← LSE: Public lectures and events
LSE: Public lectures and events
How the clash between John Maynard Keynes and Friedrich Hayek continues to define the difference between left and right today
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Welcome, everyone to the London School of Economics and to this evening's Economics Department public lecture on the clash between John Maynard Keynes and Frederick Hayek. You will already know that speaking to you will be Nicholas Wapshot, who has come over, flown over from New York, and will be delivering the lecture to us based on, among other things, the research for his book. Just a Few words before we begin. Nicholas Wapshot, as I've already said, has flown to us from New York, from the United States. But the instant he opens his mouth to speak to you, you will also know that he is originally from this side of the Atlantic. Nicholas is a true transatlantic personality. Previously, when he was still living here in England, he had edited the Times of London Saturday edition. He had served as founding editor for the magazine of the Times of London. In 2001, Nicholas moved to the United States, where again he continued to work in the news media. Among other things, as New York bureau chief for the Times of London. He helped found and then was senior editor of the online news and opinion magazine the Daily Beast. This transatlantic mix is something that Nicholas does and does very well, and it shows up in all different kinds of work that he has undertaken. He has written definitive political biographies that combine ideas and personalities from both sides of the Atlantic. He has a political biography of Ronald Reagan and Margaret Thatcher, one of George W. Bush and Tony Blair. And although John Maynard Keynes and Friedrich Hayek might at first seem to us as being something that is isolated to what has happened here in the United Kingdom, to ideas and events that occurred, first of all in the United Kingdom and in continental Europe, you will very quickly see that the personalities and the powers and the forces that I work here are, again, truly transatlantic. The lse, I'm glad to report, has a role and at times a critical role in this play of ideas. Those of you who've had a chance to glance briefly at the book will realize that Beverage, yes, Social Welfare State Beverage and Lionel Robbins were the people at LSE who recruited Friedrich Hayek to come to the LSE initially to counter Keynes at Cambridge. And so, right from the outset, the story is one where two powerful personalities, institutions and ideas are set in play with one against the other. A dialectic and a dynamic that Nicholas will describe to you continues. So if you could join me in giving a warm welcome to Nicholas for this evening's lecture.
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Thank you very much indeed for that very warm welcome. I'm very glad to be home, and I'm glad that it's as rainy as I left it. Not sure what that's for it's a particular pleasure for me to talk here at the London School of Economics, because as the introduction explained, for which I thank the most generous introduction, a great deal of the story of Keynes and Hayek took place here at the London School of Economics, not in this fine new exciting building, but in the old buildings in Houghton Street. And it is of importance, I think, that if we look back in terms of the history of the London School of Economics, of the many larger than life characters and influential people who have either studied here or taught here, three of the most important are essential to the telling of this story. And of the three of them hugely important and influential in their own different ways. Probably the least successful at his time at the LSE is the one that is now the most famous today and the most influential. William Beveridge, of course, was the director of the LSE and left behind the welfare state which even 13 years of Margaret Thatcher could not demolish. He's left an abiding institution for us all to benefit from and that in itself is an extraordinary legacy. Lionel Robbins, as he used to tell everybody, the youngest professor of economics in Britain when he was appointed in 1928 age 30 at the London School of Economics, left behind again, an extraordinary legacy, not least the fact that he was the person who recommended the vast and rapid expansion in tertiary education in the 60s which led to all of the new universities of York, Sussex, Warwick, Essex, Lancaster and so on. So he too has left a lasting legacy. But it's Friedrich Hayek, the perhaps least attractive in many respects of the three, who is now absolutely cock of the walk. It's unbelievable to me that today Friedrich Hayek's Road to Serfdom remains on the top best selling list in America and has done for about five years. It's unbelievable to me that is the case. He certainly bad his time, but when his time came, it turned out that he was hugely influential today, right now, and that is an extraordinary thing which I will eventually get to. But first we need a little bit of history. We need to slip back 80 years a little more to a time that, although it seems a bit distant, was actually very like today. We're talking about a Britain and a Europe with persistent large scale unemployment, which was unshiftable and we lived in the early 30s anyway, at a time when banks started going bust and governments panicked and clung to what they knew, which was the old fashioned economics, and started paying down debt, raising interest rates and altogether allowing the unemployed to take the slack in the economy. It was this horror of unemployment that led John Maynard Keynes to try to work out what should be done, if anything, in order to try to raise the plight of those who were jobless. He was already famous worldwide because he had taken part in the Paris Peace Talks. First of all, he borrowed all of the money to wage World War I for Britain. And because then, as now, the American Wall street bankers didn't trust the Europeans to pay their debts, the British also borrowed on their behalf all the money that the French and the Italians needed to wage the war against the Germans and the Austrians. As a result of that, he became an indispensable member of the treasury team. So when it came to the Paris Peace Talks to work out what to do at the end of the war, when Germany and Austria had to pay the price, Keynes was an obvious person. He understood the economy in a way that few people did. But what he saw in Paris shocked him, because here, instead of an honorable peace, he saw that people like David Lloyd George were actually just lusting after blood. What they wanted was a wholesale punishment of the German people for having drawn the rest of Europe into what was a punishing warfare which went over four years, when tens of millions of people lost their lives. He came to the conclusion that if those reparations were imposed upon Germany, otherwise a very strong, modern, sophisticated, industrial nation, impoverishing it and. And reducing it to some sort of bucolic dystopia, then he thought that there would be inevitably extreme politics would be caused, provoked, and extreme solutions and extreme leaders would take over, and that therefore the Treaty of Versailles would just be a temporary milestone in the road towards a peaceful existence, because a Second World War would be along any minute, which indeed turned out to be the truth. He therefore resigned from the treasury team and went straight back to London, where, as a member of the Bloomsbury Group, he sat down with his fellow writers and painters and wrote the economic consequences of the piece. And this totally transformed his reputation worldwide. He expressed this view that the reparations were too severe, that they couldn't be paid, however much the instincts might be the right ones, and that this would lead to extremism, which would lead to tyranny, which would lead to World War II. And one of the people who read that book was Friedrich Hayek, living in Austria. He just returned as a war hero. He risked his life a number of times. He did what his country asked him to do. But he arrived back in Vienna, once a dazzling, golden city of adventure and excitement, to find that now it was the headless torso of an empire which had set itself free, the Austrian, Hungarian empire, even the Hungarian bit, had disappeared. Hungary had split off, all of its colonies had disappeared. And the empire trade, which had kept the whole of Vienna booming and in goods, turned out to be now incapable of receiving those goods because it was no longer the center, the capital of the empire. The result was he came back to find his parents living in an apartment, sitting in their overcoats, freezing because they couldn't afford to buy fuel short of food. These are decent. He was a doctor. Friedrich Hayek's father was a doctor. But they were in a position where they couldn't afford to do anything much. Inflation was rampant and running wild. And when he read the economic consequences of the piece, he came to a very similar conclusion to Keynes, that indeed, if Austria and Germany were to be deliberately beggared by the victors of Versailles, then there would indeed be extremist politics and extremist solutions which seem very attractive to people in despair. So that's how Friedrich Hayek first came to know of John Maynard Keynes. Let me just paint a portrait of the two of them. Somebody asked me whether I should do a PowerPoint presentation with pictures of the two of them, but actually they look relatively similar and as they are all in black and white and rather boring looking, I don't think it would help you understand very much. However, John and Maynard Keynes, I should say, is without doubt not standing. Winston Churchill, the savior of Western civilization, the most important and influential Englishman of the 20th century. I don't think anyone comes anywhere near rivaling him. He ran about a dozen lives simultaneously, of which the smallest thing was the birth of King's College, Cambridge, something he never gave up. But he was a sublime economist and he was a member, as I mentioned, of the Bloomsbury Group. It's interesting, he's a man after my own heart. Used to like to stay in bed until noon every day, and there on the telephone he would buy and sell commodities, shares and currencies. This led him to be hugely rich by the age, by 1928, a multimillionaire many times over. As a member of the Bloomsbury Group, which you may remember, a group of extraordinarily creative, mostly writers and painters. He was a member of that same group and he was the only one actually that did anything very practical. He offered something. I've been looking for a broker like this. He said to them, if you give me your small amount of money, I'll invest it, and if we gain money, then you'll keep it, and if I lose Your