Keynes Hayek: The Clash That Defined Modern Economics.

• Author: Sweeney, Paul
• Position: Interview

By Nicholas Wapshott, W.W. Norton & Company, 382 pages, $28.95

Question: What do you get when you cross a Mafia don with an economist?

Answer: A guy or gal who makes you an offer you can't understand.

It was with this joke in mind that I approached--with some trepidation--Hayek, Nicholas Wapshott's curious tale of two yin-and-yang economists. I feared that a book about their larger-than-life debates, which have figured prominently in the actions of governments and industries for decades, would prove dry as dust.

But fear not. In the capable hands of Wapshott, a former U.S. correspondent for the London Times and author of Ronald Reagan and Margaret Thatcher: A Political Marriage, the passionate academic disputes of John Maynard Keynes and Joseph Hayek, their vastly different personalities, contrasting social backgrounds and complicated relationship form a lively, fascinating narrative.

At the same time, Wapshott shows the far-reaching consequences of their implacable clash as it would play out in academia and, profoundly and fatefully, in the policies of U.S. presidents from Truman and Eisenhower to Carter and Reagan. Those battle lines, moreover, continue today as politicians square off to do battle over budgets, deficits, taxation and government spending on both "guns and butter."

By 1931, John Maynard Keynes had already established his bona fides as the world's foremost economist. He had written the prescient Economic Consequences of the Peace, denouncing the Versailles Treaty for imposing crushing reparations on Germany, which, Keynes discerned, required the bankrupt country to "hand over to the Allies the whole of her surplus production in perpetuity."

Wapshott reports that "Keynes's verdict was that the treaty 'skins Germany alive year by year' and that the treaty would prove to be 'one of the most outrageous acts of a cruel victor in civilized history.'"

Keynes also served as a top-level economic counselor to the British government's ruling Liberal Party. Noted today for, among other things, his demand-side formula for battling unemployment, Keynes admonished the government of Britain's Prime Minister David Lloyd George to be bold and spend its way to prosperity. He also rebuked those who worried about deficits and advocated austerity.

"Let us be up and doing," Keynes declared in 1928, "using our idle resources to increase our wealth." With men and plant unemployed, he added, "it is ridiculous to say that we cannot afford new...