Hayek vs Keynes: A Battle of Ideas
Hoerber Thomas, Reaktion Books, £10.99

NEITHER John Maynard Keynes nor Friedrich von Hayek wanted to see the devastation of the Great Depression or the second world war again. Both understood how economics and politics could tear societies apart. 

Both wanted societies which would encourage harmony and efficiency. But they came up with very different solutions, Keynes focusing on the role of government in creating the right environment for markets and controlling their worst excesses, and Hayek on the role of maximising individual freedom and free markets. 

Keynes’ General Theory was published in 1936 and was the ascendant working theory in the 1940s and ’50s. Its greatest expression was as a keystone of Franklin Roosevelt’s New Deal policies and was part of common-sense policies in the West until the 1970s. 

Hayek’s Road to Serfdom, however, was written during the second world war and published in 1944, where it landed in the hands of an 18-year-old Margaret Thatcher and had a lasting influence. Since then, Hayek’s theories have become the orthodoxy, the theory to which “there is no alternative,” which in practice have brought us privatisation and the market as the solution to all ills. 

Thomas Hoerber’s book charts this as a two-horse race in the history of economic ideas. For Keynes, unemployment was the great evil which required government intervention. For Hayek, collectivism would crush the human spirit. While he pays attention to the role of socialism, in this work it is something rejected by both economists and only has a side role in economic history, although clearly Keynes felt government intervention was a vital tool in saving capitalism. For Hayek that same tool was a step towards tyranny. 

Hayek was clearly more ideologically motivated. His view of maximising freedom rejected out of hand socialist interpretations which also emphasised freedom from want. However he did recognise that his turn to the minimalist state did throw up other problems, in particular in terms of international relations. Small, isolated states pursuing their own interests would tend towards conflict and Hayek conceded the need for some sort of supranational organisation. 

Hoerber sees the EU as the sort of organisation that fills this role within a Hayekian framework. Neoliberalism is baked into its rules, while it retains some influence of Keynesian planning, and Hoerber rightly claims that it played a significant role in bringing peace to a war prone continent for 65 years. Hoerber’s hardback version of this book was completed in 2017. By 2022 however, the EU had decided firmly that its future was entwined with Nato and it would actively participate in a war at Russian borders. 

As a work in the history of economic thought Hoerber’s contribution is neatly packaged around two strands of pro-capitalist thought which have defined the post-war economic policies of the West, in particular in Britain. It’s concise and well-written and covers the subject matter well. However by staying tightly within this lane it fails to account for the role and influence of the Soviet Union for 65 years, and all but dismisses socialist theory and practice. 

Capitalism itself is of course problematic. It tends to suck money upwards into smaller elites who then use the power this provides to protect their interests. The quest for markets causes the commodification of everything and contrary to both eminent scholars, the system remains addicted to war. Keynes sought to tame the excesses, Hayek thought it should be supercharged. 

Neither economist could deal with the fundamental contradictions of the capitalist system.