John Maynard Keynes, the greatest economist of the 20th century, made an enormous impact upon international politics. His name was synonymous with the concept that governments had the right, indeed the duty to intervene in a nation’s economy when in recession or when other failings endangered the existing economic system. He argued that a government should be prepared to spend its way out of recession by pumping money into public works that provided employment and took workers off the dole. This approach was adopted by President Roosevelt in his “New Deal”. Because he advocated state intervention Keynes was derided from the right as a socialist, especially in post 1945 America when in fact he was saving or trying to save capitalism. He was, nonetheless, adopted by the “left” though he never advocated state control of the economy for its own sake. Friedrich von Hayek, the Austrian economist, spent his life trying to demonstrate that Keynes’ ideology was at fault and that market forces and not government should be given full play. He became the inspiration of Reagonomics and Thatcherism while the financial collapse of 2008 was directly attributable to the determination of the United States and Britain to give free rein to market forces. Yet, when the US giant General Motors was about to collapse, the US government came to its rescue for, like the banks in Britain, it was seen as too important not to be saved.
As the stock market crash of 1929 plunged the world into turmoil, these two men emerged with competing claims on how to restore balance to economies gone awry. Keynes, the mercurial Cambridge economist believed that government had a duty to spend when others would not. He met his opposite in Hayek, a little-known Austrian economics professor who was to spend his life trying to disprove the Keynes approach, which he argued was both pointless and potentially dangerous. Hayek lived to 92, was congratulated by Margaret Thatcher on his ninetieth birthday but by then was little regarded. Keynes, on the other hand, died aged 56 in 1946 and remained highly regarded if often also attacked for his theories. Both men stirred up fierce academic opposition. The American Herbert Finer dismissed what he described as Hayek’s “jungle of fallacies”. He continued: “his apparatus of learning is deficient, his reading incomplete --- his understanding of the economic process is bigoted, his account of history false.” Academics on the Left would not meet him and he was much execrated during the Fifties and Sixties though he came into his own, for a time during the 1980s when Reagan and Thatcher ruled the United States and Britain. On the other hand, after 1945 “war-torn Europe became a laboratory for Keynesianism.” The Americans who entered a period of unparalleled prosperity decided that instead of punishing the defeated with poverty (as after WWI) they should help them become prosperous through the Marshall Plan. This represented a victory for Keynes though he did not live to see it.
Nicholas Wapshott has written an exciting book and brought to astonishing life the economics advocated by these two sharply contrasting characters. As the author says in his last chapter titled “And the winner is…, “While Hayek may have risen in influence in the last thirty years, Keynes has never been far from economists’ thoughts.”