Kaynes and Hayek, why their ideas still matter…

In order to look for new ideas of how to organise our economy, we have to understand the old ones. Never was this more important.

In the 1920’s and 30’s, two protagonists argued polarised opposite views in the midst of their own economic crisis. One (Friedrich Hayek) insisted that the free market would right itself, and that the job of government was to get out of the way, to reduce its spending and the proportion of the public purse that interfered with the self correcting forces of free market economics.

John Maynard Keynes fundamentally disagreed. He said it was the job of government to govern, and the primary way that they should do this was by managing the economy. He was concerned with the human consequences of boom and bust economics – mass unemployment, poverty.

These two polar opposite positions have been fought over ever since. One libertarian, one interventionist. One arguing for centralised control, the other wanting no control at all. Evidence for the failure of both positions exists.

The free market brought us vulture capitalism, Thatcherism and the current crisis. It became the mantra of the International Monetary Fund, and the basis on which it manipulated whole nations. Centalised managed economies did not do well in the former communist countries. And we in the UK remember the strikes and power cuts of the 1970’s.

However it is also possible to point to the stable, eventually prosperous and well managed period after the second world war when Keynes ruled the world, or the eventual triumph of the Free Market, until this current crisis of course.

The question remains as to how this argument will play out in our current context. It seems that the current political instinct is towards Hayek, whilst having to acknowledge that when the free market is really free, then the unbridled greed it releases is potentially destructive to us all.

There is a really good clip on the Guardian website, here.

3 thoughts on “Kaynes and Hayek, why their ideas still matter…

  1. I’m afraid we need to completely re-think what an economy actually is. A dictionary definition gives: the complex of human activities concerned with the production, distribution, and consumption of goods and services. We currently use money as the lubricant in the machine so to speak. This money is itself based on debt which is translated by banks into cash (the lubricant). This cash input to the machine must be repaid by the machine to the banks, but they don’t actually insert any extra lubricant into the system to allow it to pay back the interest, hence the machine will forever have bouts of clogging up when it runs out of cash to repay the interest.
    Henry Ford back in the 1800s said “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” I don’t believe we have had the revolution yet, but it will happen.

    Bouts of growth and recession hit the system from time to time. Recessions are generally foreseeable (with hindsight) but not foreseen by the majority. But they may be by the minority; if a few fat controllers can actually generate a recession then they can make enormous sums of money by selling prior to it/into it and then buying on the upward slope. This was what Rothschild discovered back in the Napoleonic wars in the early 1800s. I believe it has been going on ever since.

    When the population wakes up to the crises that are wilfully being imposed on it. When the politicians have the strength to oppose those who are really control the economy, then we may start to see a most amazing change to a brilliant future.

    I worked on a figure for the average working time the average man needed to put in in order to provide himself with enough food, fuel and accommodation for life, if he worked in those industries and the figure astounded me. I based it on UK manpower figures published and maintained by the University of Warwick, so I think they should be reliable, but my use of them was generalised, so not accurate, but nevertheless even if we assume a 100% inaccuracy in my use of them, the figure is still astonishing. I totalled the manpower employed in those three industries and then divided it by the total available workforce.

    The figure was 5 years!

    Somehow (see above) something in the current system is not working to the benefit of the population. Whatever system we eventually choose to oil the engine should provide for an economic system which gets close to this 5 years of work figure I mention above. Nothing else will be acceptable, once people realise.

    G-d bless
    (I’m having problems posting – I hope this doesn’t appear several times!)

  2. No Carl, just one post appeared- sorry you had probs.

    5 years huh? Which suggest that the other 40 years go to create profit/wealth elsewhere in the system? Or perhaps to allow us to accumulate things that we do not need?

    I think you are bang on to suggest that the economy is essentially a confidence trick. Even the value of companies depends on ‘consumer confidence’, as most assets are so far removed from their physical reality in the is age of financial smoke and mirrors.



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