The Personal Relationship of Hayek and Keynes

Hayek and Keynes undoubtedly had deeply conflicting, and at times mutually hostile, views on economics. Their personal relationship, however, was not so bad, as Skidelsky has noted:

“[Keynes] had no personal animus against ... [Hayek], ‘Hayek has been here for the weekend,’ Keynes wrote to Lydia on 5 March 1933. ‘I sat by him in hall last night and lunched with him at Piero’s to-day. We get on very well in private life. But what rubbish his theory is – I felt to-day that even he was beginning to disbelieve it himself.’ This seems to have been the last occasion when they discussed economic theory. Thereafter they corresponded amiably enough about their various antiquarian discoveries. Keynes befriended Hayek during the war, and it was he who proposed him for a fellowship of the British Academy in 1944. He made an unforgettable personal impression on Hayek – ‘the magnetism of the brilliant conversationalist with his wide range of interests and bewitching voice.’ But Hayek never ceased to believe that Keynes’s influence on economics was ‘both miraculous and tragic.’ Hayek remained a bystander as the Keynesian Revolution unfolded; and only started to organise a resistance after Keynes’s death.” (Skidelsky 1992: 459).

Hayek’s harsh judgement on Keynes’s economics is reflected in the videos below.



From 1.00 onwards, Hayek dishonestly states that he accurately “predicted” the inflation of the 1970s (or strongly implies so). In fact, he did no such thing: Hayek himself stated elsewhere that his “prediction” of what would happen in the post-war period was wrong in important respects:

“While on the one hand, immediately after the war I never believed, as most of my friends did, in an impending depression, because I anticipated an inflationary boom. My expectation would be that the inflationary boom would last five or six years, as the historical ones had done, forgetting that then the termination was due to the gold standard. If you had no gold standard—if you could continue inflating for much longer—it was very difficult to predict how long it would last. Of course, it has lasted very much longer than I expected.” (Nobel Prize-Winning Economist: Friedrich A. von Hayek, p. 184).

In the same interview quoted here, Hayek also noted that his trade cycle theory had become less and less relevant (see “Hayek on the Flaws and Irrelevance of his Trade Cycle Theory,” June 29, 2011). As I have shown elsewhere, Hayek’s trade cycle theory as a serious explanation of 1970s stagflation is nonsensical.

In the second video, Hayek states that he never replied to the General Theory because Keynes was always changing his mind. In fact, Skidelsky responds to this:

“… Hayek later repeatedly claimed that he did not review Keynes’ General Theory because he feared ‘before I had completed my analysis he would have changed his mind.’ More likely, Hayek did not want to expose himself to another mauling from the Keynesians. But the decisive reason, as he himself later suggested, was that ‘my disagreement with that book did not refer so much to any detail of the analysis as to the general approach followed in the whole work. The real issue was the validity of what we now call macroeconomics.” Skidelsky (1992: 459).

BIBLIOGRAPHY

Nobel Prize-Winning Economist: Friedrich A. von Hayek. Interviewed by Earlene Graver, Axel Leijonhufvud, Leo Rosten, Jack High, James Buchanan, Robert Bork, Thomas Hazlett, Armen A. Alchian, Robert Chitester, Regents of the University of California, 1983.

Skidelsky, R. J. A. 1992. John Maynard Keynes: The Economist as Saviour, 1920–1937 (vol. 2), Macmillan, London.