money, then I'll take the losses. And effectively he made enough money for the Bloomsbury Group that all of them were able to set aside the worries of having to work for a living. Instead, they wrote books and they painted pictures and they sculpted objects. It's interesting to think that had it not been for John Maynard Keynes, we might not have had to the lighthouse, for instance. We might not have had any pictures by Quentin Bell, Vanessa Bell, Duncan Grant. All of this was made ready by John Maynard Keynes. His demeanor was extraordinary. He was about 6 foot 4 and was from a very young age. He attended Eton and then King's, so he was very privileged from a very young age. He had a stoop because he spent his whole time looking down on people. And that was his attitude generally to those around him. He wasn't much impressed by anybody. Now, if we look at the most powerful intellects of the time, and among his friends, they all came to the same conclusion. Bertrand Russell said that he loved talking with Keynes, but he was also rather frightened because he thought that Keynes would outsmart him at every turn. Kenneth Clarke, later Lord Clark of civilization, you may remember, he said Maynard Keynes was a person who was incapable of dimming his headlights. He was a dazzling intelligence. Someone also said of him that he had caused more inferiority complexes than anyone else in his generation with justification. So he was an extraordinary person. He was also someone who rather liked to fight. You know, the sort of person in a pub, if there's a scuffle going on on the corner, they say, I'll just go and find out what it's about. When you know full well they really want to roll their sleeves up and do get involved. That was John Maynard Keynes. There was no fight too small for him to turn and answer his critics. So when we get to 1928, Friedrich Hayek decides that he would. He's an economist. He starts off as a socialist because he comes under the spell of Ludwig von Mises, who was the key to Austrian economics, who'd written a definitive book about socialism, saying that socialism could never work because it didn't understand the market, didn't understand that actually people needed to trade with each other in order to interact with each other properly, and that no socialist, however well intentioned, would ever get those questions right. A theme that Hayek developed himself. Hayek, as a young professor of economics, then became someone who started working for the state. It's very interesting, by the way, that Friedrich Hayek, who is now the patron saint of market economics and laissez faire Though in fact, he wasn't quite a laissez fairist. Never for once in his life did he work in the private sector. He did once get quite close to it. He traveled to New York in order to do some research for a New York University professor. But the NYU professor was away for the weekend. When he was there, he had no money on him at all. And he went to the West Village and he went from Delhi to Delhi asking, is there any work? And somebody said, if you come back at 6, yes, you can wash some dishes. And so it's interesting thought that as his hands were heading towards the soap suds, that he was rescued by his NYU professor. So that's the nearest that Friedrich Hayek got to the private sector. It should be said, too, that John Maynard Keynes, while we're talking about this John Maynard Keynes, who of course not in this sort of sophisticated company, but in the general American debate, is considered a quasi socialist, if not a communist, for daring to intervene in events, for even being a. A participant in government at all. Among libertarians, he's considered to be a wicked person. But interestingly, John Maynard Towns, as I explained, made a great fortune by 1928. He lost a lot of it by 29, and he redoubled it 10 or 10 times, doubled it by 1931. He was so good at it, he was the head of two insurance companies in the City of London. He offered advice to every chancellor and every prime minister while he was alive for no money at all. He took no money at all from the treasury after the time he resigned from them. And that's because he was so wealthy he could do exactly as he pleased. And he decided, however, to devote it to public service. Friedrich Hayek wrote to Keynes hoping to attract his attention. Hayek was determined to do well in life and had a rather fanciful idea that maybe he would be at first the head of the Central bank of Austria and then later would become an ambassador, but until then he'd become a university professor. It's very interesting in light of the fact that of course, Friedrich Hayek went on to despise everything to do with central banks. And it's meant that somebody like Ben Bernanke of the Federal Reserve has considered by the right, which is bizarre considering that he's a disciple of Milton Friedman, that Ben Bernanke is now the target of every single Republican candidate who, in order to get themselves elected and appease the Tea Party people, say that they will fire Ben Bernanke on their way into the White House. So much for Hayek's influence. But anyway, in 28 he wrote to Keynes and said, could you send me a book, rather obscure book. And Keynes wrote back to him saying, thank you very much, but I haven't got a spare copy. This meant nothing to Keynes. Keynes who kept every single laundry list, every single receipt from a restaurant, everything. He was so sure of his own importance and his own link to posterity. Indeed, if you look at his collected works, they get into, I think, 13 bound volumes of every last thing he ever said or did or wrote. It's an astonishing thing. But among them is not a letter from Friedrich Hayek. However, there is a postcard in the Hoover Institution, which is the great cathedral of conservatives and libertarians. And there is the postcard written from, written back by Keynes saying, I'm afraid I do not have the copy of the book that you're asking for. That shows how important Hayek thought of Keynes at that time. He managed to effect a meeting with him by coming to a meeting of economists in 1928. And rather like, I don't know, today he's not quite a paparazzi, somebody who follows you around, what they call stalkers, rather like a stalker. He went up to Keynes and in true style he started arguing with him. And Keynes, being the sort of fellow he was, argued back and they had a good ding dong right from the very get go, as we say in America. But that wasn't enough for Hayek. He went back to Vienna and bade his time hoping that he would come to London at some stage to be an economist. Now enter two people very important at the lse, William Beveridge, the director, and Lionel Robbins, the, as he pointed out, the youngest professor of economics in the history of, I guess, economics. And he said Lionel Robbins. Lionel Robbins had met Keynes in something called the Macmillan Committee. The Macmillan Committee was set up a very important, a bit like the Leveson Committee without the jokes, you know. And it was, it was set up deliberately in order to discover whether Britain had done the right thing after the war by returning to fixing the pound sterling at the same parity in 1914 as it had before the war, 1914. And the result of course was throughout the 20s, mass unemployment, which had led Keynes to the conclusion that actually markets don't really clear. There was always an assumption somehow he said, that if you allowed the market just to work itself out, you would come to an equilibrium, if not rest, an equilibrium where everybody was unemployed. He said, After 10 years we still haven't got an equilibrium where everybody is employed. And we should do something about that. And he set off on a road of trying to determine exactly what you should do in terms of direct action if you have a fixed large number of unemployed. He was always more concerned about unemployed, the unemployed than anything else. An act of noblesse oblige that I guess came out of his upbringing and his privilege. Friedrich Hayek had a very different view and knowing this, Lionel Robbins, who most unusually was an Englishman who spoke and read fluent German, had read all of the Austrian economics thinkers and he was looking for somebody in order to bring to a halt what Keynes was up to. Keynes and the Macmillan committee had dazzled the judge Macmillan, who had presided over the proceedings, and Lionel Robbins had been taken in at Keynes request, in order to be a member. But he knew, that is, Keynes knew that Lionel Robbins actually was a devotee of laissez faire. It was a typical piece of Kane's bravado. He actually took an enemy on board in order presumably to convince him and score another on his list of conquests. But Lionel Robbins wasn't to be shifted. They had a row, as many, often, many times people did, with Keynes, and demanded to write a minority report at the end of the Macmillan committee, saying that Keynes suggestions for using public money, or indeed borrowing extra money by the government in order to put people to work, was a very bad idea for the following reasons, and eventually he was allowed to do it. So there was form between Lionel Robbins and John Maynard Keynes. But most of all, for Robbins, it was a matter of personal and institutional ambition that he wanted the London School of Economics to be revered in the same way that Cambridge was. Cambridge was the home of Alfred Marshall and Alfred Marshall was like Robert Newton in terms of economics. Until that time, everything that there was in economics could be found in Marshall. He'd written the vocabulary, if you like, the grammar of economics, and his star pupil was of course John Maynard Keynes, who would actually provide the paradigm shift out of Marshall Economics and something else. But it was for Lionel Robbins, who believed that actually it was time, maybe that the focus switched to the LSE and he backed the Austrian economic theorists as a plausible alternative to the Keynesian solutions that Keynes was gradually bringing forth, and so he might have sent for von Mises, that he was known to be a rather grumpy old fellow. His English was non existent and anyway he was very well established and had a very nice career already and didn't need to be wooed away. Hayek, however, as you may imagine, was up for the task. When Hayek arrived here at the lse. He walked straight into Lionel Robbins room, announced himself simply as Hayek. Well, Friedrich Hayek. Let me tell you a little more about him as, as he's half of his story. He was literally buttoned up. He used to wear a tweed or serge jacket with three buttons all buttoned up. He had pince nez or wire framed glasses. He had a broken German accent which was very difficult to follow. Indeed, when he taught here, he used to say to people, if you don't speak German, it'd probably be better if you left my course because I'm going to only talk in Germany.
