Keynes-Hayek again!

13 January 2012 at 1:19 pm Peter Lewin 6 comments

| Peter Lewin |

I am not sure if this book has already been review on this blog space — I haven’t seen it. Similarly, I haven’t seen any other reviews, so these are my fresh impressions. The book is Keynes Hayek: The Clash that Defined Modern Economics by Nicholas Wapshott (W. W. Norton: 2011).

With the growing interest in Hayek as the antidote to the resuscitated Keynes, this book is timely providing for the reader lively insight into the life and times of these two key individuals. In terms of the details of the lives of Keynes and Hayek the book appears to be well researched. I learned a few things from it — interesting details about events and personalities. On Keynes particularly one gains a sense of the power of the man and how a whole generation of economists at the LSE and Cambridge were won over by his revolutionary vision. Though Wapshott provides a lot of material on Hayek, I could not fight the impression that it was Keynes who captured his interest (and admiration?) most. Hayek is presented in all of his aspects, including the not so wholesome ones. The picture of Keynes seems less forthcoming, or differently spun to cast a more favorable light. But maybe that is just me and my biases.

When it comes to the economics, however, the case is much clearer. Wapshott is very weak on this part of the story, especially when it comes to Austrian economics. He is able to do a fairly good job of Keynesianism, again positively spun — including the story of multiplier. It adds to the plausibility of Keynes’s appeal. But when it comes to explaining the essence of Hayek’s opposition, his treatment is very inadequate at best and complete wrong at worst. Like Keynes himself, Wapshott does not understand capital theory and the time structure of production. So he gets the story of the business cycle wrong. He simply parrots in a formulaic way the ingredients of Hayek’s case. His treatment of Mises is almost a caricature. He does not understand the nature of the Austrian turn from classical economics and has some misleading things to say about the concept of “value.” Likewise he does not understand the differences and similarities between the economics of the Austrians and the Monetarists and invents bogus differences. I found this part of the book frustrating.

So, the question in my mind is: do I recommend this book to my macro/money students? I think I probably will, with suitable warnings, just because it is such a vital and interesting story.

Entry filed under: Austrian Economics, Former Guest Bloggers, Recommended Reading.

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6 Comments Add your own

1. Richard Ebeling | 13 January 2012 at 7:52 pm

I was extremely disappointed in Wapshott’s book.

He makes a rather large number of factual and conception errors, and fails to explain to the reader many of the ideas and theories to which he refers. But, at the same, time he clearly indicates where he falls down on these issues — and, as Peter Lewin says, not down on Hayek’s side much of the time.

At the end of volume, it is clear that he considers that Keynes’s arguments and policy prescriptions are the more useful and politically realistic than Hayek’s.

Hayek would want to “do nothing” while people are out of a job, and are supposed to wait for “the system” to find its own invisible hand corrections. While Keynes would “do something” in the short-run to help create jobs “right now.”

As far as Wapshott is concerned, having presented the choice in this way, Keynes is preferable to Hayek.

Unlike Peter Lewin, I would not recommend this book or assign it book to my students. It would require too much time in class to make sure the students didn’t reach mistaken conclusions from reading Wapshott’s misinterpretations.

Richard Ebeling
2. Peter Lewin | 13 January 2012 at 8:59 pm

Yes, thanks for filling in some important stuff Richard. You might be right about the bottom line – I will have to weigh the risk of using the book as a teaching tool.
3. Peter Lewin | 14 January 2012 at 12:36 pm

I have received some correspondence from this. John Cochran’s review will be coming out in the QJAE and Greg Ransom has some very strong comments on the book.
See: http://hayekcenter.org/?p=5167.

Upon reflection I think I may have been too generous.
4. David Hoopes | 16 January 2012 at 2:06 am

I think you were polite but pretty clear Peter.
5. FC | 16 January 2012 at 3:08 am

David Henderson reviewed the book in Policy Review: http://www.hoover.org/publications/policy-review/article/100836

Henderson seems to agree that Wapshott was talking through his hat when it comes to everything beyond the gossip, but Henderson is too polite to say so.
6. Ross B Emmett | 20 January 2012 at 8:39 am

I am using Wapshott’s book in a course this semester. A number of the students enter the course inclined toward Hayek, so its been interesting for them to have to think about Keynes in a different way. At the same time, I agree with two things that others have said here: a) that Wapshott is inclined toward Keynes’ views and presents both Keynes and his views in too favorable a light; and b) that the book is not an effective communicator of the nature of the “clash.” The ideas (esp. the Austrian side) are muddled and the reader often overlooks spots where Wapshott does make a key theoretical point because it’s embedded in some personal story.

I’ve had to supplement the book with my own discussion of the theoretical differences; and I also asked a Keynes scholar (Brad Bateman, co-author of the just released book on Keynes entitled Capitalist Revolutionary) and Steve Horwitz to skype in to class and give a short (20 minute) talk and then answer questions. Bateman did a great job this week, and I’m sure Steve will also on Monday!