Compare And Contrast Keynes And Hayek

1865 Words 8 Pages
Tim Harben

History of Economic Thought

Feelin’ the Hayek

When contemplating the philosophies of macroeconomics, two names may come to mind, John Maynard Keynes and Friedrich Hayek. The intellectual differences between their two ideas are still being debated today. Keynes may have received a Nobel Prize for economics but he died before the Nobel prize in economics was created in 1969. Because of this fact, I have chosen to focus my attention on the intellectual competitor and antithesis of Keynes, Friedrich Hayek.

Hayek was an Austrian born economist. He held Keynes in a low regard as an economist, but considered him a friend on a personal level. “I don’t think he spent more than a year learning economics,” Hayek stated in his
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He believed it would give the government more power at the expense of individual freedoms and happiness and make the nation feudal-based society.

Monetary theory by Hayek. Since resources are always shifting to meet the needs of the buyer 's, money has to work purely as a medium of exchange in order to satisfy the needs of the market without affecting the real price of any goods or resources. Hayek probably would’ve loved Bitcoin. Tax cuts, if they are permanent and not targeted to specific industries, then they can be Hayekian.

Hayek is a free-market economist. He agrees with Smith about how the market finds a natural optimal balance. The market was not invented by an individual, it evolved over time by many people and generations, similar to an organism. So if this is the case, why is there still problems with the market? In Hayek’s belief, the central bank is to blame. The central bank is responsible for controlling the money supply, and therefore investment and interest rates follow. If the money supply expands or contracts then people are influenced by an artificial value of the money, and not the true market
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The Austrian business school of thought came about originally by Charles Merger whose ideas were taken up by Friedrich von Wieser. Wieser was Hayek’s direct mentor and the major influence in developing Hayek. Their ideas were different from some of the older economists that came before them, like David Ricardo when it came to things such as the labor theory of value. One important idea was that “value can be determined only by the subjective preferences of an individual mind.” (Steele) Merger was a marginalist and is considered among one of the earlier developers of such though. Merger wrote that utility is based upon the relationship between a person and a good, instead of just the good itself. Merger felt that value could only be determined at the time of purchase, because the individual had no control over the scarcity, or factors of production, they only had the determination of the utility of the good vs the opportunity cost of forgoing the good as a deciding factor. Merger acknowledges also that having complete information to predict or control a purchasing outcome. However Merger does feel that overall individual’s behavior can be categorized “by limited pattern predictions,” (Steele) but those are limited to knowing a person is likely to buy things like food each week, or clothes once a year. You cannot predict what fruits or vegetables, nor the

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