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So he.
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Robbins sent for Hayek and Hayek was like. He was like a gunslinger. The idea was, let's bring down Keynes, let's stop Keynes in his tracks. This is six years before the general theory was ever written. Robbins already knew that the way that Keynes mind was working, that there would be a solution, a proposal which would not be to his liking. Hayek being so bold, first thing he did was not to stop at the LSE where he'd been commissioned to give four lectures to explain his thinking. He went straight to Cambridge and he went to the meeting of the Marshall Society, which happened to be populated by the young students of John Maynard Keynes, who were not, I must say, the most forgiving of students, particularly if they had in their midst someone who they considered to be an enemy. You can probably hear that I've got a cold and I have some sympathy for Friedrich Hayek because he arrived to give a lecture and he too had a cold. I must say, it knocks the IQ a bit, makes you sound a bit grumpier than you may be. But for the most part that didn't really matter because in his broken German, which they couldn't particularly understand, he turned his back on them and drew in a succession of triangles what he described as the method of production in capitalist society. And how, if you turn deliberately were to reduce interest rates and therefore encourage businesses to borrow more in order to set up new production lines and so on. If you artificially reduced interest rates outside of the natural rate of interest that should exist, that you may get. This is an early stimulus, which is what Keynes was suggesting. You may well get at the end of the day, something that a few new jobs. But if you waited a little longer, further down the line, all of those new jobs, as soon as the interest rates were put back to their natural rate, all of those jobs would collapse, all of those companies would go bust and you'd be back to where you were, maybe even worse. Than you were before. Now, this flummox to the Cambridge Circus, we're talking about people like great, great people like Joan Robinson, one of the greatest women columnists of the 20th century, and Richard Kahn, again a glorious man, who was the person who provided the proof for Keynes notion of the multiplier, that is, that if you spend one pound, that it wasn't just one pound that went into the economy, because the person who was given the pound for the good then bought something else, who then passed it on and on and on and on. And so Keynes argued that every pound spent by government was going to be worth much more than that. Richard Kahn was the person who proved that that indeed was the case from Keynes. It was mere conjecture, but he got it absolutely spot on, as it turns out. So it was Keynes who was in the mind of the Cambridge Circus when Hayek delivered this rather strange lecture. And Richard Kahn asked the simple. Everybody was dumbstruck. They couldn't ask questions. Usually they liked to argue and bubble with excitement, but they couldn't make head or tail of Hayek. And so Richard Kahn said, am I writing, thinking Professor Hayek, that if I go out tomorrow and buy an overcoat, that that will actually contribute to unemployment? And Kahn said, yes, you are absolutely right, but it would take a little while for me to explain on my blackboard exactly why that was the difference between the two sides. Hayek came here to the LSE and he was set to task with four lectures. They went brilliantly, not least thanks to Lionel Robbins having packed the room and briefed people in advance to say, this is a very important guy and we need to welcome him. He was rapturously received by William Beveridge, who didn't like Keynes, mostly personal reasons, I think. And he was then awarded a job here with tenure as a professor of economics. The first job that Lionel Robbins gave to him was to review the latest Keynes tome, a treatise on monetary reform in Economica. Well, I must say, of all the weapons to use, you wouldn't imagine that a learned journal could be particularly pointed, particularly difficult. But actually, with that opening salvo in this long debate, Friedrich Hayek managed to blast Keynes. It was sarcastic, it was superior, it was dismissive, it was all of the things that you might dread from anybody reviewing your book. John Maynard Keynes, of course, would have been well advised. I'm sure that any crisis management person would tell him today to just keep quiet and walk away, forget it. Instead, of course, he read it and responded in kind. And he. I mean, it's very difficult to Be as sarcastic as somebody like John Maynard Keynes, who was brought up to be sarcastic. And he assaulted Hayek in very similar terms. And this ding dong between them went on over a number of issues of Economica. If you go into the library, I'm sure you can find them all there. And then continued two letters a day from each of them every day until after Christmas. On Christmas Day 1931, Friedrich Hayek sat down and wrote two letters to Keynes and Keynes wrote two letters back and they were delivered. It says quite a lot about the post Office, by the way, of 1931. It would all be down on email today, no doubt. But anyway, at the end, Keynes, exhausted, said, enough. I must say that they never really laid a glove on each other. The fact is that they couldn't even get beyond defining terms mostly. And a lot of people involved in the business said, does anybody any idea what any of this is all about? I can't understand anyone. So you're forgiven if you are interested in going back into this archaic stuff to not understand very much of it. Keynes was aggrieved because he'd already explained in A Treatise on Monetary Thought that this is just a work in progress and I'm girding my loins for the Big Book, which will come out a bit later. So for what it's worth, here's the stuff, you know, make of it what you will. And he wasn't really expecting for it all to be dissected. He said. So finally he said, hayek, I've stopped thinking what I thought in the treatise, as I explained in the treatise, so I'm not going to spend any more time with you, but thank you very much. He then got Piero Sraffa, a great and forbidding figure in Cambridge Economics and Italian, to finish the job off. And Straffa's account is just as vile and vicious as Duquesne's Hayek debate. In the original Arthur Pigou, the distinguished and long suffering successor to Marshall at Cambridge and really the grand old man of economics in those days, wrote a piece about how disgusting he thought that the Hayek Keynes battle was. He said, this is the method of the duello. He said, and a line which I can never use in America. This is body line bowling, he said. He said, you're fighting like a pair of Kilkenny cats. Stop it. No academic should ever have to put up with this sort of vituperative nonsense. Please stop it. Well, to cut a long story short, because I don't want to take up all this time the Hayek Bade his time, and they both decided that they go off and write big books in order to flesh out their differences of opinion. John Maynard Keynes was a little more practical, productive. By 1936, he published the General Theory, which is an astonishing piece of work. If you want an entertaining afternoon, a rainy afternoon, read it. I mean, it's still pertinent today in many respects, but I'm not quite sure that economics courses teach it very much. It explained all the things that he said. He said, in brief, at the bottom of a business cycle, if you have protracted unemployment, there are three things you can do. You can reduce interest rates, you can slash taxes, and you can spend. The government, as a sort of spender of last resort, can spend money, because what the problem with unemployment or the cause of unemployment is a lack of aggregate demand in the economy. Hayek thought absolutely the opposite of that. He thought it was to do with interest rates and nothing to do with demand. However, the General Theory was enthusiastically received. It should be said that during the course of the 20s and the 30s, and after all, the crash of 1929 was only halfway through that, and prime ministers and presidents were looking for a solution. Didn't take much notice of Keynes. Even Franklin Roosevelt, who, through the New Deal did a lot of things which might be called instinctive. Keynesian ideas, didn't spend half enough money, but he did at least spend state money in order to get people in jobs. He also really had never read any economics. In fact, indeed it was before the General Theory. But the General Theory was greeted by the young economists, mostly at Harvard, who welcomed the box of books when they first arrived in the bookshop at Harvard, as if it was a box of iPads. This was the absolute hottest thing. And they grabbed it and they all read it. It was like getting a new album. You know, you had to play it and play it and play it and understand it, then discuss it earnestly. And it was these young men and women who went off south to D.C. in order to continue the work of the New Deal. Keynes had always said that he was anxious because he didn't think that politicians were courageous enough to borrow the amount of money necessary in order to get everybody back to work. And he said the only circumstances that you would imagine that may be the case is if there were another World War. Indeed, he had predicted there would be another World War, so maybe he was onto something already. But the fact was that after the 1936 publication of the General Theory coincided almost exactly with the time of the rise of the dictators, Hitler became Chancellor in 1933, became evident very soon afterwards that he was not going to be a peaceable man. And so in Britain, in France and in America, they started producing armaments on such a scale that by the end of the war, 1945, more than 100%. I know that sounds silly, but more than 100% of Americans who were unemployed for 10 years during the 30s, they were all back to work and more because their wives, girlfriends, mothers, had to be recruited into the war in order to