Tuesday, April 09, 2013

Oy, and Hayek and I weren't the only two who realized this

Okay, so I am liveblogging Goodspeed's book, and I made my last post before reading the following:

"Dennis Robertson and George Shackle would in fact later even go so far as to suggest that Keynes and Hayek were theorizing on opposite sides of the same, Wicksellian coin. Robertson suggested that Hayek's analysis explained the boom and turning point of an inflationary expansion, while Keynes's was necessary to understand the phenomenon of secondary deflation..." -- Goodspeed, Rethinking the Keynesian Revolution, p. 147

So my recent "insights" have been understood by very smart economists for decades. Why, then, are people still talking about Hayek versus Keynes? Partisan political purposes, anyone?


  1. Maybe so.

    But take a look at chapter 27 of TPToC where Hayek is not especially polite about Keynesian economics. Hayek does not seem to share the insight that he and Keynes were on the opposite side of the same coin.

    1. Yes, Rob, Hayek-1941 still thought his views were far from keynes's. but as noted here earlier, by 1967 Hayek clearly agreed with Robertson.

  2. Might the "Keynes vs. Hayek" way of thinking about the two have something to do with the policy implications they drew their respective theories? One of them did not write "The End of Laissez-Faire", after all...

    1. Well, in one sense yes: their followers have tried to use each figure as a holy icon to bash the other sides politics. In an other sense, no: in the end, Hayek and Keynes moved close together on policy as well.

    2. in the end, Hayek and Keynes moved close together on policy as well.

      Can you spell out what you mean by this? Keynes died in 1946 so I don't know what you mean.

    3. Goodspeed. He documents this extensively.

  3. By "Keynes and Hayek were theorizing on opposite sides of the same, Wicksellian" I assume it is meant that Hayek was looking at scenarios where the money rate was below the natural rate , while Keynes was looking at scenarios where it was above?

    My concern is that the definition of "the natural rate" adopted by the two is so different to make the comparison a bit stretched.

    Hayek's definition is derived from Wicksell, and he thinks that if the money rate is kept close to the natural rate then the economy will stay close to full employment.

    Keynes differs significantly from Wicksell and (if one calls the MEC the natural rate as Goodsped seems to) even at the ongoing natural rate there may still be unemployment (Keynes says there will be a different natural rate for each level of employment, right ?)

    This seems to have quite major implications in terms of policy. For Keynes ongoing fiscal and monetary policy will be needed to maintain full employment. For Hayek the main thing that is needed is for the monetary authorities to refrain from inflating (or deflating?) the money supply and causing a rift between the money and natural rates.

    So Keynes thinks a recession can occur simply because MEC falls, while for Hayek it is a reaction to a boom. Keynes has very clear policy advice for a recession while Hayek only vague suggestions that some stimulus may be needed to fight the "secondary deflation".

    So with 2 different views of the natural rate I remain skeptical that Hayek and Keynes are operating within the same theoretical framework. Specifically when Hayek refers to "conventional means" I doubt it indicates he is embracing a Keynsian view of a "unemployment equilibrium" which is the implications of your earlier post unless I am misreading it.

    I plan however to read Goodspeed, Hayek and Keynes over the next few weeks (or months) so perhaps that will change my mind.

    1. Well, Rob, Goodspeed's case is that Keynes was a Wicksellian, and that he and Hayek responded to Sraffa in much the same way in the debate on own rates of interest. I am not at all certain that Goodspeed is correct; however I am certain he knows this topic better than me, so my best guess is that he is correct, pending further investigation.

  4. I am already convinced he (Goodspeed) is right about the own-rates of interest thing - Hayek derives the natural rate of interest in much the same was as Keynes derives the MEC.

    But for Hayek the natural rate is a long-term equilibrating rate that the market will seek-out, while for Keynes the MEC is a short-term rate based on "animal spirits" that can easily leave the economy in recession and needing intervention to maintain full employment.

    I'm not saying the framework are totally different - just that the conclusion they draw are hard to reconcile with each other.


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