Rethinking the Keynesian Revolution: Keynes, Hayek, and the Wicksell Connection

Rethinking the Keynesian Revolution: Keynes, Hayek, and the Wicksell Connection

Rethinking the Keynesian Revolution: Keynes, Hayek, and the Wicksell Connection

Rethinking the Keynesian Revolution: Keynes, Hayek, and the Wicksell Connection

Synopsis

While standard accounts of the 1930s debates surrounding economic thought pit John Maynard Keynes against Friedrich von Hayek in a clash of ideology, this reflexive dichotomy is in many respects superficial. It is the argument of this book that both Keynes and Hayek developed their respectivetheories of the business cycle within the tradition of Swedish economist Knut Wicksell, and that this shared genealogy manifested itself in significant theoretical affinities between the two supposed antagonists. The salient features of Wicksell's work, namely the importance of money, the role ofuncertainty, coordination failures, and the element of time in capital accumulation, all motivated the Keynesian and Hayekian theories of economic fluctuations. They also contributed to a fundamental convergence between the two economists during the 1930s. This shared, "Wicksellian" vision ofeconomic problems points to a very different research agenda from that of the Walrasian-style, general equilibrium analysis that has dominated postwar macroeconomics.This book will appeal to economists interested in historical perspective of their discipline, as well as historians of economic thought. The author not only deconstructs some of the historical misconceptions of the Keynes versus Hayek debate, but also suggests how the insights uncovered can informand instruct modern theory. While much of the analysis is technical, it does not assume previous knowledge of 1930s economic theory, and should be accessible to economists, political scientists, and historians with general economics training, as well as to graduate students in these fields.

Excerpt

Reflecting on a Keynesian revolution of which he himself was a principal architect, Nobel laureate Sir John Hicks remarked that “when the definitive history of economic analysis during the 1930s comes to be written, a leading character in the drama (it was quite a drama) will be Professor Hayek.” Though Friedrich von Hayek’s economic writings “are almost unknown to the modern student,” Hicks observed, “there was a time when the new theories of Hayek were the principal rival of the new theories of Keynes. Which was right, Keynes or Hayek?”

After a hiatus of a few decades, Hicks’s question is once again in vogue among macroeconomists. The academic consensus that coalesced, in the decade preceding 2008, around a standard “dynamic stochastic general equilibrium” class of economic model has since frayed. Indeed, IMF chief economist Olivier Blanchard’s August 2008 declaration that “the state of macro is good,” and that “a largely shared vision both of fluctuations and of methodology has emerged”—a sentiment echoed as late as January 2009 in the macroeconomic issue of the American Economic Journal, by Michael Woodford’s rather ironically (in retrospect) titled . . .

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