Keynes and Hayek: The Money Economy

By G. R. Steele | Go to book overview

10

Economic guidance

[t]o avoid misfortunes is about all we can hope for in this world.

(Keynes [1946a] 1979a: 625)

If man is not to do more harm than good in his efforts to improve the social order, he will have to … use what knowledge he can achieve, not to shape the results as a craftsman shapes his handiwork, but rather to cultivate growth by providing the appropriate environment, as a gardener does for his plants.

(Hayek 1975b: 42)


Business depression

Hayek changed his mind regarding monetary policy in a business recession: 'I took a different attitude forty years ago'. At that earlier time, he believed that a short period of deflation during the first stages of the Great Depression would have had the beneficial effect of breaking 'the rigidity of wages which I thought was incompatible with a functioning economy'. That view changed to the position that 'there is no justification for supporting or permitting a process of deflation'. Moreover, Hayek acknowledges that, once extensive unemployment exists, there is 'a tendency to induce a cumulative process of secondary deflation'. For those circumstances, his new recommendation is that 'monetary counteractions, deliberate attempts to maintain the money stream, are appropriate' (Hayek 1975a: 5; see also Hayek 1978b: 210).

Hayek's change of mind should not be exaggerated. Both views are necessarily pragmatic, because no monetary policy guidelines had emerged from Hayek's theoretical analysis of the link between monetary policy and business fluctuations. In the 1930s, he had argued that bankers must weight the advantages and disadvantages of meeting rising demands for bank credit:

the only practical maxim … is probably the negative one that the simple fact of an increase of production and trade forms no justification for an expansion of credit, and that - save in an acute crisis - bankers need not be afraid to harm production by over-caution.

(Hayek 1935b: 125; italics added)

-183-

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Keynes and Hayek: The Money Economy
Table of contents

Table of contents

  • Title Page v
  • Contents ix
  • Figures and Tables x
  • Preface xi
  • 1 - Introduction 1
  • 2 - Vision in Economics 19
  • 3 - Philosophy and Political Economy 37
  • 4 - Money Issues 61
  • 5 - Macrodisequilibrium 78
  • 6 - Keynes and Senie Macromodels 101
  • 7 - Value Theory and Monetary Theory 117
  • 8 - Capital, Money and Cycles 140
  • 9 - Austrians and Post-Keynesians 160
  • 10 - Economic Guidance 183
  • Notes 205
  • Bibliography 208
  • Index 219
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