Lesson 9 Lesson 9: Keynesianism and the Limits of Economics
Presented by: Dr. Anne Rathbone Bradley
George Mason University
Keynes, Hayek, and the World as It Is
Contemporary progressives is based on a strong faith in social and scientific progress. Hayek believed this was a fatal flaw. What if economic science fails the positivist test of making better and better predictions? But as we have learned in this course, “economic variables” are but one dimension of complex social, moral, and even spiritual realities. Keynes was right that “soon or late, it is ideas, not vested interests, which are dangerous for good or evil.” In this lesson, students will learn some enduring insights from both economists.
Key Concepts: (1) Keynesianism, (2) Complex Phenomena, (3) Scientific Progress, (4) Pattern Prediction
“It is precisely because he so deeply influenced his time that it is necessary to ask whether the practical results of his theories and proposals, which were intended to improve the working of the existing economic system, did not ultimately have the effect of weakening its foundations – so that Keynes, in tragic opposition to his own intention, must be numbered among the grave-diggers of that very order of liberal democracy to which his innermost allegiance belonged.”
“To be sure, competition, freedom of markets, wage flexibility, and a prudent fiscal policy do not necessarily guarantee prosperity and stability; indeed, there are extraordinary situations in which exceptions to these excellent principles must be made; but not with impunity can one announce to the crowd that henceforth they may in good conscience be trampled upon."
“On the lesser level of economics, the road from Adam Smith to Keynes has doubtless been one of progress in many respects; on the higher level of total intellectual and spiritual development, it is equally certain that the road has been one of reaction and regression.”
“In summary, we find in the teachings of Keynes the social philosophy of a man who, proud of his alleged modernity and progressiveness, believes himself capable of ‘making over’ society and the economy. We find a man who has forgotten those mysterious powers of the human soul and of human society which cannot be expressed in mathematical equations, nor confined within an assemblage of statistics or the rubrics of economic planning.”
Bruce J. Caldwell
“His [Hayek’s] view of the world contrasted starkly with that proposed by his antagonists, what one might label a positivist or scientistic view. One can best see the contrast between the two world views by seeing what kinds of progress each leads us to expect to occur in a science like economics.”
Wilhelm Röpke, “The Impact of Keynesianism,” Economics of a Free Society (Libertarian Press, 1994), pp. 232-40.Read Now
Bruce Caldwell, Hayek’s Challenge: An Intellectual Biography of F.A. Hayek, Chapter 15, “Epilogue: A Meditation on Twentieth-Century Economics,” pp. 370-405.Read Now
“Keynes vs. Hayek Rap Battle Round Two: Fight of the Century” with John Papola & Russ RobertsWatch Now
“New Economic Thinking Needs Old Ideas” with Bruce Caldwell, Institute for New Economic Thinking and Duke UniversityWatch Now