do not want to
appear to be doing nothing.
Keynes was for a hands-on government, intervening to save the economy and, he too has been proven correct, as in the
most recent steps both the U.S. and British governments took to literally push gobs of money out the door and into banks
to keep the whole system from collapse. The problem, however, is that it was taxpayer’s money and the borrowing to
replace it will saddle future generations with an enormous debt unless some austerity is imposed on government.
Always in Keynes’ enormous shadow, Hayek, late in life, was vindicated with a Nobel Prize, but even more when the Soviet
Union collapsed after seventy-five years of imposing a central government that owned everything; property, the means of
production, and still could not compete with free market economies.
Keynes, however, has seen his view fulfilled because most Western nations subscribe to some form of socialism with the
kinds of programs that he advocated to protect everyone. Social Security and Medicare are the ultimate Keynesian legacy.
Keynes was your classic “top down” manipulator of an economy. Hayek was a “bottom up” believer in the natural energy
of the entrepreneur, small business, and corporate enterprise.
Neither, however, could calculate greed or fear into their theories, though they surely were aware of both as factors driving
or retarding an economy.
Neither could predict what any particular politician might do in their own best interest. In America, both Democrats and
Republicans have proved to be big spenders since the end of World War Two.
One man who was not an economist understood how to bring down an economy. Keynes warned, “Lenin is said to have
declared that the best way to destroy the Capitalist System was to debauch the currency.”
Americans who have watched President Obama triple our national debt to more than $14 trillion should take note before the
dollar, still the benchmark currency for the world, is debauched. Too much Keynesian government spending and borrowing
will do that.
That was the warning from Standard & Poor’s when it downgraded the nation’s credit rating. Hayek would have approved.
------------------------------------------------------------
© Alan Caruba, 2011
LINKS TO RELATED TOPICS:
Political Economy -- Philosophies, Systems, & Public Policies:
Government, the Economy, & Economic Prosperity
Fiscal Policy: Taxation & Government Spending
The American Political & Cultural Left:
Liberals, Statists, Socialists, Marxists, & Other Leftists:
The Democratic Party, Academia, & the Mainstream Media
Liberalism Versus Conservatism in American Politics
-------------------------
POLITICAL PHILOSOPHY & POLITICAL IDEOLOGIES:
COMPETING SYSTEMS OF POLITICAL THOUGHT
Conservatism
Traditional Conservatism: Questions & Answers
Conservatism: Attitudes, Types, & Present Status
Constitutional Conservatism: American & British
Liberalism
Classical Liberalism: Intellectual Foundations
Classical Liberalism: Conservative Liberalism
Manchester Liberalism & Social Darwinism
Modern Social "Liberalism": Statist "Liberalism"
Radical & Totalitarian Ideologies
Radicalism, Utopianism, & Totalitarianism
Alan Caruba's commentaries are posted daily at Warning Signs, his popular blog -- and thereafter on dozens of other
websites and blogs. His monthly report on new books is posted at Bookviews.
A business and science writer, Caruba is the Founder of The National Anxiety Center, a clearinghouse for information
about "scare campaigns" designed to influence public opinion and policy.
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THE PROGRESSIVE CONSERVATIVE, USA
An Online Journal of Political Commentary & Analysis
Dr. Almon Leroy Way, Jr., Editor
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Conservative Government Ensures a Nation's Strength, Progress, & Prosperity