Wednesday, September 12, 2012

There are times when I think Hayek would fit in just fine with modern "internet Austrians"

"I am firmly convinced that Keynes' knowledge not only of economics but also of modern economic history, particularly the 19th century was somewhat limited and I believe I knew Ricardo and, by the nineteen-forties when I discussed such matters with him, even Marshall more intimately than he did." (from a 1976 letter)

There's a common internet Austrian reaction: if they disagree with you, respond that they don't know economics or history!

Hayek is likely right when it comes to Ricardo. The fact is Hayek spent a lot of time with Ricardo. But the claim about Marshall strikes me as highly implausible. And even if we grant the point about Ricardo, which I'm more than happy to grant, it hardly follows that Keynes's knowledge of economics is "limited" in the way it's intended here (of course it's not "unlimited", but clearly Hayek isn't just trying to communicate the opposite of unlimited).

I'm obviously a Hayek fan, but that doesn't give him a free pass on positively goofy claims of this sort. Let's put some context on this. For better or worse Hayek got beaten like a rented mule in the macro debates of the 1930s. There's some good stuff in Hayekian macro. Lots of good stuff about the capital structure and relative price behavior during the business cycle. Great stuff. But as an explanation of the depression he was soundly beaten and he knew it. When Keynesianism came in for critique (as any good scientific theory will over time), it wasn't an Austrian critique. Hayek had been ecclipsed by other macro alternatives. And once again, Hayek knew it.

Of course he's going to lash out and say Keynes wasn't all that smart or that it only caught on becuase politicians loved it.


  1. Hayek knew Keynes, you didn't. I'd take his word over your interpretation.

  2. First, for the sake of argument, even if Keynes's knowledge of economics and modern economic history was "somewhat limited" (and I doubt it), this is irrelevant to the question whether the General Theory is fundamentally right. An "amateur" in some subject is perfectly capable of contributing extremely important insights.

    Ricardo and Marshall were fundamentally wrong about modern capitalist economies. Keynes was right.

    But, anyway, Keynes started to read economics in June 1905, with Alfred Marshall’s Principles as a textbook, and he read Jevons’s Theory of Political Economy. Keynes also spent time with the Marshallian economist Arthur C. Pigou (Moggridge 1992: 82).
    Keynes showed an interest in monetary economics from 1909, being influenced by the oral tradition of Marshall at Cambridge. He had read Eugen von Böhm-Bawerk’s Recent Literature on Interest around 1905–1906, so was not unaware of Austrian economics (details in Moggridge 1992: 198).

    It is clear from Moggridge (1992: 198) that Keynes read and studied a vast range of books:

    the Principles of Ricardo, Jevons, Marshall, Nicholson, Sidgwick and Pierson
    Jevon's Investigations in Currency and Finance
    Cassel's Nature and Theory of Interest
    Goschen's Foreign Exchanges
    Jevon's Money

    See Moggridge, D. E. 1992. Maynard Keynes: An Economist’s Biography, Routledge, London.

  3. The idea that politicuians simply loved Keynes, and that's why he caught on, is not a strong argument for two reasons:

    (a) Look at history. It is absolutely full of attempts to balance of governemnt budget based on fallacious household analogies.

    (b) If politicians want to do something stupid, they don't need an economist to do it. They're perfectly competent at justifying whatever they do by themselves.

  4. "say Keynes wasn't all that smart"

    Hayek, in fact, said Keynes was *extremely* smart. He tells an anecdote of Keynes taking a brief trip to the States, and coming back talking as if he had spent his life studying (as I recall) colonial American furniture.

    1. You are correct, but it strikes me as quite concern troll-y to say 'hey Keynes was a smart guy, but he just didn't know economics.'

    2. Agreed, unlearningecon.

      Very sharp but with limited knowledge of economics and promoting a theory that may put us on the road to high unemployment (if not serfdom) is at best a back-handed compliment.

      I am going to have to look up that colonial furniture line, though.

  5. "beaten like a rented mule"

    :) :) :)

  6. Well I don't know, but considering that both men were rather bright, it doesn't strike me as particularly odd that Hayek would know more economics than Keynes. Hayek probably did spend more time on economics than Keynes. Keynes, did a lot of stuff, whilst Hayek did mostly economics. In terms of hours and focus Hayek probably beat Keynes when it came to economics.

    This is simply what you'd expect based on the literature on 'mastery' of a difficult subject. More hours + hard focus = better results.

    Plus lest we forget, Hayek badly hurt Keynes in his review of the latter's 'Treatise on Money'; this was Keynes as a mature man and Hayek was still 'wet behind his ears'. In addition, Hayek knew quite a bit more English monetary history than did the English at the time, save probably for Marshall: this was the reason why everyone was so terribly impressed with him.

  7. Also, I'd like to note that it really does matter whether you're conducting a 'debate' in your own tongue or in someone else's. Keynes was brilliant when it came to expressing himself in English; Hayek, well, read his works or hear him speak.

    If you have friends who speak one language, and you hear them speak in another that they don't quite master, they can sound positively retarded at first.

    How do you think the world would have looked like had Keynes emigrated to Innsbruck, and had Hayek (or Mises) had the social standing Keynes had in Cambridge at the University of Vienna? In other words: how do you think we would have looked back at it all where Keynes was forced to discuss and defend his ideas in German?

    Mastery of language really does matter for perception.


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