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Can government fix a broken economy? Two great economists disagreed eighty years ago, and their debate dominates politics to this day.
As the stock market crash of 1929 plunged the world into turmoil, two men emerged with competing claims on how to restore balance to economies gone awry. John Maynard Keynes, the mercurial Cambridge economist, believed that government had a duty to spend when others would not. He met his opposite in a little-known Austrian economics professor, Freidrich Hayek, who considered attempts to intervene both pointless and potentially dangerous. The battle lines thus drawn, Keynesian economics would dominate for decades and coincide with an era of unprecedented prosperity, but conservative economists and political leaders would eventually embrace and execute Hayek's contrary vision.
From their first face-to-face encounter to the heated arguments between their ardent disciples, Nicholas Wapshott here unearths the contemporary relevance of Keynes and Hayek, as present-day arguments over the virtues of the free market and government intervention rage with the same ferocity as they did in the 1930s.
Posted November 30, 2011
Everyone has an opinion about economics but few know what they're talking about. This book helps sort out the great controversy that still rages to this day between an active, interventionist government intending to "fix" the economy and low unemployment (Keynes, Galbraith) and the more somber view that government almost always makes things worse, and the free market left alone returns an economy to health with more assurance and without unintended destructive consequences (Hayak, von Mises, Milton Friedman. It's the intellectuals in Cambridge vs. the Austrian School. Great reading; very informative.
9 out of 11 people found this review helpful.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
This fine book is easy to read and very well-written. It tells the gripping story of the conflict between Friedrich Hayek and John Maynard Keynes.
Hayek, who never worked in the private sector he idolised, started from the idealist assumption that “to explain any economic phenomenon it was convenient to assume that over time an economy would reach a state of equilibrium in which all resources would be fully employed.” He did not have to prove it, since it was an assumption, but he then treated it as true of the real world.
By contrast, Keynes started from the real world, where “It is a complete mistake to believe that there is a dilemma between schemes for increasing employment and schemes for balancing the Budget – that we must go slowly and cautiously with the former for fear of injuring the latter. Quite the contrary. There is no possibility of balancing the Budget except by increasing the national income, which is much the same thing as increasing employment.”
In their debate in the 1940s, Hayek admitted in The road to serfdom that “the case for the state’s helping to organize a comprehensive system of social insurance is very strong.” Keynes pounced, “as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for, since you are trying to persuade us that so soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice.” Wapshott comments, “Hayek did not attempt to answer the points raised in Keynes’ letter …”
Further, it is not undemocratic to plan if democratically-elected governments follow a people’s desire for planning, as we do with our NHS.
Wapshott notes, “Another strand of Hayekian thinking, that the free market, left to its own devices, would correct its own mistakes and ensure prosperity for all, suffered a near mortal blow in the summer of 2007.” Robert Lucas, the Nobel Prize winner whose life’s work was to attack Keynes, admitted in 2008, “I guess everyone is a Keynesian in a foxhole.”
Class interests and affiliation decide what happens to ideas. Finance capitalists love Hayek. At a 1970s Tory meeting, Margaret Thatcher waved a copy of his The Constitution of Liberty, slammed it down on a table and shouted, “This is what we believe!”
4 out of 5 people found this review helpful.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted March 26, 2012
I wanted this book to succeed, but it doesn't. Several inaccurrate quotes exemplify shoddy composition. The quotes aren't out of context so their significance is intact, but the mistakes are mildly annoying to a student of economics. Most disappointing is Wapshott's failure to highlight the considerable link between the Fed's manipulation of interest rates and the Great Recession - when others such as former Fed chair Volcker have stated that the link has "vindicated" this central tenet of Hayek's Austrian School philosophy.
4 out of 6 people found this review helpful.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted March 13, 2012
I really appreciated what this author finally introduced to the ongoing debate over economic principles... context. By providing us with a more complete timeline and better description of the full cast (and caste) of characters, you are given a whole new level of understanding regarding how the arguments were formed and the battles fought.
I was also very appreciative that the author did a good job of staying relatively neutral in his presentation.
4 out of 4 people found this review helpful.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted May 26, 2012
The discussion of the relative merits of Hayek's and Keynes' contributions is balanced and insightful. The juxtaposition of Keynes' focus on macroeconomic answers to unemployment with Hayek's belief in the necessity of free markets and free societies make for edifying reading. An added bonus is the brief reviews of their major works coupled with an overview of economic history of the past 95 years. I highly recommend the book to anyone who wants to understand better Hayek and Keynes.
3 out of 3 people found this review helpful.Was this review helpful? Yes NoThank you for your feedback. Report this reviewThank you, this review has been flagged.
Posted February 10, 2015
Posted March 14, 2013
Very interesting from an historical perspective, although the author wanders a bit at times. Thorough retelling of a series of interesting conflicts between J.M. Keynes and his sycophantic followers and Friedrich Hayak and the Austrian School, based largely at the London School of Economics.
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Posted June 9, 2014
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Posted May 29, 2013
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