fill their places on the factory floor. So by 1945, it seemed as if maybe Keynesianism proven itself right. Certainly everybody thought so, except, that is, for Hayek. Hayek, it's one of those accidents of history that you might think, I wonder what would have happened if only they'd done so. And so Hayek volunteered. He was an anti Nazi, to his great credit. He never had any sympathy for any of the things that his fellow countrymen adopted. And he volunteered himself to the war effort and said, I speak fluent German, I'm very articulate, I know lots of stuff. I know I can speak entirely as a native. I'm well connected to people in Vienna and so on. Still, I know a lot of people in Germany. Very influential period. If I were to broadcast or if I were to write things, it might help the war effort. And he was recommended by a whole collection of the good and the great, including the Director General of the BBC. But he wasn't given a job. It's unexplained why. And so instead he sat in Hampstead Garden suburb and he wrote the Road to Serfdom, which ended up being a second front against Keynes. He might have lost the economic argument. And certainly by 1945, everybody was Keynesian. And for the next 30 years, Keynesianism became the orthodoxy and provided more prosperity than the world had ever seen. Three solid decades of prosperity. But Hayek had other views. He wanted to move the process onto something else. He had looked at both the Soviet Union and to Hitler's Nazism, and he said, these are not opposing ends of a spectrum. These are identical authoritarian bodies. And what they're doing is expanding the role of the state and purging the market from people's lives so much that individuals are left bereft, they're left stranded, unable to do anything without the state telling them what to do. And he said in the Red Serfdom that maybe the thing would. The solution would be to ensure that whatever happened, that the size of the state is kept to a minimum. Why this attacks Keynes, of course, is that Keynes have provided a blank check, indeed books of blank checks for every democratic politician in the world who wanted his name put on a bridge or her name put on a library or whatever. Because Keynes had said it's important that you spend, spend, spend in order to keep people, people at the bottom of the cycle. Keynes obviously, and I don't have to tell you, added the corollary at the top of the cycle. Then you tax people and you get all the money back. Something which presidents and prime ministers really didn't follow. It turned out that the business cycle and the electoral cycle soon got out of Kilcher, and if any president or prime minister thought they were about to be thrown out of office, they put their foot down on the accelerator as quickly as possible and try to provide a pre election surge. People have been doing it in Britain, well, for as long as anybody can remember, probably at least as long as Keynes had given them the intellectual equipment to do it. The Road to Serfdom was an unusual thing. It was well received here in as much as anybody took very much notice of it. The best review is by George Orwell. I recommend you look it out. Orwell pointed out, this is all very well, but actually in private corporations exactly the same happens too. So actually who owns this stuff really doesn't matter. It matters whether people are protected and have individual rights, which allows them to defy either the state or large corporations. In America, however it took off, it was serialized by the Reader's Digest. It was already a pretty slim book, but it was turned into a much slimmer book. This might explain, by the way, why the American commentator Glenn Beck never refers to one key part of the Road to Serfdom which Hayek put in, which was that the state should provide the bare minimum, but it should provide regulation to keep markets fair, and it should also provide free universal health care, should provide a roof over everybody's head, and should provide a generous safety net for those people who slipped through the system. When Keynes was sent an early copy of this, he was on his way actually on the ship over to the United States in order to find the Bretton woods agreement, one of the many things that he did at the end of the war, including the IMF and the World bank, which he also founded, as if he didn't have enough on his curriculum vitae to boast about. But when Keynes read in draft four on the Road Serfdom, he said, well, Friedrich, you've done awfully well here. This is really an interesting book. I'm so glad you wrote it. But he said, I couldn't help noticing that you said actually there was what you consider a bare minimum that the state should provide. So he said, instead of the absolutist positions that you suggest that there is a tendency towards tyranny, the larger the state goes, surely it's a matter of exactly where you draw the line, isn't it? And you've drawn it in one place, and I would draw it somewhere else. And with that, Keynes dismissed the rate of serfdom. Hayek's much vaulted review of the general theory ever came about. He was firing blanks in the end, and he was in the middle of his own book, which got stuck, and he could never quite bring himself around to doing it. It might be because he hadn't dealt the knockout blow in the first place. The Lionel Robbins, when it came to reviewing the general theory, actually asked Pigou to do it, knowing that Pigou was actually rather harsh on Keynes for having treated his younger colleagues so badly. But anyway, Hayek didn't make it so. John Maynard Keynes died in 1946 of the sort of disease today which would be treated by penicillin and would be cured within a month. But this extraordinary creature died. Hayek said to his wife he was not a modest fellow, it should be said. He said, until Keynes died, there were two famous economists in the world, me and Maynard Keynes. Now he is dead, he is being elevated to the sainthood, and I am being dismissed. And indeed he was dismissed. Nobody ever thought of Hayek for those 30 years of Keynesianism, apart from a very small group of people who went at his invitation. He brought them all together, a rag bag bunch of conservatives, libertarians, contrarians, mavericks of one sort or another. He brought together, literally in a summit, the top of Mount Pelerin in Switzerland, where he set them the task of trying to provide a glamorous utopia which would rival the glamorous utopias which had inspired the left. That among the many people there was the young Milton Friedman, and they met year after year after year after year, and they inspired a lot of very rich Americans to fund them. And they started developing right wing think tanks, conservative think tanks, libertarian think tanks. And the result of that, and the road to serfdom, is the extraordinary rise in the influence of Hayek in American politics today. Of all the Republican candidates on offer in this extraordinary reality television show which the GOP have been putting on for us so generously, every single one of them, as I said, wants to fire Ben Bernanke entirely. What Hayek would do. And they all want, they talk about it the whole time, a much smaller government, get the government out of our hair, get the government out of our lives. I think mostly they believe it. Mr. Romilly doesn't believe it obviously, but he's got to say it because the Tea Party is a driving force which has as its Bible Hayek's retusseurfd. And it is determined that Hayek, come November, whoever the candidate should be, should represent Hayek's views and they should win. On the flip side of that, of course, is President Obama a heroic figure in many respects, inasmuch as he introduced a stimulus when Keynes was slightly out of favor. Because between the mid-70s and the economic crisis of 2008, 9 Keynes, although his principles had been used and governments around the world managed economies on the whole, they didn't hose vast amounts of money into economies at the bottom of the business cycle. They'd stopped doing that and it had been replaced by monetarism. Milton Friedman's notion turns out that he didn't think much of Hayex economics at all and was actually rather in favor of Keynes. But what he said was if you let the supply of money into the system be gradual, small and predictable, then actually we will get round the stagflation which had brought Keynesianism down in the mid-70s. So on the distaff side, if you like, is President Obama who already introduced a trillion dollar stimulus, arguably not enough, not least because half of it went to paying off the debts of the states and city governments, which meant that they allowed them to continue employing people, but they didn't produce new jobs. It's very difficult, as Keynes always suggested, though he laughingly suggested that actually in order to get the money into the system, you can do it anyway. Including digging a hole, filling bottles up with pound notes, burying it, and then hiring somebody else to dig the hole back up and take the pound notes out. He couldn't care less as long as the money got into the system. It is very difficult to get money into a system in a stimulus. I will say to people, if you and I had a billion pounds to spend by next Friday, we'd make some pretty ration stupid spending decisions. And that's exactly what happens with any stimulus. You can't find enough shovel ready projects. The Hoover Dam took I think seven years to plan, another six to build. You know, infrastructure's not easy. You can't flip it on and off like a light switch. But still, I think he has come to the conclusion the stimulus is too small because he's now advocating another half trillion stimulus, which he calls his jobs bill, which is effectively more money pumped into the system. So in November in the United States, we have Keynes Hayek collection. That's going to be very exciting to hear. The arguments over there. They're not frightened to say the word Hayek. Whereas in this country you have a government which has come to the conclusion that if you have a lot of unemployed and you're at the bottom of the business cycle, you should raise taxes and pay off the debt as fast as possible. Which