There’s a long, ongoing battle between so-called Keynesian economists, who follow the writings of John Maynard Keynes, and those of the Austrian school, which was exemplified by Friedrich von Hayek.
- Keynes believed Governments and central banks can and should intervene to stave off the worst excesses of the economic cycle in capitalist societies
- Hayek wasn’t Keynes alter-ego exactly, but he was a full-on proponent of free markets and liberalism. Essentially he believed that meddling made things worse.
Over the past two years, what was a nerdy debate has taken center-stage, as Keynes and Hayek’s different theories have been put forward as the best guide to the financial crisis.
Overwhelmingly, the Keynesians have won the day – partly because his interventionist stance fits with a politician’s desire to be seen ‘doing something’.
But as this amusing Keynes Vs Hayek rap shows, there’s two sides to the story.
Only time will tell if the world has taken the right approach.
While I’m probably a Keynesian at heart, I’d be the first to point out that as well as supporting the economy through a downturn, his theory implies Government should make savings and cutbacks when business is booming.
That’s a far cry from the profligate spending we saw here in the UK in the recent good times – and Government borrowing was creeping up for decades before then, too.
As for Hayek’s theories, this Wikipedia entry gives a good idea of how far up the creek he’d think we were today, if you consider what’s happened over the past 18 months:
Hayek explained the origin of the business cycle in terms of central bank credit expansion and its transmission over time in terms of capital misallocation caused by artificially low interest rates.
Hayek claimed that: The past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process.
In accordance with arguments outlined in his essay The Use of Knowledge in Society, he argued that a monopolistic governmental agency like a central bank can neither possess the relevant information which should govern supply of money, nor have the ability to use it correctly.
He must be turning in his grave.
Trivia fans! Amaze your friends by letting them know that Keynes and Hayek were contemporaries at the London School of Economics!
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You pinpoint something that is really creeping me out here. (at least in the US). On the one hand, it looks as if the government has allowed a rampant and unfettered capitalist orgy that has gone awry and cost us . . .um, I’m not sure how much yet. But on the other hand, our government is now in the business of making sure those ‘capitalist’ giants don’t fail, even bolstering car companies. Ugh! I think they should both be rolling in their graves.
.-= Simple in France on: Do you wish you spoke any other languages? =-.
Hmmmm not very shocking you are siding with your fellow Countryman!
That rap is hysterical.
.-= Evan on: Don’t Forget to File your State Income Tax Extension =-.
I’ll be sure to tell all my friends!
Do you know who made the video?
.-= Ryan @ Planting Dollars on: Three of the Best Blog Posts You’ll Ever Read =-.
Hi Ryan – not sure who made the video but if I recall correctly he’s done a few, I recognise the style.
@Even – True, but Hayek was domesticated in the UK for quite some time, too. (He either ended up here or the US, I forget which).
A short but sweet post, Investor!
I lean toward Hayek’s camp. Although I also believe in intervention when it is done smartly.
Unfortunately, on this side of the pond, “smart” and “government” are two words that typically aren’t often used in the same sentence.
The US government has shown that it is, more often than not, wholly incapable of making savings and cutbacks in times of plenty.
A most egregious example just occurred last month when, despite the will of the people, our Congress just nationalized 17 percent of our entire GDP – and the unbelievable costs that are going to come with it – smack dab in the middle of the worst downturn since the Great Depression.
Best,
Len
Len Penzo dot Com
.-= Len Penzo on: Expedia, Orbitz, Priceline and Others: What’s the Best Travel Search Engine? =-.
NPR’s Planet Money team had a podcast interviewing John Papola and Russell Roberts on how they created this song.
http://www.npr.org/blogs/money/2010/01/podcast_yo_planet_money_raps.html
It looks like it also ran on All Things Considered and they posted a summary, though I would recommend you listen to the above podcast from Planet Money
http://www.npr.org/templates/story/story.php?storyId=122944753
For those interested in a serious presentation of the impact of these two giants in the field of economics you may want to watch the PBS documentary at http://video.google.com/videoplay?docid=-1466397368167658753#
Although long and a bit dated it is entertaining and enlightening if you haven’t formally studied economic history.
Sheer genius!
@B7 – Quite literally. 😉
@Robert – Thanks for that link, I’ll check it out when I get some time.
Hello,
The video you have linked in this post is not working, is it still possible to view it?