Lord Keynes: A Hayekian Appreciation

March 31, 2009

by Mario Rizzo


No, I haven’t gone crazy. John Maynard Keynes’s economics is not Austrian economics. He and Friedrich Hayek had serious disagreements over economic theory and policy.  I believe that Hayek was largely right in these disagreements. Nevertheless, Keynes was personally kind to Hayek. He found him a place to stay in Cambridge during the Nazi bombing of London. He also had some good things to say about Hayek’s controversial and, at the time, underappreciated book, The Road to Serfdom.


But, of course, this is not all. They shared a deep appreciation of the humanistic (for lack of a better word) aspect of economics. In effect, they looked at it as a “philosophical science” – a term that today might be considered a contradiction in terms.


A few things have inspired me to write this post. The first is Paul Krugman’s defense against the “accusation” that Keynes did not have a mathematical model. Krugman says, in effect, “Yes, he did and here are the equations.” Krugman is right. And yet the understandable implication that readers might draw is that Keynes would have approved of today’s “advanced” macroeconomics. This is wrong.


The second is that Keynes had some genuinely valuable things to say to us today about modeling and the limits of social science.


Perhaps, most importantly, I think that a mature intellect is not afraid to face up to the fact that a thinker of Keynes’s genius was not all right or all wrong. We who espouse a different economics need not paint him as some kind of demon to get our points across.


With that said, permit me to list some of Keynes’s general points about models and the nature of economics – most of which, probably all of which, Hayekians would approve. I base this statement in part on my reading of Hayek’s The Counter-Revolution of Science.


Despite the fact that Keynes’s economics is largely about the interaction of macro-aggregates (Consumption, Investment, etc.), Keynes was always conscious that he was modeling human beings whose behavior could not be entirely captured by a mathematical model. This implied several things.


1. Economics is a “moral science.” It deals with introspection and values. But even in its “scientific” manifestation it deals with motives, expectations and psychological uncertainties.


“One has to be constantly on guard against treating the material as constant and homogeneous. It is as though the fall of the apple to the ground depended on the apple’s motives, on whether it is worthwhile falling to the ground, and whether the ground wanted the apple to fall, and on the mistaken calculations on the part of the apple as to how far it was from the centre of the earth.” (Keynes, Collected Writings, vol. XIV, p. 300).


2. No model provides automatic answers. It must be evaluated, even superseded, by “intuitive” adjustments.


“The object of our analysis is, not to provide a machine, or method of blind manipulation, which will furnish an infallible answer, but to provide ourselves with an organized and orderly method of thinking about particular problems; and, after we have reached a provisional conclusion by isolating the complicating factors one by one, we then have to go back on ourselves and allow, as well as we can, for the probable interactions of the factors themselves. This is the nature of economic thinking” (Keynes, General Theory, p.297).


He even cautions the reader against his own “symbolic, pseudo-mathematical methods of formalizing a system of economic analysis…” in the General Theory (Id.)


3. Thus even when the economist is not making policy recommendation but is simply seeking to understand the world, the “art of political economy” (his father, John Neville Keynes’s expression) is at work.


“Economics is a science of thinking in terms of models joined to the art of choosing models which are relevant to the contemporary world” (Keynes, Collected Writings, XIV, 296).


4. “Relevance” does not simply mean consistency with statistical series. Keynes was interested in what Wilhelm Dilthey and other philosophers called “verstehen” or understanding social phenomena in terms of the actions of human beings (See Anna M. Carebelli, On Keynes’s Method, p. 158). Keynes would have had less trouble than Hayek, however, in looking at this behavior in aggregate terms. (And yet the real issue here was which aggregates are appropriate. Hayek himself said he was not opposed to all aggregation.)


I realize that there are important differences, even at this abstract level. I further realize that there are some traditions in Austrian economics that would resist conceding even this much. But those are not my intellectual traditions.


I should like to close on a curious note. With respect to the above considerations, Hayekians are closer to Keynes than to many schools of macroeconomics, like the New Classical School, that have been associated with “free markets” and relative laissez-faire policy. Such are the puzzles of intellectual life. 