I must say is closer to Austrian economics than anything else. But you have yet to hear Mr. Osborne mention the word Hayek. I think that if you read PPE at Oxford, indeed the Prime Minister, I think, got a first in PPE at Oxford, there's not much evidence that they read any Keynes or indeed any Hayek. But that says maybe. The fact is that here we are in a similar position and that a Hayekian solution is being provided, not least by those Thatcherites in government, those leftovers of the Thatcher years, including people like William Hague and new people like Michael Gove, always inspired by people like Hayek, who are just grateful at the excuse to be able to cut the public sector as fast as possible and as drastically as possible. In Europe we have an even more strange Keynes Hayek debate, of course, because we have there governments that also want to pay down the debt as quickly as possible, never mind how they got there. The fact is that we are now in a position which I think John Maynard Keynes, if he were alive today, would recognize. The Germans. The boot is on the other foot this time. The Germans are deliberately beggaring through austerity measures Greece, Italy, Spain, Portugal and Ireland, with a view to allowing the market to resolve what had happened in 2008, 2009. I'm not saying that these governments hadn't behaved badly. It's just that there is an irony that if you in Spain, for instance, have so much unemployment already and you haven't even started cutting public sector jobs, you can't help thinking that Keynes might point out that if they go on in the way they are, and not least because it's the Germans who are doing it, that you might get in some countries in extremist politics and extremist solutions and extremist leaders. Anyway, that's where we've reached right now. Keynes, Hayek. Strangely, 80 years on, the debate is alive and well. It would have been extraordinary if one had punched the other out of the ring. Eighty years ago, because the whole history of economics, and therefore the world, would have been very different. But they didn't, thank goodness, in a way, because it's a great story. And for once, it's a story about two extraordinary personalities who headed into each other deliberately in order to solve their difference of opinion. These are, after all, this is just conjecture. It's merely notions that they're talking about rather than truth, necessary. And that gaping hole between the two sides continues to this day. And that's why I would say that although this took place a very long time ago, the arguments that they raised remain entirely pertinent and appropriate for understanding the politics in Europe and the United States today. Thank you very much. Now, if anybody, by all means scamper off. I'm grateful to you all, by the way. Usually I can tell when people are getting bored because everybody gets out their iPhones and starts twitching on it, or tweeting maybe, but you weren't doing that today. So thank you very much for giving me such a polite welcome. There are many issues raised by what I've said, not least in context of contemporary politics. So if anybody would like to start off with a question or two, we can start probably a Keynes Hayek debate. And as long as you don't fight each other by the end of the evening. Sir, are you right at the back there with your finger? That's you, yes. We've got a bit of time, so this can go on a little while. You characterized Osborne and the Conservative government with their austerity program as Hayekians. I would deny that characterization because although the bank of England is nominally independent, George Osborne has publicly stated that he supports the bank of England's policy of quantitative easing and low interest rates, which has debased our currency by at least 25%. And I think Hayek and Hayekians would look in horror at any policy that wanted to keep low interest rates of print money. So you're absolutely right. Absolutely right. The other elements of the. I mean, this is broad brush stuff. The other elements of what they're doing, though, entirely fits Hayek. Hayek was always against cutting taxes, for instance. It's one of those paradoxes that everybody thinks that cutting taxes is a conservative idea. In fact, it comes out of Keynes. And Hayek always thought that you should actually, you could only cut taxes if you'd already got a surplus. He was also rather against credit altogether. It's true that he had a very long life and thought a lot of different things. But when we get to the sort of basic details about the size of the government then I think that this government, rather like the Thatcher government that went before it on the whole, would prefer to have a substantially shrunken state sector and that's why they are pushing as many links elements as possible into the private sector and they are also changing the way for instance national health services run to make it more market orientated. But you're right, you're quite right. I'm simplifying for argument. Sir. Hello. Just one very quick thing to say. You said that we're paying off the debt as fast as possible. Of course we're not. We're paying down the deficit. Rather different thing. If we hadn't had the great no more boom and bust Gordon Brown sitting in Downing street in numbers 11 and 10 prior to this busy spending money at the top of the boom, what do you think in the light of the actual present circumstances that the government faces, what would Keynes have done other than short guilts? I think that if we were to fast forward 10 years and look at what had happened, I think you will discover that actually this whole think of the economy as. You needn't think because obviously you know what you're talking about. But for those people who've just not economics reasons. If you imagine the economy is a balloon and it has been a helium balloon that goes up but it has been deflated, that is the. The bubble that was created by too much interest rates for too long has caused a hole in it that will be filled up again, I imagine by inflation and that will be done by things like quantitative easing and it will be done by, in Keynes words, he would urge them to start spending as quickly as possible. What's changed between 2009 and today, by the way, is that. And we might to write Gordon Brown for you're quite right, keeping his foot on the gas right at the top of the business cycle. But his solution to the G20 was to bring people together and to try to find some sort of concerted solution to it. And the way that the individual countries peeled off and said let them do that, but we're going to do something different so that our country is more continent than the others, I think is a great defeat. It would be wonderful if Keynes were here today. I mean what would Keynes do? What would Hayek do actually is quite interesting too. I'm not sure you see that the people who advocate Hayekian ideas on the whole never put any cost to it. They point out the utopia they'd like to reach but they don't Work out how many stages you have to go, how many federal employees, state employees you have to fire in order to get to their world with a shrunken state. Odd people like Ron Paul do mention some of these things, but just letting the market find its own level is going to be immensely painful. And I'm not sure that the world is in the mood for having so much pain for so long. Keynes used to describe it as a sort of masochism that a certain sort of psychological state in some people meant that they liked to take the hard way. And he said maybe he was a bit loose. Actually, Keynes said that actually there should be an easy way out of it. I haven't answered your question, so do you want to have a repost? Please? No. Right, sir, over by the wall, can you get that one? I believe Keynes once said, or is alleged to have said, when the facts change, I change my opinion. What do you do, sir? And my impression is that Keynes was a much less ideological thinker than Hayek. I have a feeling Hayek had much more in common with Karl Marx than he would have liked to have believed, who were both very theoretical ideological thinkers. And Keynes developed, you know, when things changed, he bit like a market trader, you know, you change your opinion and of course, just one comment. In the US today, Keynes and FDR are loathed as people. FDR is considered by the right as one step short of being a US traitor. And we've come a long way since the days of Richard Nixon, I believe, 40 years ago said we are all Keynesians now. So where do we go from here? One of the candidates actually wants to abolish the Federal Reserve. That would be an interesting scenario to say the least. Thank you. Absolutely. Thank you very much for making those points. I agree with you about Keynes. He was immensely pragmatic. He was actually capable of pronouncing on policies that he didn't even agree with, including import taxes at one stage, which is not what he thought of was a good idea at all. But in the circumstances when no one else would change any of the other policies, he said it's the only short term solution to it. But he was all right from the beginning. What he was asked to do was to solve a problem in a weird way. Of course, that's a Marxist notion that it's time that philosophers stopped describing the world and started changing it. So maybe that's something else. But I agree with you that Hayek is a purist, an absolutist who actually rather disliked politicians and government whenever he was asked, I understand that you give advice to Mrs. Thatcher. He always naysayed it and said, nothing to do with me, nothing to do with me. And it's same with Ronald Reagan. And he warned all of the people at Mont Pelerin Society not to get involved in practical politics, that they should stay aloof from that, and that in order to provide this body of work which would inspire people. And it was Milton Friedman, of course, who was advising Richard Nixon at the time that he finally said, we're all Keynesians now. Very good point. Thank you very much. This boy, young man in pink here. Let's try to get. Thank you. I'm reflecting on what you said earlier about Hayek and Keynes agreement Pre World.
