Duel of ideas
Two thinkers face to face: where each stands on the same questions, the strongest criticisms of each side and, at the end, my own conclusion.
John Maynard Keynes vs. Ludwig von Mises
What causes crises, and what should be done when they come?
John Maynard Keynes
1883–1946
British economist. In the General Theory (1936) he argues that demand can get stuck below full employment and that the State should act to sustain it.
Ludwig von Mises
1881–1973
Austrian economist. He argues that crises are born from the artificial expansion of credit and that the market corrects itself if left alone.
On my shelf: Economic Policy, Liberalism, Human Action
What causes crises
John Maynard Keynes
A fall in demand: when households and firms all spend less at once, income falls and unemployment can last for years.
Ludwig von Mises
Cheap credit created by the central bank distorts interest rates and leads to unsustainable investment; the crisis is the correction of those mistakes.
What to do in a recession
John Maynard Keynes
Public spending and low interest rates to restore demand, accepting a deficit in the short run.
Ludwig von Mises
Don't interfere: let prices, wages and bad investments adjust. Stimulus only delays and deepens the correction.
The role of the State
John Maynard Keynes
A stabiliser of the economy, without replacing the market.
Ludwig von Mises
Minimal: every intervention creates new distortions, which call for more intervention.
Money and interest
John Maynard Keynes
Monetary and fiscal policy are legitimate tools for managing the cycle.
Ludwig von Mises
Sound money, ideally backed by gold, and interest rates that reflect real savings.
Against John Maynard Keynes
- Stimulus tends to become permanent, and short-term deficits turn into ever-growing debt.
- The stagflation of the 1970s exposed the limits of traditional Keynesianism, which did not expect high inflation and high unemployment at the same time.
- The recipe depends on governments getting the timing and the dose right, which rarely happens.
Against Ludwig von Mises
- The a priori method rejects empirical testing, which makes the theory impossible to refute with data.
- Letting a recession run its course, as in the early Great Depression, had an enormous social cost.
- The gold standard he defends limits the response to shocks and was tied to severe deflations.
My conclusion
Coming soon.
Niccolò Machiavelli vs. Marcus Aurelius
What should a ruler be?
Niccolò Machiavelli
1469–1527
Florentine diplomat. In The Prince he describes power as it is, separating politics from morality.
On my shelf: The Prince, The Art of War
Marcus Aurelius
121–180
Roman emperor and Stoic philosopher. In the Meditations he writes to himself about duty, virtue and self-control.
Morality and power
Niccolò Machiavelli
A ruler must learn not to be good when necessary; keeping the State comes before personal virtue.
Marcus Aurelius
To rule is to practise virtue: justice, wisdom, courage and temperance apply in power too.
What can be controlled
Niccolò Machiavelli
Virtù against fortuna: prepare for chance and act boldly on what can be shaped.
Marcus Aurelius
Separate what is up to us, our judgements and choices, from what is not, and accept the rest calmly.
How to treat people
Niccolò Machiavelli
If you can't have both, it is better to be feared than loved, but never hated.
Marcus Aurelius
Treat others as parts of the same whole; whoever does wrong acts out of ignorance and deserves patience.
What power is for
Niccolò Machiavelli
To win and keep the State.
Marcus Aurelius
To serve the common good and fulfil the duty of one's role.
Against Niccolò Machiavelli
- Read out of context, it can justify any means for the ends.
- It underestimates trust and legitimacy as sources of lasting power.
- His realism describes sixteenth-century Italy well, but generalises from a moment of chaos.
Against Marcus Aurelius
- The Meditations were private notes, not a programme of government.
- His reign saw constant war and persecutions of Christians, and he left the empire to his son Commodus, a disaster.
- The emphasis on accepting what is not up to us can turn into passivity in the face of injustice.
My conclusion
Coming soon.
Friedrich Hayek vs. Karl Marx
Who should coordinate the economy: the market or planning?
Friedrich Hayek
1899–1992
Austrian economist, Nobel laureate in 1974. He argues that prices coordinate dispersed knowledge that no planner can gather.
On my shelf: The Road to Serfdom
Karl Marx
1818–1883
German philosopher and economist. In Capital he analyses capitalism as a system of exploitation of labour, destined to be overcome.
How the economy is coordinated
Friedrich Hayek
Through prices, which sum up information spread among millions of people.
Karl Marx
Through capital chasing profit, anarchically; production should be planned by the workers themselves.
Where value and profit come from
Friedrich Hayek
Value is subjective; profit rewards risk and coordination.
Karl Marx
Value comes from labour; profit is surplus value, unpaid labour taken by the capitalist.
Freedom
Friedrich Hayek
Central planning concentrates power and leads to serfdom.
Karl Marx
Under capitalism, freedom is formal; real freedom requires the end of exploitation.
Crises and the future
Friedrich Hayek
Crises come from monetary distortions; with stable rules, the market reorganises itself.
Karl Marx
Crises are built into capitalism and will lead to it being overcome.
Against Friedrich Hayek
- The prediction of The Road to Serfdom did not come true in Europe's social democracies.
- It underestimates market failures, inequality and the power of large companies.
- The spontaneous order he defends depends on institutions the market alone does not create.
Against Karl Marx
- The labour theory of value was abandoned by modern economics in favour of marginal value.
- The planned economies of the twentieth century had shortages, little innovation and authoritarian regimes.
- The predictions of growing impoverishment and the collapse of capitalism did not come true in rich countries.
My conclusion
Coming soon.