More thoughts on Keynes and Hayek

In thinking about the role played by Keynes in both shaping economic theory and, perhaps more importantly, shaping beliefs, expectations and hopes it is clear that the post Keynesean "revolution" masks a portion of what Keynes believed to be important about human behavior. Skidlesky writes and summarizes a Keynes piece in the New Statesman in 1939

On the one hand there was the need for planning and organization. At the same time, he the 'profound connection between personal and political liberty and the rights of private property and private enterprise'. He argued that the threat to liberty from the measures he proposed was 'so remote from the first and the next and the things that want doing , that it is not now, and is a long way from being a practical issue'. (vol 3 page 39)

I read this as an awareness of the consequences to liberty from the "Middle Way" that Keynes advocated. In 1939 as one looked across Europe one saw Franco, Mussolini, Hitler, and Stalin. The march of totalitarianism, to Keynes, offered a clear and present danger to liberty and liberalism. It should be remembered that Milton Friedman was later part of the war effort and both Friedman and Hayek recogized the absolute requirement for central planning to advance the war effort.
The real question here is was was to be the philosophy of the post war world, where was the line to be drawn between the state and individual? Keynes and Hayek differed markedly on this important question and the Roberts/Poppa videos capture this difference. However, the videos oversimply the debate and, by ignoring the context tend to shape a view of Keynes that is, in my present way of thinking misleading. Keynes fancied himself a classical liberal, at least at the beginning of his career. The totalitarian threats of the 1930s coupled with the challenges of sustained and seemingly expanding structural unemployment led him to a view of the importance of state action. It is hard to argue against the argument for state planning to oppose forces of oppression and repression.
Skidelsky goes on to assert (vol 3 page 67)

Since Keynes is so often unthinkingly place in the dirigeste camp, it is important to insist that he favoured the fiscal theory of war control. More importantly, he invented the fiscal theory, precisely in order to avoid 'totalitarian' planning. . . . the issue is not whether he was right or wrong, but the spirit in which he approached wartime problems. . . . After a long search, Keynes had found his own point of equilibrium between individualism and collectrivism and he held fast to it. Keyne's fiscal theory was an alternative to inflation as well as physical planning. Indeed, he believed that teh first would inevitably lead to the second. What he called 'totalitarianism' was an inevitable outcome of failing to control inflation in a modern economy-a conclusion strikingly similar to that of Hayek in his Road to Serfdom"

This to me was a new way of looking at the Keynes/Hayek debate and, I think, worthy of thoughtful consideration. The metaphor of line between the opposing forces of individualism and collectivism informs much of the Skidelsky biography and the Hayek/Keynes debate. (67) Keynes steadfastly defended the price systenm and consumer choice. 'The abolition of consumers' choice in favor of universal rationing is a typical poroduct . .. of Bolshevism. . . . I am siezing the opportunity to introduce a principle of policy which may be thought of as marking the line of division between totalitarianism and the free economy.

To me this is both an important connection and distinction between Hayek and Keynes -both sought the "proper" line or balance to preserve individualism and freedom and the context of the actual debate between the two (as opposed to followers) is the raging battle between free and non free forces, a battle that was in the balance. In fact the post WW2 world seemed to suggest a victory by the latter - think geography in 1950. Skidelsky asserts about this debate (vol 3 page 286)

Much can be said on both sides, and Keynes was right to point out thta the policies which took no precautions against slumps were likely to produce 'disillusion' or, worse, hellish revolts against liberal values. (This seems to be borne out by the African experience in the last half of the last century). On the other hand, no one who lived through the 1970s can fail to see a great pathos in Keyne's so English response to Hayek's warning - "Don't worry, things will be perfectly all right here in England, because we are English and not crazy like the Continentals. On this matter, at least, Keynes and Hayek found each other to an honorable draw. The game is not over.

And this is, fortunately true - as we know - the game/debate/argument is not over and, in a free and liberal society will not end. This is a reasonable and ongoing discussion to have and we are inspired to conduct it in a manner as civil and thoughtful as Hayek insisted.