35 Responses to “Lord Keynes: A Hayekian Appreciation”

  1. chidemkurdas Says:

    To these features of Keynes’ thinking one can add something else that he had in common with Hayek. Both espoused the goals of classical liberalism and saw a law-based system of limited government as ideal. Keynes compromised the goal because he belived there was no solution other than government spending in severe recessions. But he remained a classical liberal who understood very well what The Road to Serfdom meant. Krugman gives no sign of such an understanding.

  2. Rafael Guthmann Says:

    I think that the main difference between “subjetivist keynesianism” (the “austrian” interpretation of keynes) and the austrians can be summed up in this sentence:

    Keynes didn’t notice that the capability of dealing with uncertainty is dispersed in millions of individual minds.

  3. […] namely that heterogeneity matters. Actually, as Mario has pointed out in a series of posts (1, 2, 3), Keynes himself was much better than his latter-day followers. Keynes may have been wrong […]

  4. […] some of the valuable insights Keynes had in my own largely Austrian perspective. I have even blogged about the similarities between Keynes’s view of the method of economics and that of Hayek. They both were strong […]

  5. Drewfus Says:

    “He even cautions the reader against his own “symbolic, pseudo-mathematical methods of formalizing a system of economic analysis…” in the General Theory (Id.)”

    On this subject, see product description, review (by pseudonym) and commentary for the text ‘The Applied Mathematics of J.M. Keynes’ Theory of Effective Demand in the General Theory’ by Michael Emmett Brady.

  6. […] algunas de las observaciones valiosas de Keynes en mi perspectiva esencialmente austriaca. Incluso he escrito en blog acerca de las similitudes entre la visión de Keynes del método de economía y la de Hayek. Ambos eran […]

  7. gmpoint Says:

    i think you got all of it,thanks for this amazing post

  8. abrcity Says:

    they at least They shared a deep appreciation of the humanistic,

  9. This is a very unique post. I am really glad to learn this information and i really appreciate your effort in posting this pictures. I love their look. This is really cool.

    Timex heart Rate Monitor
    Henckels Knife Set

  10. Nice information, this really useful for me. There is nothing to argue about.
    Keep posting stuff like this i really like it. Thx.

  11. Y8 Says:

    Nice information,excellent post ,keep posting stuff like this

  12. Benny Ruo Says:

    Very informative post

  13. Caren Says:

    Hi guys useful post , keep up the good work

  14. Hendry Says:

    Helpful post for all

  15. Shany Says:

    Really good post. keep on posting like this with useful information’s. Thanks

  16. Fog Says:

    great great great

    keep on posting information’s like this


  17. What do Austrian economics say about the recent market downturn. How can we continue printing so much money without creating inflation?

  18. Printing too much buck can affect major economy in local and, when money moves around the glob, I will cause world economic crisis.

  19. great post man! keep up the good work!

  20. Dhiren vyas Says:

    great post … keep going

  21. Beads Says:

    keep up the good work please!great

  22. Scrapbooking Says:

    don’t stop now, especially while you are ahead!

  23. This is a great post…thanks!

  24. brettlee98 Says:

    Fantastic job! The comprehensive data presented was very helpful. I hope that you keep on the great job performed.
    Pompano Beach FL locksmith
    Norwalk Locksmiths
    Locksmith Palo Alto CA

  25. I have been exploring for a bit for any high quality articles or weblog posts in this sort of area . Exploring in Yahoo I at last stumbled upon this site. Reading this information So i’m happy to show that I have an incredibly good uncanny feeling I found out just what I needed. I so much certainly will make sure to do not overlook this website and give it a glance regularly.

  26. great great great

    keep on posting information’s like this


  27. This is indeed a good article to read. Thanks for posting!

  28. […] some of the valuable insights Keynes had in my own largely Austrian perspective. I have even blogged in Think Markets about the similarities between Keynes’s view of the method of economics and that of Hayek. They both were strong […]

  29. This is about who is the keen observer.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: