Keynes Hayek: The Clash that Defined Modern Economics [Hardcover]

Nicholas Wapshott (Author)

Book Description

Publication Date: October 11, 2011

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.

Product Details

• Hardcover: 400 pages
• Publisher: W. W. Norton & Company; 1 edition (October 11, 2011)
• Language: English
• ISBN-10: 0393077489
• ISBN-13: 978-0393077483
• Product Dimensions: 6.5 x 1.3 x 9.6 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 4.2 out of 5 stars  See all reviews (59 customer reviews)
• Amazon Best Sellers Rank: #75,707 in Books (See Top 100 in Books)

Editorial Reviews

Review

Keynes Hayek: The Clash That Defined Modern Economics 


Nicholas Wapshott. Norton, $28.95 (352p) ISBN 978-0-393-07748-3

Wapshott masterfully recounts the clash between Hayek and Keynes. Wapshott offers a colorful look at the theories that epitomize the economic divide still shaping Anglo-American politics. Publishers Weekly.

 "Told brilliantly." Alan Caruba's Warning Signs.

"Mr. Wapshott has written an important book. It is compelling not only as a history of two distinctive thinkers and their influence, but as a narrative of political decision-making and its underlying priorities. Underlying Mr. Wapshott's analysis are vital questions for this moment in American history." Nancy F. Koehn, The New York Times

“I heartily recommend Nicholas Wapshott’s new book, Keynes Hayek: The Clash that Defined Modern Economics.... Many books have been written about Keynes, but nobody else has told the story properly of his relationship with Hayek. Nick has filled the gap in splendid fashion, and I defy anybody—Keynesian, Hayekian, or uncommitted—to read his work and not learn something new.” (John Cassidy - The New Yorker )

“Nicholas Wapshott’s new book, Keynes Hayek, does an excellent job of setting out the broader history behind this revival of the old debates. Wapshott brings the personalities to life, provides more useful information on the debates than any other source, and miraculously manages to write for both the lay reader and the expert at the same time. Virtually every page is gripping, and yet even the professional economist will glean some insight...” (Tyler Cowen - National Review )

“Mr. Wapshott has written an important book. It is compelling not only as a history of two distinctive thinkers and their influence, but also as a narrative of political decision-making and its underlying priorities. Underlying Mr. Wapshott’s analysis are vital questions for this moment in American history: What kind of society do we want? And what do we owe to our fellow citizens and our collective future?” (Nancy F. Koehn - The New York Times )

“Nicholas Wapshott’s Keynes Hayek is a smart and absorbing account of one of the most fateful encounters in modern history, remarkably rendered as a taut intellectual drama. Wapshott brilliantly brings to life the human history of ideas that continue to mold our world.” (Sean Wilentz, The Rise of American Democracy )

“Nicholas Wapshott brings the Keynes-Hayek fight of the twentieth century back to life, making the clash both entertaining and highly relevant for understanding economic crises of the twenty-first century.” (John B. Taylor, Stanford University, Getting Off Track )

“In the fluency of his writing and his ability to make complex financial questions easily comprehensible, Nicholas Wapshott has done economics itself a great service, by opening the subject up to the general reader, as seen through the prism of one of the most important intellectual gladiatorial contests of modern times.” (Andrew Roberts, The Storm of War: A New History of the Second World War )

From the Author

I reported the rise and reign of Margaret Thatcher at close quarters and wrote a great deal about her rejection of Keynes in favor of Hayek. Then I wrote a book about Reagan and Thatcher, whose political marriage was founded on a shared belief that Hayek was right. So the story of Keynes and Hayek is a subject that has been long on my mind. Nicholas Wapshott - interviewed in The New York Sun

See all Editorial Reviews

Product Details

• Hardcover: 400 pages
• Publisher: W. W. Norton & Company; 1 edition (October 11, 2011)
• Language: English
• ISBN-10: 0393077489
• ISBN-13: 978-0393077483
• Product Dimensions: 6.5 x 1.3 x 9.6 inches
• Shipping Weight: 1.3 pounds (View shipping rates and policies)
• Average Customer Review: 4.2 out of 5 stars  See all reviews (59 customer reviews)
• Amazon Best Sellers Rank: #75,707 in Books (See Top 100 in Books)

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Most Helpful Customer Reviews

140 of 149 people found the following review helpful

5.0 out of 5 stars A Stunning Book October 16, 2011

By Warren Miller

Format:Hardcover|Amazon Verified Purchase

Anyone who wants to know how the United States and Europe got into the financial mess that we're all in should read this book. It tells the story of the 1930s debates between two great economists: John Maynard Keynes ('Maynard' to his friends) and Friedrich August Hayek (called 'Fritz' by friends and family). These two giants of economics had diametrically opposed views of how things worked. They debated, argued, and took pot shots at one another in academic journals and through proteges, colleagues, and graduate students. That we in the U.S. have had to contend with the top-down hand of Keynesian economics for most of the last seventy-five years is due in no small part to telling differences in the personal styles of the two protagonists. Keynes was tall (6'6"), urbane, gregarious, and articulate. Hayek was short, bookish, introverted, and, shall I say, English-challenged - he spoke English with an accent so thick that listeners found him almost unintelligible. Except for his classic, "The Road to Serfdom," his writing is also tough going, even for those with a high tolerance for abstract turgidity. Author Nicholas Wapshott does his readers a favor by not citing chapter and verse from Hayek's literary pantheon.

Keynes's ideas prevailed, at least until the "stagflation" of 1973-74. They came out on top not only because of Keynes's winning persona but also because Hayek's prescription for curing the Great Depression--a "bottom up" approach for government to do nothing and to let the market work its will, find bottoms, and regain an upward path--were politically untenable. Doing nothing is often perceived as not caring. However, it beats doing the wrong thing. As some sage once said, "Don't just do something. Stand there...." Keynes was a relentless and effective salesman for his ideas to boost a sagging economy--heavy public spending, cutting taxes, and reducing interest rates by increasing the money supply. If the names of Messrs. Obama and Bernanke come to mind, you're connecting the dots. Though he died an early death at 63 in 1946, Keynes's ideas had legs that persist to the present.

It's worth noting that, before Keynes, there was no division between microeconomics and macroeconomics. There was only economics--it was called "classical liberalism" in the day. Before Keynes, math economics was not a big deal. After him, it was, and that torch was carried from the late 1940s to the first decade of the twenty-first century by Nobelist Paul Samuelson, probably the most prominent and influential of Keynes's intellectual disciples.

Drawing extensively on primary and secondary sources, Mr. Wapshott paints the scene in London with an eye for the telling detail as "the great debates" began in the 1930s. Keynes and his minions dug in at Cambridge, while Hayek and his were encamped at the London School of Economics. These chapters are riveting reading; he even tells of two economists (one of whom was married to yet another economist) being caught in flagrante on the floor of the unmarried economist's apartment. Who said if you laid all the economists in the world end to end, they'd never reach a conclusion?!

He continues with Hayek's 1947 founding of the Mont Pelerin Society (a.k.a. "Friends of Hayek"). He moved to the United States in 1950 where he was turned down for employment, first, by the Institute for Advanced Studies at Princeton and then by the faculty of the Department of Economics at the University of Chicago. Nonetheless, Hayek was hired at the University's Committee on Social Thought, where he stayed until 1960; his salary was privately funded. The Society later bogged down in internal conflict, causing Hayek pain and discomfort in the early 1960s. That was at a time when his first heart attack was misdiagnosed by physicians.

He then returned to Europe, first at the University of Freiburg in Germany and then to the University of Salzburg in his native Austria. Along the way he produced books and papers that are still in wide circulation today. Winning the Nobel Prize in 1974, as he did (ahead of Friedman in 1976), was the best revenge of all. The rise of Margaret Thatcher in Great Britain and Ronald Reagan in the U.S. a few years later further boosted Hayek's stock with the public praise both heaped upon him. In characteristic fashion, he was less enamored of them. He died in 1992 six weeks shy of his 93rd birthday.

It helps that Mr. Wapshott writes well because a reader needs no background or interest in economics to understand and enjoy this book. Not to worry about getting bogged down in the arcane vernacular of economics. In fact, the book is so well done that I'm amazed that more in the media haven't (yet) picked up on it because it explains so much of where we are today, how we got here, and, by implication, why a non-Keynesian veer in our current economic trajectory may be worth considering; BusinessWeek carried a five-installment serialization, however.

The author is not an advocate for either combatant. He is a journalist who does a whale of job doing what the best journalists do: find the information, tell a great story, and let the facts speak for themselves. And here's a great audio interview with him:[...]

I found the book highly readable and mostly accurate. Aside from some minor typographical errors, the only mistake that I caught was Mr. Wapshott labeling the great Austrian economist, Joseph Schumpeter, a member of "the Austrian School of Economics." Though he was born in what was then part of the Austro-Hungarian empire, Schumpeter didn't subscribe to the Austrian School of Menger, Wieser, Bohm-Bawerk, Mises, and Hayek.

