As touched upon briefly in the first part of this series, 20th-century economists F.A. Hayek and John Maynard Keynes did not agree on much. And while a lot has happened since these two men were alive and actively writing and speaking about economic philosophy, the two men’s influence on the national economy can still be seen and felt today.
It cannot be denied that both men have been influential in the field of economics–whether for better or for worse depending on which philosophy you are more inclined to accept. But their disagreements with each other offer a fascinating comparison specifically between those who believe in government intervention in the economy, and those who do not.
Keynes and Intervention
In order for an economy to be planned, it must have some sort of central authority at its helm directing it in a given direction. And, as is always the case, this governing authority is placed in the hands of the state.
For John Maynard Keynes, the government’s involvement in the national economy was integral. Keynes is primarily responsible for the rise of macroeconomics, which treats the entire economy as one whole entity, rather than several individual moving parts. And of course, in order to control a creature as vast as the U.S. economy, you would have to control almost every aspect of it in order to reach your goals.
This type of central economic planning usually comes in the form of policies that restrict almost all aspects of a given sector. From setting prices and wages to controlling which companies are allocated scarce resources and even barring entrance into employment sectors, the Keynesian model seeks full and complete regulation from the state.
And while it may be difficult for many to understand why so many Americans eagerly subscribed to Keynesian economics even though totalitarianism had just destroyed Europe, it is important to understand one of Keynes’ main focuses: full employment.
For military members returning home from war, transitioning back into the workforce was of the utmost importance. And while “full employment” was easy to obtain while many of your countrymen are drafted and forced into war, finding places for all these men in the post-war economy was not so simple. It is for this reason that so many fell victim to the belief that the government should be in control of the economy and especially the workforce.
But viewing the economy as something that can be tamed and mastered does not take into account all the individual factors that make the marketplace so great in the first place.
Hayek and Planned Economies
Hayek believed that planned economies are the greatest enemy of free market competition. After all, when the government is responsible for controlling what the market can and cannot do, the market ceases to be “free” at all. And since free markets were comprised of individual efforts, inhibiting market innovation is a direct threat to the individual. And above all, Hayek’s economic philosophies are centered around the importance of individualism.
One of the biggest problems with Keynesian macroeconomics is its utter and complete lack of recognition of the importance of the individual. In fact, since the individual usually serves as an obstacle for governments seeking complete control over the economy, the individual is the only real threat to planned economies.
For Keynes to achieve his economic goals, including full employment, the government would have to commandeer the entire economy, trampling on individuals along the way. While some may not see this as being as terrifying as it truly is, Hayek reminds us in The Road to Serfdom that without economic freedom there can be no freedom at all. And in Keynes’s ideal world, the government would be running the entire show, leaving very little room for individual dissent.
As Hayek so passionately expresses throughout his classic Road to Serfdom, this failure to understand the individual’s role in the economy is one of the major shortcomings of Keynesian economics. As soon as economists stop viewing the economy in terms of individual entities and instead view it only as a collective unit, innovation is stifled and the individual suffers.
When the government controls wages, for example, the individual loses out on the opportunity to negotiate the terms of payment based on his or her own set of skills. Instead, these types of policies treat all members of the workforce the same.
Additionally, when the government determines which companies are worthy of certain resources, it demeans the innovation process by not allowing individuals to experiment with burgeoning ideas that may come with a risk.
Overall these differences between the two men come down to the individual versus the collective, and for Hayek, the individual should always be protected and placed above the desire for a planned economy riddled with government oversight.
