Book Review: “Keynes – Hayek: the Clash That Defined Modern Economics”

Book Review: “Keynes – Hayek: The Clash That Defined Modern Economics”

The “Great Recession” of 2008 spiked interest of economists, scholars,

politicians and the general public. This economic and financial crisis spurred a global

debate particularly about economic policies and their subsequent application. The

ideologies of John Maynard Keynes and Friedrich Hayek lie at the center of this

discussion. In the book “Keynes – Hayek: The Clash That Defined Modern Economics”,

Nicholas Wapshott, a British journalist and former senior editor of the London Times and

the New York Sun, explores the profound differences in the political philosophy of the

two economists. Wapshott focuses on the role of government in running of an economy, a

point of contention between Keynes and Hayek.

John Maynard Keynes and Friedrich Hayek sharply differ in their respective

views on the role of government and its potential threat to individual liberties,

specifically government intervention in the market. Keynes, the father of Keynesianism

and author of the masterpiece “The General Theory”, is known as one of the most

influential economists of all time. He believed that in order to provide full employment in

times of business downturn or stagnation, the government’s duty was to intervene in the

economy by monetary and fiscal means. The purpose of this regulation was to raise the

level of aggregate demand for goods and services. Since the overall level of output is not

fixed, government investments would stimulate the market with the help of the multiplier

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effect, and thus, create full employment. Conversely, Hayek believed that any form of

intervention from the government would alter the free market equilibrium. He viewed

this measure as short-lived, a process that would eventually create inflation and lead to a

crisis. For Hayek, free markets work best without government regulation. His logic

follows rational decisions based on self-interest; the...