Keynes Vs Hayek Summary

Keynes versus Friedman and Hayek

1. John Maynard Keynes
Keynes was a British economist who developed what is known as ‘Keynesian economics’ today. The focus of his work was the “causes of prolonged unemployment” after Alfred Marshall (an economist) urged him to channel his interest towards politics and economics instead of philosophy (“John Maynard Keynes”). He obtained a BA and an MA from King’s College, Cambridge, where his father John Neville Keynes (also an economist) was an administrator and where his mother had graduated from. He started work as a civil servant; briefly shifted to teaching economics; and then reverted back to being a government employee. He served as an economic adviser to British Prime Minister Lloyd George at the Paris Peace Conference, but was greatly disappointed by the final treaty. The General Theory of Employment, Interest and Money published in 1935/36 is his most famous literary work and contained Keynesian analysis of economic recession and the solution to unemployment.
Keynes said, “In the long run we are all dead”; this encapsulates the essence of Keynesian economics – focus on “short-run economic fluctuations” and the belief that it is aggregate demand that needs to be stimulated for economic growth. Keynesians believe that unemployment exists because of “an insufficient demand for goods and services”, and thus the solution to it is to prime aggregate demand (“Keynesian economics”). The recommended stimulus is government intervention, which, Keynesians believe, can “directly influence” aggregate demand by manipulating economic policies (Keynesian economics). Keynes’ suggested that the economy can exist in one of 3 ranges – horizontal, intermediate and vertical, determined by the aggregate su...

... middle of paper ...

... term, waiting for this adjustment could be disastrous because the welfare of the current generation of labor/ citizens is compromised, and as Keynes said, “In the long run we are all dead”. For a government to adopt the Austrian or Monetarist views would be particularly difficult because lawmakers would not actually be drafting much economic policy if the idea is to minimize government action. It can be argued that the Keynesian philosophy is a short-term solution and can only worsen the prospects for long-term growth owing to the high levels of accumulated debt and deficit spending. Nevertheless, since governments have usually tried to control/ plan/ rescue the economy in the past and since it is widely believed that government stimulus aided economic recovery in the most recent recession, I am relatively more in agreement with Keynesians than with the others.