Keynes vs. Hayek, oversimplified: missing the point on the economic battle of the century.

• Author: Doherty, Brian
• Position: Keynes Hayek: The Clash That Defined Modern Economics - Book review

Keynes Hayek: The Clash That Defined Modern Economics, by Nicholas Wapshott, W.W. Norton & Co., 382 pages, $28.95

BRITISH JOURNALIST Nicholas Wapshott's new book, Keynes Hayek: The Clash That Defined Modern Economics is about a heated debate, eight decades past, between two of the most influential economists in modern history. That debate, which took place in the midst of the Great Depression, concerned the causes and cures of business cycle downturns.

The book comes out at a propitious time. The ongoing economic crisis raises many of the same questions that fueled the intellectual duel between the British-born liberal lion John Maynard Keynes and F.A. Hayek, his free market Austrian friend and opponent. The confluence between subject matter and current events surely helped Wapshott sell his book to a publisher and likely will sell many copies to readers. But potential buyers should be aware that the book says nothing about how the economic dispute between Keynes and Hayek might apply to today's economic situation. This omission proves fatal.

Wapshott does not ignore the present in favor of the distant past, although the bulk of the book's narrative is set in the 1930s. But he seems to think his subjects' contemporary relevance is best reduced to the big-picture conflict between government intervention (Keynes) and free markets (Hayek). Wapshott focuses on the disagreements the two had over political philosophy and practice rather than the technical specifics of their economics. Those political disagreements are important, but they arose from crucial differences in economic theory.

For example, Keynes believed that intelligent, well-meaning planners manipulating economic aggregates such as demand and employment can bring about a happy end to business cycles. Hayek, by contrast, insisted that individual decisions and imbalances between specific prices and demand, or interest rates and specific plans for long-term productive projects, are where the economic action is.

Modern Keynesians tend to sniff at the notion that their man and Hayek were equal participants in the "clash that defined modern economics." They note that Hayek did not wield a similarly huge influence on modern macroeconomics, and they are fight in the sense that the Austrian questioned the value of macroeconomics as an intellectual project in the first place.

At its root the Keynes/Hayek clash concerned alternate theories about how business cycles work. Wapshott does a workmanlike job walking readers through the lectures, books, articles, reviews, rebuttals, and counter-rebuttals that made up the bulk of their dispute. That is the book's greatest value, and it's the most thorough and lengthy such discussion available in...