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War II, of the dangers of no growth, high unemployment and high debt for.
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The creation of an extremist politics. Now, given what we're seeing, particularly in.
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Greece, with the breakdown of the political, social and economic construct there, I just.
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Wonder if we could get some of your reflections on that situation, particularly in the context of the Keynes and Hayek agreement on the subject. Well, I think that, as I hinted at the end of my talk, I think that Angela Merkel and Sarkozy do run the risk if they stick to a very strict, austere path of encouraging even more violent efforts than can be seen on the streets of Greece today. That would be true in Spain, too. It might also be perceived in the rise of Le Penism or whatever in France. There is a sense, and I think this actually pervades all of us today, that after 2008, 2009, that we don't really trust anyone anymore, that somehow the people who looked after everything and made sure that everybody was well off and that the thing kept steaming on, made some terrible error and they've lost our trust. And the politicians come up with solutions which are also either unpalatable or in the terms of revived Keynesianism, self evidently absurd. And the combination of those things, if you give people no hope, then they do turn to crazy solutions. I wouldn't say that Hayek's crazy, by the way. I just think that it's very difficult to turn it into practice. I wrote a piece for the International Herald Tribune, actually, for their Davos supplement, which raised exactly those points that you're raising. And indeed, I'm glad to see that Mrs. Merkel addressed some of them, but I don't think that she. It's very difficult, the history of Germany, which, like Hayek, is underwritten by a fear of inflation, hyperinflation, particularly when they see what's going on around them in order to save the political union. After all, that's what it was about. That's why states which had economies which were not appropriate to go into the euro were allowed in quickly round the back door. There's a hole in the hedge. Get in there. They weren't expecting things to go wrong, but when things went wrong, then they have to patch them up. And it just shows how hollow that political union notion was in the first place and how thoroughly inappropriate it is, by the way, to have such a varied range of countries with a single currency where you have a single interest rate which only suits Germany and the Benelux countries and parts of northern France. I'm trying to find. I can't. There are no ladies who would like to ask a question. I can't believe that. Let's try this fellow here with the glasses. That's right. And we'll get to you in your turquoise shirt in a minute. Have we had anybody on this side yet? No. How did that happen? Who'd like to. This fellow at the front would like to ask a question. In a minute. So we'll get him. Thanks. Two points if I made. Firstly, quite an interesting modern aspect of the recent economic crisis has been the role of ratings agencies and especially how they've dominated debates here in France and in the us. Just wondering what you thought would think John Maynard Keynes and Friedrich Hayek, how they might react to that. Secondly, this debate has all been very much focused on the west and the west view of interventionist economic policies. Obviously in China and in Asia there are new paradigms being developed. One recently prominent one has been around state capitalism. And I was just wondering if you had any reflections on that and how in emerging markets they might view John Maynard Keynes and Friedrich Hei. Absolutely. Okay. First, the ratings agencies, they sort of got us into some of this mess, you know, didn't they, by mis describing. And it's a very American notion that rather like Alice in Wonderland, that everybody should have prizes. And so there is sort of grade inflation, as it were, that went on there and they didn't help us out the last time and to suddenly smarten their act up and start being tough on national economies. Does anybody genuinely doubt that the United States government will repay its debts? I mean, it's absurd. The amount of money involved is a very small amount compared to the wealth of the nation. It's just not possible. So there's quite a lot of political positioning that goes on. It's interesting that the one who knocked down the guy who knocked down the American government's five star rating resigned shortly after. I'm not quite sure exactly what happened, but I think that he was leaned upon probably. So what would Keynes say about that? He would point out quite rightly that if everybody is five star, that's great. If what is four star, that's fine too. And everybody's three star, that's fine because everybody starts in the same place. And as long as you hold hands and jump off the cliff together, there is no bottom. Your second thing about is you're quite right, and I've spoken entirely about Europe, mostly Britain, or what the French and Hayek actually would describe as Anglo Saxon economics. What would you say about China? Well, China is Keynesian up to a point. Rather like Hitler was Keynesian up to a point, or Stalin was up to a point. When you have an endless supply of, if not entirely slave, but rock bottom price labor that you can bring in and out whenever you like, they're not exactly playing the capitalist game. And they're not also putting the value of their currency at a true market rate. They're fixing it in a Bretton woods style way, which actually went out of favor a long time ago. When everybody else has floating currencies, they should be paying a little more, if that'll do. Now then, this young man here, you've highlighted a lot of differences between Keynes and Hayek, but what about the similarities? Like when they sort of corroborated on Keynes's how to pay for the war and Hayek coming up with the capital, the capital tax. Yes, you're absolutely right. Actually, it was true of them both that although they loved a great fight, they actually were civilized human beings and they got on pretty well, actually in the end. They tried not to talk about economics, obviously, but otherwise they spoke about antiquarian book collecting and all sorts of things like that. It's absolutely typical that when. Here we are, the LSE, when this institution was bombed out in 1940 and everybody went up to Peterhouse, Cambridge, because it was empty, because all of the young men had gone after war, Keynes instantly stepped in and said, friedrich, you don't want to go to Peter. I'll find you some rooms in King's. And he found him a lovely suite of rooms. So they met on a regular basis in the senior common room at King's. And there is indeed, it's the opening of my book. There's an extraordinary almost Tom Stopardian moment when Keynes and Hayek tramped up and down on the roof of King's College, Cambridge, armed with brooms in order to tip off incendiary bombs, were they to fall on kings. But you're right, when it came to discussing what to do about how to pay for the war, they were very close in many respects. Hayek was amazingly keen on what Keynes suggested, which was that you should have deferred pay. It wouldn't be taxed entirely, it would be deferred pay. What Keynes was worried about, and this is interesting in light of what happened after his death, he assumed that after he actually followed almost the Hayekian point, after pumping all of this money in, as had to happen, in order to build up the armaments, in order to fight the war against the dictators, when that comes to an abrupt stop, then you might tip into the bad old days of the 1930s again. And what he said was, therefore, if you deferred pay, you could take money from people and then give it back to them later. Of course, that would no doubt be borrowed money. However, Hayek's interesting twist on this. Was it a very good idea, but why don't we take the money and invest it, rather like an American investment retirement account? You take the money, put it into an investment, some of it will go up, some of it will come down, and people will then discover the joys of the marketplace and how to use stocks and shares and so on. But you're quite right, Hayek wrote a very sweet note to Lydia Lobokova. We haven't spoken anything, by the way, about Keynes, homosexuality. And then his, halfway through his life, is falling in love with a young ballerina, albeit boyish, from the Ballets Russe. But Hayek wrote a very sweet note of condolence to Lady Keynes, Lydia Keynes, and it was entirely heartfelt. They were, in the end, very. I wouldn't say that Keynes was fond of anybody, particularly in that sense, but I think that Hayek had become rather fond of Keynes, not least because of the many small kindnesses that he'd showed him during the course, not least to turning around and actually answering his questions when he was an unknown. So he was fond of each other in the end. Now then, who else has got a question? Yes, sir? You. Thanks.
