Capitalist vs Capitalist (2017)

Book Review from the April 2017 issue of the Socialist Standard

'Hayek vs Keynes. A Battle of ideas'. By Thomas Hoerber. (Reaktion Books. 2017. 150 pages)

This short book compares the ideas of what the blurb on the back calls 'these two giants of the history of economics,' discussing Keynes's The General Theory of Employment, Interest and Money (1936) and Hayek's The Road to Serfdom (1944).

But there is no comparison. Keynes's book is a serious work, criticising the workings of the capitalist economy as he saw it and which dominated economic teaching and policy-making for forty years. Hayek's book, on the other hand, was an anti-socialist rant by a reactionary who regretted the growing state interference in the economy under capitalism, claiming that it would lead to totalitarianism along the lines of Nazi Germany and Stalinist Russia. It was on a par with Churchill’s notorious 'Gestapo speech' aimed at the Labour Party in the 1945 general election and may well have inspired it. Hayek was only plucked from his well-deserved obscurity thirty years later and awarded a politically-motivated Nobel Prize for Economics. His admirer Thatcher made him a Companion of Honour.

It is of interest to compare the views of the advocates of unreconstructed laissez-faire capitalism with the reformed capitalism offered by Keynes, but there is no need to elevate a common or garden apologist for capitalism like Hayek to the status of a 'giant of economic thought' to do this.

Keynes's criticism of laissez-faire capitalism was that it could lead – and had led in the 1930s – to a situation where production and income balanced each other at a level below full employment. He proposed to remedy this by the government increasing its spending and redistributing income from the rich to those more likely to spend than save it. This fitted in well with the reforms advocated by Labour and Social Democratic parties who, after WW2, enthusiastically embraced Keynes. Hoerber records that, at its congress in Bad Godesberg in 1959, the SPD publicly abandoned (paper) Marxism for Keynesianism.

For 25 years Keynes's approach appeared to work as there was virtually full employment. But was this due to governments pursuing his policies? A more plausible explanation was post-war reconstruction and an expansion of the world market. The test came with the end of the post-war boom in the 1970s, a test Keynesianism failed as its application led not to full employment but to 'stagflation' (continuing stagnation + inflation). Keynes was discredited, but were those he had criticised vindicated?

Hayek certainly wasn't as there had been no trend towards 'serfdom', or totalitarianism. Even so, others who had argued that the capitalist economy could not be planned to avoid the boom/slump cycle and ensure permanent full employment were proved correct. But this strengthens rather than weakens the case against capitalism – as it can't be mended, it has to be ended.

Adam Buick