Economics 101: Hayek and Keynes

One of the consequences of the entanglement of the empirical and political aspects of economics is that the subject has created a number of god-like figures. Certain economists are treated almost as though they were infallible by the followers of the political ideologies which they inspired.

As these economists are all long dead, it is interesting to speculate about what they would say regarding the followers who interpret their words and turn those interpretations into political actions. I doubt that they would be pleased.

Irrespective of the merits of their original ideas, Adam Smith (1723-1790) and Karl Marx (1818-1883) seem to have suffered particularly badly in this respect. However, it is probably the later pair of Friedrich Hayek (1899-1992) and John Maynard Keynes (1883-1946) who exert most influence in modern economics and politics. Hayek is seen as a founding father of many free-market and libertarian ideas championed on the Right of modern politics, while Keynes has the equivalent position regarding the mixed economy championed on the Left.

EconStories has made a couple of videos humanising Hayek and Keynes by depicting them as rappers and as flawed individuals. The videos are entertaining and informative. They also introduce some of the key economic terms used in debates on the current economic crisis e.g. boom and bust, crony capitalism, paradox of thrift, liquidity trap and malinvestment.

I’ve been looking at a number of quotes attributed to Hayek and Keynes. My feeling is that they’d both be sceptical about many of the simplistic answers advocated in their names.

The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.
Friedrich Hayek

We shall not grow wiser before we learn that much that we have done was very foolish.
Friedrich Hayek

The progress of the natural sciences in modern times has, of course, so much exceeded all expectations that any suggestion that there may be some limits to it is bound to arouse suspicion.
Friedrich Hayek

If economists could manage to get themselves thought of as humble, competent people, on a level with dentists, that would be splendid.
John Maynard Keynes

Economists set themselves too easy, too useless a task if, in tempestuous seasons, they can only tell us that, when the storm is past, the ocean is flat again.
John Maynard Keynes

The difficulty lies not so much in developing new ideas as in escaping from old ones.
John Maynard Keynes

Watch two Hayek and Keynes raps after the jump.

Fear the boom and bust cycle



Fight of the century: round two