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Do you actually think that Hayek really understood Keynes general theory?
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I must say, I wish he'd written about it. He would save a lot of trouble. He kept promising to write about it. He kept telling people, you know, I won't do it for you, but I'll do it for someone else. There's no doubt there was a sort of conspiracy, that Lionel Robbins deliberately wanted to knock it on the head as fast as possible. But then even Robbins gave up in the end. It is of interest that of all the people involved in this story, that Lionel Robbins eventually became a Keynesian and said that he regretted having spent so long allowing such unnecessary misery to take place. Nicky Kaldor, who translated all of the rough English German that was provided by Hayek in the Economica articles, he did a backward flip too, and became actually one of the most famous famous Keynesians in the Harold Wilson government, if you remember all of those passed on. I think we can only assume, because he stuck to his last, that he thought that it was nonsense. It's true that every time that Hayek spoke about almost any other economist, he first of all said that they weren't a real economist, they didn't understand anything about economics, and that they got everything completely wrong, which was the spirit of. If you read one thing, if you're interested in Hayek, read his Nobel lecture. It's online. Just put Nobel, Hayek and up it'll come. And it's a fascinating mea culpa. And he there described what he thought economics was about. And that is, he always said, I wish I could become the sort of quasi socialist that Keynes is. It would have made my life much easier. I would have got jobs more quickly, I would have got preferment, I would have had a much happier time. Instead, I'd been treated. Treated like a pariah through my whole life. What he said was that the. Sorry, we're talking about. Sorry, I've lost my thread here. I got waylaid in a story. Did he really understand Keynes, General? Oh, did he understand the Journal three plainly? Read it back to front. Well, he read it, yes, but. Yeah, I know, but understand, I mean, you know, like all theories, I guess that he tore it to bits and then he put it back together and came to the conclusion that it was not for him. Because actually, the principles of the general theory are not very far away from the public pronouncements anyway, if not the treatise work that had been done by John Maynard Keynes, and it was to do with those sorts of ideas that, I mean, if we could pick them off one by one. We've mentioned before things like cutting taxes. Hayek didn't agree with taxes. The only time that taxes should be cut is that if there should be an embarrassing surplus in the national accounts, which is sort of unlikely. It's very unreagonite. Anyway, he didn't think that interest rates should be kept down so Alan Greenspan, who, it's true, was rather closer to Ayn Rand in more ways than one than he was to Hayek, still came from the general same school. And Alan Greenspan was in no doubt that in order to stave off the post 911 recession that kicked in, that you should keep interest rates on the bottom for as long as possible. So Hayek would have disagreed with that. And we know that he disliked public, because public works, as far as he was concerned, was actually mostly to do with public spending. And that does provide a sort of interesting element to the whole notion of Hayek's assault upon Keynes. It's very difficult if you have a government and if you have an elected representative government, because on the whole they want to do things and doing things usually means money. And if you. And it comes, it explains, I think, why Hayek was so opposed to that. He wasn't extra parliamentary by any means. At the same time, he did despise the people who in the public sector tried to do good. He always gave them credit for being well intentioned, but he thought they were absolutely on the wrong track. So if you pick off all the bits and pieces I would like to hear him on the multiplier, for instance, or liquidity preference, I'd quite like to hear all sorts of things I'd like to hear Hayek on. And he was conscious, by the way, that he never quite in the end took on Keynes on his big picture, you know, his big book. And he always regretted that. He explained it a number of different ways, which I've tried to explain. But what was in his mind? I think that he didn't want to get in the way of an unstoppable juggernaut. Perhaps it would be hard to read his mind in this way, but wouldn't it be wonderful if we found that lost review of the General Theory by Friedrich von Hayek? It would be very interesting to read, sir. Two little questions, if I may. First, of all, of the two thinkers, which of them do you think was more respectful of the law of unintended consequence? And we are faced with that in the current global economic situation. And secondly, the dog that didn't bark. You've not mentioned Popper's influence on Hayek and I wondered whether you had any. Karl Popper. Karl Popper, yes. I wonder if you had any views on that. I have not devoted very much time to looking at Karl Popper. Indeed, Schumpeter's. There are a number of very interesting, interesting people who tried to counter Keynes. I concentrated on Hayek, because he was the person who actually was sort of chosen by Robbins to try to do the work. I'm afraid that I'm not the best person to ask about that of the two of them. Exactly. I mean, Hayek kept his nose clean there, I would say, because he said on the whole it's best not to do anything he described, and you'll find it in the Nobel lecture. He said that dealing with economics was a bit like trying to understand who would win a game of football if you knew all of the key facts about every player. You knew the time of day, the weather conditions, you knew the name of the referee, you knew how many people would attend on either side and the audience and so on. He said you could still never predict what might happen because you don't know enough about all those individuals, however much you think you know. And I think that was his general view. It was very interesting. He was sort of almost an anti intellectual intellectual. He was in the social science. He said there is a limit to how much we can know. And his economics was therefore kept very bare and very simple. As for Keynes, I think that unintended consequences almost was his stock in trade, that is that he was happy to do something. And you know, part of the thing about in the long term we're all dead is let's fix these things one at a time and if by curing that something else turns up, then we'll cure that in turn and so on. I don't think he was interested too much with unintended consequences. And he was also always conscious and gave Hayeker credit quite often, not in public, but to fellow Keynesians saying, of course I disagree with him and he's a bit crazy, but I can't help thinking there's something in it. And I think that first of all, he was certainly aware of the fact that if you didn't pay the borrowing off at the top of the business cycle, you'd end up with terrible trouble and inflation. In fact, Kahn answered that quite clearly, though he said that the inflation was only at the top. Hayek's assumption was that it would all cause inflation, but he said that actually no more than the usual extra demand that might be pumped into the system by adding extra demand that creates an increase in prices, obviously. So there you are, unintended consequences. I think Keynes was a pragmatist who was happy to solve. I mean, he was a problem solver and liked to do it like some people to do the daily crossword. So I think he would have been quite happy to confront whatever happened, but it's quite telling that he didn't predict that the world would be Keynesian after his death. I do recommend, by the way. Yes, Popper and Schumpeter, particularly on Keynes, are very interesting, very interesting people. There's a person here. Yeah, I was just hoping if we could focus on the second part of you. Of that sentence and focus especially on the definition of. Of the difference between the left and the right and how these two writers still contribute to that notion. It's most clearly drawn, obviously, in the United States, where you have somebody who. Well, he stopped using the word Keynes because it intimidates too many people and aggravates too many people. But what he's doing is entirely Keynesian and is advisors have all given him extraordinary Keynesian advice, including Ben Bernanke. So they're that straightforward. And it's straightforward. The Republicans are all pretty Hayekian because they spend their whole time saying it. Ron Paul even said, wouldn't it be wonderful if instead of talking about Keynes, everybody talked about Austria, which I must say, lost everybody in his audience. But those of us who know a bit about this story knew what he meant, but. So that's the case in the United States, of course, on the whole, you've got two conservative parties and they take it in turns to misgovern the nation. One in this case is more Hayekian than the other, but that sense of what we need is small government now is actually available on both sides of the political divide in America, actually. And it comes not really from Hayek, it comes from a much earlier instinct. This is an immigrant nation. People went over there and they decided to make their own life. They don't look over their shoulder, they don't look back at old Europe with too much sentiment or fondness, actually. They very often think, well, you know, I was the smart one of the family who got out and those suckers got left behind. So there's almost hostility there. So that's what happened here. You've. You've got two, I would guess, in a way, centre left parties, if you like. The fact is, it's quite right that Cameron, of course, isn't a fully fledged Hayekian or anything like it, but in order to cut the deficit, he's doing a lot of things that Hayekians would be proud of. And there are a lot of secret Hayekians in his government who are jolly happy that the Thatcher cutting has started to resume. This fellow with a beard, maybe, and you. Yes, hello. Go Ahead. Yeah, go ahead.
