Keynes vs. Hayek

Keynes vs. Hayek

Friedrich A. Hayek

1899 — 1992

Importance/Difference made

• Hayek was born in Vienna, Austria
• Earned his PhD's in Political Science and Law at the University of Vienna
• He was the cousin of the philosopher Ludwig Wittgenstein.
• Hayek served in an atillery regiment in the Austro-Hungarian Army in 1917
• He survived the 1918 flu pandemic.
• Winner of 1974 Nobel Prize in Economic Science.

• Hayek’s methods were the basis of Margaret Thatcher’s economic policies as Prime Minister of Britain (1979-90) and Ronald Regan’s in the USA (1981-89).
• Hayek’s ideas are still being implemented in Britain currently under the Prime Minister, David Cameron.
• Britain has taken Hayek’s views to stimulate economic growth after the 2008 market failure.

Differences

Hayek's Views

Keynes' Views

• Keynes believed the economic (macro) system was vunerable to declines in demand.
• regarded adjustment mechanisms (eg. wage and price declines) as unsuccessful in reinstating growth.
• "Keynes's message was: you cannot cut your way out of a slump; you have to grow your way out."

• Hayek believed that the market was capable of correcting itself.
• The government and central bankers policy efforts to restore growth caused weakness.
• Any interference with the market would distort the efficient operation.
• Believed that the main cause of slumps was excessive credit creation by the banks which led to overspending.

John Maynard Keynes

1883 — 1946

Motivations/Beliefs: Hayek

• Was born on June 5th, 1883 in Cambridge, Cambridgeshire, England
• Earned a B.A. from King's college in mathematics
• Considered one of the most influencial people of the 20th century by Time Magazine
• Founder of Keynesian economics

Keynes vs. Hayek

Hayek believed that large amounts of government spending during a country’s recession hurts the economy and will lead to more severe consequences which is why, they should leave the free market to regulate itself.

“I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments.” – Friedrich August Hayek

Similarities

• Hayek and Keynes both have played critical roles in the development of American economic policy. That is where the similarities end.

Motivation/Beliefs: Keynes

Importance/Difference made

Keynesian ideology has been credited with rescuing countries from economic crisis' including the Great Depression in the 1920's and the Great Recession in 2008.

In 1999 when Time Magazine included them in their 100 most influencial people of the 20th century they stated in reference to Keynes: "His radical idea that governments should spend money they don't have may have saved capitalism."

Keynes dreamed of becoming a philosopher but a contemperary of his, Alfred Marshall, begged him to persue economics.

Keynes believed that in order to drive an economy, especially in situations of economic distress such as the great depression, the government must spend money. Even if that money must be borrowed.

“If you owe your bank a hundred pounds, you have a problem.

But if you owe a million, it has.”

― John Maynard Keynes