Friedrich Hayek and John Maynard Keynes

I just finished reading Nicholas Wapshott’s Keynes Hayek: The Clash that Defined Modern Economics (Norton, 2011). Herbert Gintis and Greg Ransom, two American economists whom I admire, wrote scathing reviews of the book at In contrast, I enjoyed the book, especially the parts dealing with the life and personality of Hayek. The book is an easy, quick read (Gintis wrote that it is akin to reading an article in People magazine!), but that is all the more reason to read it. Don’t purchase it for reference, however. Borrow a copy from a public library.

Nicholas Wapshott (born 1952) is a British journalist and writer who has a degree in politics from the University of York. Cardiff Garcia recently interviewed him for an Alphaville podcast.

What to me was most valuable is the attention that Wapshott pays to differences in the personalities of Hayek and Keynes. The differences are, indeed, quite striking. Here are a few passages from the book that caught my attention. I am more familiar with Keynes than with Hayek so, for this reason, ignore Wapshott’s many comments on the personality of Keynes.

In 1922 Ludwig von Mises (1881-1973) introduced Friedrich Hayek (1899-1992) to Professor Jeremiah Whipple Jenks (1856–1929) of New York University during his visit to Vienna. Jenks offered Hayek work in New York as researcher in support of his project on the economies of Central European countries.

Hayek set off across the Atlantic with a one-way fare as he could not afford a round-trip. To save the price of a telegram, Hayek did not inform Jenks of his arrival date. Hayek disembarked … on Manhattan’s West Side in March 1923 with just twenty-five dollars in his pocket and presented himself at Jenks’s NYU office only to be told the professor could not be contacted. Hayek found himself in a strange land, penniless, without a friend. He decided to take a job until Jenks returned, and was offered one washing dishes in a Sixth Avenue restaurant. An hour before he was due to plunge his hands into the suds, he received a call from Jenks’s office saying that the economist had returned. This was the nearest Hayek came to performing manual labor. Indeed, in all his ninety-two years, he never worked for the private sector. (p.27)

Avoidance of work in the private sector is surprising for someone like Hayek, who advocated private ownership and control of almost everything.

NYU is a private university, though nonprofit, so not dependent on government. More counter-intuitive, at least to me, is the existence of a nest of Hayek acolytes in the economics department of George Mason University, a public university owned and operated by the Commonwealth of Virginia.

John Maynard Keynes (1883-1946, in contrast, was active in the private sector. He traded stocks and bonds, was chairman of one insurance company, and directed the investment policy of another. (p. 320, note 17)

“In the middle 1940s–I suppose I sound very conceited–I think I was known as one of the two main disputing economists: there was Keynes and there was I. Now, Keynes died and became a saint; and I discredited myself by publishing ‘The Road to Serfdom,’ which completely changed the situation.” (p. 206)

Source: Hayek on Hayek, ed. Stephen Kresge and Leif Wenar (University of Chicago Press, 1994) p. 243.

Until I read this book I was not aware of the fact that Hayek was ashamed of his bestselling book The Road to Serfdom. His shame is understandable, however, for the thesis of the book is clearly wrong. There is no evidence that government expenditure on social needs is a ‘slippery slope’ that leads to socialism and communism. If this were true, Sweden today would be a communist dictatorship.

The following paragraph is an excellent example, one of many, of Wapshott’s attention to personality traits.

Hayek was admired, but he was not widely liked, except by those who knew him well. He was known as a contrarian, which attracted him to mavericks but did not endear him to hose who liked to belong. Keynes offered a hopeful view of the future, with everyone employed, based on an optimistic view of human nature. Hayek was a doubter and pessimist: those who strived to make the world better would likely end up inviting unintended consequences. The free market worked best according to rational decisions based on self-interest, and failed to work when tempered by idealism. Thus, optimists and idealists tended to follow Keynes; pessimists found in Hayek a sober guide to the disappointments of the real world. (p.208)

The comprehensive index (pp. 357-382) contains many references under ‘Hayek, personality of’ and ‘Keynes, personality of’.

Hayek was awarded the Nobel Prize for economics in 1974.

Hayek had to share the honor with Gunnar Myrdal, a Swedish Keynesian economist and social democratic politician. According to [Milton] Friedman, by yoking Myrdal to Hayek the Nobel committee hoped to avoid the charge of sympathizing with the Left. In the event, the double bill provoked substantial controversy, with Hayek declaring that Nobel Prizes for economics were absurd and worth neither giving nor receiving, and Myrdal condemning the Nobel committee for honoring Hayek.

Nonetheless … [t]he prize was a considerable personal boost to Hayek, whose years of clinical depression seemed to vanish on receiving the award. (p. 256)

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