Recommended Reading

I was packing up my files yesterday and came across Keynes's "The Pure Theory of Money: A Reply to Dr. Hayek" (1931) - his reply to Hayek's critique of the Treatise on Money. So, of course, I stopped packing and reread it.

It's a very good piece. First, I think a lot of Austrians have this image of it as a cheap shot against Hayek but Keynes really makes the case that Hayek was the one that started with the cheap shots. Since Austrians are generally more interested in history of thought than Keynesians, that side of the story usually doesn't get told. The other thing that really impressed me was that the reason Keynes brought Prices and Production into the discussion was to make the point that Hayek was criticizing the Treatise under the assumption that Keyes agreed with him on several fundamental points, which of course he didn't (rendering a lot of Hayek's points moot). Keynes brought Prices and Production into it to highlight the very different approaches of the two men. And finally, what I liked was that even at that early point, Keynes was talking in terms of a liquidity preference theory of interest. He wasn't saying it quite as clearly as he would in 1936, but he was definitely going a lot farther than the leakage of money from the system due to hoarding, which is how a lot of people think about his position at this point.

Hayek had a lot of the General Theory thinking in front of him in 1931, if he had any interest in engaging it.