- [80:39]
A
Well, I would just like to ask.
- [80:40]
B
The converse of the gentleman's question in.
- [80:42]
A
The back that do, Do Keynesians really understand Hayekians? Because I think tonight that Hayek's theory has been more kind of characterized as.
- [80:51]
B
What happens once the crash takes place, which Keynesians view as like a natural.
- [80:55]
A
Feature of cast capitalism. Well, I think Austrian. The Austrian business cycle is more of a.
- [81:02]
B
Of a predictive theory of why the.
- [81:05]
A
Boom happens in the first place, how it's unsustainable. I would just like you, if you.
- [81:09]
B
Answer that question, opposite of it, his question. Could you just summarize it briefly again?
- [81:15]
A
Yeah. Could you. Could you understand or could you ask or answer?
- [81:19]
B
I'm sorry, the.
- [81:21]
A
Do you. If Keynesians understand Austrian business cycle theory, instead of just kind of like this unregulated chaos that Hayek's theory is kind of made out to be?
- [81:33]
B
Well, did they understand it? I mean, they understand it enough to disagree with it. I suppose the fact of the matter is that actually all macroeconomics is Keynesian. In order to measure whether Austrian economics makes any sense, you've got to get out the Keynesian rule book, because that's the way we understand economics. That's what he did. He changed the paradigm. So in a sense, we are all Keynesians now. And it's the Austrians who are trying to say actually there was a world before Keynes when we didn't have all of this mess and we'd like to get back to there. Never quite described the route. They described the destination, which of course is Hayek's great legacy. He did provide, actually, for the right, for conservatives and libertarians. He, by the way, he wrote famous essay why I Am Not a Conservative, which is well worth reading. But he did provide this, you know, in the language of Reagan, the shining city on the Hill and all that. But the problem, rather like this gentleman over there said, the problem with utopias of left and right is you're not really meant to arrive there. You know, this is just something to keep a North Star by which you keep moving. So at the moment, it's sort of raw Hayekian notions which are thrown around in the debates and are spoken about. It would be jolly interesting if they genuinely thought that they could arrive in the White House, whether they wouldn't have to start telling the US Treasury Department what they were going to start doing first. And if they did that, then I would guess that they would. It's a very unpopular thing to do in a democratic society to try to roll back the years that fast. And even if they took 20 years to do it, which would be relatively modest timescale, that would be, you know, five general elections in the United States. The chances of it going off is. Is pretty small.
- [83:31]
A
Nicholas, can I. We're running out of time, and I don't want you to have to choose between the other people who want to ask questions still. So can I preempt all of them and take chair's prerogative and ask you a question?
- [83:45]
B
Yes, I am.
- [83:47]
A
In your book. You are quite. You pull no punches in talking about how after the success of the Keynesian revolution, Hayek retreated from serious economics. He was out in the wilderness, no one paid any attention to him. He was clinically depressed, he had two heart attacks. I mean, like, what more could befall someone like that? Then, of course, all of a sudden, there's a resurrection. And this resurrection has taken us to a point where his name is bandied about political discussion. Now, what I would like you to tell us is whether you think there is some particular real world event, some epiphany that people looked at in the real world and then said, okay, we should all go back to Hayek, rather than simply one personality after another. Margaret Thatcher, Ronald Reagan, and a series of others who then sort of picked up the Hayek Bible and ran with it. In other words, the Hayek counter revolution, was it driven by the same kind of observations that the Keynesian revolution was, or was it driven instead by political ideology and personality?
- [85:04]
B
In brief, I think we're talking about the latter. After all, it was at Mont Peller in the very first meeting that he said it was going to take a very long time. He actually said 30 years. And it was 30 years that stagflation took hold. It's paradoxical, perhaps, that Paul Volcker was the head of the Federal Reserve, who was the first person to say, we've got to start paying down some of this borrowing. He was appointed by Jimmy Carter, the much derided Jimmy Carter. So actually, Jimmy Carter was the first person to turn the tide on Keynesianism in that sense. Whether they went off in a high Hayek in a Friedmanite direction, it really doesn't matter. So the long haul that Hayek was expecting finally proved to be true. And he lived long enough to see it, but he didn't live long enough to benefit very much from it. I mean, it's very sad what happened to Hayek. You pointed out that he suffered from depression. People were very worried about him at one stage, and a lot of that was to do with the fact that he really never had enough money. He wasn't paid very much here, and he wasn't paid very much in Chicago, where, by the way, the Chicago School of Economics wouldn't accept him. They didn't think much of his economics and he had to work in the School of Social Studies instead. But he was worried because he had two wives, that is, not at the same time. He had a wife and two children, and then he had a second wife. And between. Although he got a quickie divorce in Arkansas, which meant that he could move from one to the other relatively seamlessly and at minimal cost, it still did cost him a great deal of money. And in the end, which is very sad, he had to sell all of his books to the University of Freiburg, and then he had to move to Freiburg in order to use his own books. That's how badly off he was. He'd made no exigencies at all for his pensionable years, and therefore he continued working and working and working. In the end, he ended up in Austria. But it was a pretty sad ending to the whole thing, notwithstanding the fact that he has been vindicated largely. That is, he was right to be stubborn and all. You know, it's an amazing quality, actually. I mean, I have enormous admiration for Hayek. I might. Well, it sounded as if I did. Keynes is easy to fall in love with, but Hayek is less easy. But the strength of character to be, you know, right there out on the edge, saying rather like Millwall supporters, nobody likes us and we don't care.
- [87:37]
A
Yes, okay, that's a wonderful note to end on. Now, before. Before we all thank Nicholas in the usual way, I have some announcements to make. You know, we have to bring the proceedings to a close. Obviously, there are so many questions still. We could go on for hours still, but Nicholas has kindly agreed to do a book signing right outside here. And so can I just. Again, before we bring the proceedings to a close, can I just ask if we could remain in our seats until Nicholas leaves, the Sheikh Zayed Theater sets up for the book signing. You all should come by, say hello, shake his hand, buy the book, read it. Wonderful lecture and wonderful evening. Thank you very much.