A complaint, however: the index is poor. Reference-like books, which is how I see this one, need first-rate indexes. Serious readers often go to the Index before we go to the Table of Contents. As one who has indexed two of his own books because I refused to entrust that crucial job to someone chosen by penurious publishers, I know first-hand that indexing, done right, is a non-trivial undertaking. But when, for instance, twenty-odd page numbers are cited beneath a single main heading, as happens in "Keynes Hayek," well, that's just plain unhelpful. Worse, it disses the reader. For those with more interest in indexing, Nancy Mulvaney's book, "Indexing Books," is, for my money, the best there is. The 15th edition of the Chicago Manual of Style had a first-rate section in it that quoted heavily from Mulvaney. CMS16 does not, however, and that's a huge disappointment in an otherwise seminal reference work for writers. Mulvaney's book is organized, easy to read, and helpful in executing a task that is far more difficult and challenging that I ever thought it could be. Computerized searching of a manuscript is a help, but it's also a crutch on which one should not lean hard because it's made of balsa wood.

Still and all, this is a superb and timely book. I recommend it without hesitation or qualification.

P.S. If you want to see a latter-day parody of Keynes and Hayek in rap videos that have gone viral, check out econstories(dot)tv. They are hilarious. Read more ›

87 of 102 people found the following review helpful

3.0 out of 5 stars Entertaining but Over-Interpreted November 22, 2011

By Herbert Gintis

Format:Hardcover|Amazon Verified Purchase

This book is quite nicely written and has little trouble engaging the attention of the reader. The two eminent economists certainly had extremely divergent ideas, Keynes representing modern liberal interventionist social policy, and Hayek representing the classical laissez-faire position so characteristic of the Austrian school. The problem with the book is that the two figures really did not much interact, either in words or in real life, and each was preoccupied with a major battle that did not involve the other. Keynes' polemic was against the received wisdom in British and American economics, which held that economic downturns are self-correcting, provided the monetary authority maintained the value of the currency and did not run exorbitant deficits. Of course the Austrian school believed this too, but this school was practically unknown in Anglo-American circles. Hayek was concerned with business cycle theory, but his contributions were exceeding arcane and unpersuasive. Rather, Hayek was the dedicated enemy of central planning of the state socialist variety.

Hayek's major clash with the socialists occurred in the mid-1930's in the so-called economic calculation debates with the market socialists, most notably Oskar Lange. The market socialists clearly won this debate, in which all parties assumed the validity of neoclassical economic theory. Curiously, the great Josef Schumpeter concluded that socialism was inevitable (he develops this theme in Capitalism, Socialism, and Democracy, 1942), while Hayek concludes (correctly) that it is neoclassical theory that is wrong. Hayek spent the next decade developing his own extremely cogent critique of central planning, writing his most important article: F. A.... Hayek, "The Use of Knowledge in Society", American Economic Review 35,4 (1945):519-530. This is one of the greatest pieces of economic analysis of all time.

The Road to Serfdom, which Wapshott interprets as a diatribe against the Keynesians, is to my mind nothing of the kind. Rather it is a "slippery slope" argument against centralized socialist planning.

I think the world of both Keynes and Hayek, the former as a wise practitioner whose economic theory is completely ridiculous (it took Hicks, Samuelson, and other serious economists to "make sense" of Keynes' impenetrable prose---"make sense" not by clarification of Keynes' ideas, but rather by offering an alternative analytical framework in which underemployment equilibrium is possible), and the latter as brilliant intellectual who was almost destroyed (despite his Nobel prize) by his adherence to the bizarre and irrelevant doctrines of the Austrian school, whose economic theory was dogmatically dictated by its paranoid fear of state intervention.

Read this for fun, dear reader, the same way you read People magazine. Don't think you will get some deep insights in the the nature of modern political economy. You won't. Read more ›

38 of 43 people found the following review helpful

5.0 out of 5 stars Wapshott Brings Clarity to Modern Economics October 22, 2011

By Greying American

Format:Hardcover|Amazon Verified Purchase

Nicholas Wapshott's Keynes Hayek brings clarity to the reader's understanding of 20th and 21st Century economic policy, both in the US and globally. Wapshott describes how Keynes became the well-known father of active economic governmental policies, and how those policies were applied to avoid economic catastrophe in the US and globally. Wapshott describes Hayek, who won the Nobel prize in economics but was a less well-known libertarian, and who became the champion of Milton Friedman and other modern leading Republican and conservative economists in the US, the UK and globally. The book shines a bright light on the differences between the Keynesian and Hayekian theories over the decades, and the their consequences, particularly in the US and UK following World War II. Wapshott's research shows the lip service given to conservative economic policy, but its abandonment during the run-up of enormous deficits in the US during the administrations of President Reagan and President George W. Bush. Kaynes Hayek is a must read, particularly in view of the stalemate between President Obama, who is trying to apply Keynsian theory to reduce unemployment, and the Republican-controlled House of Representatives, which appears to be applying a veto because of Hayekian theories. Similarly, Keynes Hayek is very informative on developments in the UK, where the Conservatives have brought Hayekian policies to the fore, but where the outcome has been at best questionable. Wapshott's book is a very well-written and timely read.