Keynes And Hayek

The United States has been in debt since 1775, paying for the American Revolutionary War. Through many years, tremendous debt has built up. America is now at a total of $19 trillion dollars. There are many dilemmas dealing with our economy, this all starts with America’s debt. The government has overused its authority in regard to America’s national debt by erratic spending, excessive borrowing, and by ignoring the average tax paying American.

In Hayek’s argument, he explains how socialism’s centralized planning is an exponentially inferior economic policy compared to the competitive nature of democracy due to the restrictions government planning imposes on a population’s ability to choose. He also expresses concern over similarities between the attitude of United States’ population and socialist Germany regarding our growing desire to organize and plan everything, noting that we are headed in the same general direction as pre-fascist Germany. His argument has the intention of convincing people to stray from this path of organizing the economy and instead to simply let the country

Rather he said people based their expenditures on their expected income in the next years or where they expect to be. This was a huge theory that challenged much of the academic establishment at the time and began to give a light to many conservatives who felt like the policies of FDR’s new deal was strangling. In 1962 Friedman wrote arguably his most notable book “Capitlism and Freedom” which he argued for many things including freely floating exchange rates, the abolition of licensing doctors, and negative tax rates instead of welfare programs. Friedman argued for a lower tax rates and a flat tax past a certain income level to keep American efficiency at up but, unlike a most conservatives, also argued for giving money back to people below a certain income level. He felt like this was a much simpler approach to the problem and felt like welfare programs were all too complex and inefficient. His book famously also argued that inflation rate being higher would also lead to higher unemployment rate and that national debt was tied to the inflation rate. In 1970’s in a giant rise in stagflation due to a poor economy and opec raising its prices, Friedman looked like a genius and landed himself a spot on the Nixon advisory team. Although there were still economists who doubted Friedman’s theories as in Canada their national debt

He acknowledges that his system isn’t going to be ideal, saying, “Of course, these adjustments are probably never ‘perfect’ in the sense in which the economist conceives of them in his equilibrium analysis” (Hayek 527). This is important because, while the structure may have its flaws, Hayek doesn’t rely on natural balance like classical theory or the government as an ever-present safeguard like Keynes. Instead, Hayek is realistic about the ups-and-downs of the economy, saying that people must swallow the “bitter pill” of tough times in order to keep their free will (Wise). A strong government infrastructure helps the economy persevere through its struggles and thus his economic structure finds a realistic approach to stabilize individual power and

Friedman agrees with the idea of monetarism. He thinks that the government should keep the money supply moderately steady but increase it a small amount each year to allow for the growth of the economy. Along these lines he thinks that The Great Depression was caused by a failure

According to Library of Economics and Liberty, “So influential was John Maynard Keynes in the middle third of the twentieth century that an entire school of modern thought bears his name. Many of his ideas were revolutionary; almost all were controversial. Keynesian Economics serves as a sort of yardstick that can define virtually all economists who came after him.” (Library of Economics and Liberty, n.d.).

First, he defines the word “planning” as, “The complex of interrelated decisions about the allocation of our available resources” (Hayek.) Next, he explains that it is not a question of whether or not planning needs to take place in an economy, but rather, to whom will the responsibility of planning will be placed (Hayek.) From this point he is able to defend and make a case for economic activity to be entrusted to individuals in a market, “In a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coordinate the separate actions of different people” (Hayek.) Prices, therefore, contain the information that centralized planning would need to collect in a most laborious fashion. It is not of concern to the rational economic agent why the price of a certain thing has changed, what is important is there has been a change and an individual can asses their need and react to the change. This work is brilliant because it addresses the core of the issue. Instead of demonizing those on the other side of the issue, Hayek addresses the purpose and ideal of centralize planning and proposes a better way to accomplish the task. Instead of making enemies, he makes an intelligent

At the beginning of the 20th century Hayeck and Keynes had watched the global economy transform. Everyday changes were happening. Worldwide depression was taking over capitalism. Hitler’s Third Reich and Stalin’s Soviet Union thought about bringing the capitalist system altogether. For more than half the century ideas were everywhere. The mixed economies in Europe and capitalism in the United States, the government

Keynes believes that the government has a positive effect on the economic growth and the quality of services. In recessions, businesses and people tend to spend less money. He was against this idea and suggested that “it’s spending that matters” because lower spending results in demand falling and job losses. Keynes's solution to the problem was for the government to play an active role in the economy. If the government plays an active role in the economy, the economy will bloom and progres to its full potential. He believes that the government should stimulate economic growth by increasing demand through increased credit and public spending. Keynes is embracing liberal views such as economic freedom for the people to an extent in which it boosts the economy as he believes it’s the key factor that allows the economy to reach its full potential with government intervention. Keynes disagreed and strongly opposed Milton Friedman’s ideas. Friedman suggested the monetary policy, controlling the money supply, can help out the economy throughout recession. On the other side, Keynes suggested that monetary policies play a very little role in stimulating the economy and aggregate demand. He disagreed with Milton Friedman’s ideas as he believed the government should encourage spending and discourage

Keynes believed that it was a waste to save money, it only lead to destruction and prevent economic growth. He didn’t agree with private investment. He felt by keeping money in your pocket is senseless because soon we will all be dead. You can’t take the money with you. He also felt that the government should increase spending during times of recessions.

Another aspect in which Keynes disagreed about full employment was the classical economist’s views on flexible wages and prices. He thought that markets

Throughout the history of economics, there have been many experts and professors whose ideas and theories have fundamentally affected our thoughts and practices, but none has been as influential on this subject as John Maynard Keynes. He was a British economist who revolutionized economic thinking and to this day his work continues to be appreciated and utilized by many into what is known as “Keynesian Economics.”

Most of Hayek’s work from the 1920s through the 1930s was in the Austrian theory of business cycles and capital and monetary theory. Hayek saw, that the price system did a remarkable job of co-coordinating people's actions, even though that co-ordination was not part of anyone’s intent. Hayek believed that the market was unplanned and was not designed by anyone. However, it did evolve slowly as a result of human actions. Nevertheless, no market works perfectly causing booms and busts throughout the market.

John Maynard Keynes is referred to as one of the most well known economists of his time. Not only was he able to come up with a solution to essentially try to move the economy out of recession and stop booms and busts, but his theory is still being used in todays day and age 70 years later. One big question that has been asked repeatedly about Keynes theory is why did he not believe in self-adjustment of the economy. Keynes rejected the idea that market economies would automatically move towards full employment. He claimed to have found many flaws in the classical model as a whole (Davidson). Overall Keynes rejected the classical models claim that markets self-adjust to solve economic problem because his insight was the opposite of the classical model. He was convinced that sometimes things don’t sort themselves out. The economy would actually continue to go into a downward spiral and the usual dynamic of supply and demand would essentially break down. As far as policy prescriptions for a recession, Keynes stated that, “If all else fails, the government can spend the money” (Davidson). Not only did he think this, he also was convinced that they shouldn’t raise taxes or try to balance the budget. If either of these things were to be done, it would essentially cancel out any positive effect from spending. Keynes seemed to have felt very strongly that his theory was bound to work, as well as the people who followed him and his theories closely. However, economists

According to Hayek, in the first time, Central planning is very difficult or impossible some