KEYNES-HAYEK: THE GREAT ECONOMIC DEBATE AMONGST LIBERALS BIBLIOGRAPHY: Nicholas Wapshott, Keynes-Hayek: the clash that defined modern economics, Deusto (Spanish edition, Barcelona 2013 ). Friedrick von Hayek, The road to serfdom, Unión Editorial (Spanish edition, Madrid). Monographic issue of the journal Libros de Economía y Empresa, year III no. 3 (2008), on Hayek. Prof. Carles Manera

TWO GIANTS OF ECONOMIC THOUGHT Without doubt, Keynes is the most influential economist of the 20th century. His ideas impregnated the economic policies of western democracies from 1939 to 1980. Little inclined towards socialist theories, his ideology is clearly liberal. His main economic concern: unemployment equilibrium and the fall in prices and demand. His masterpiece: General Theory, 1936. Prof. Carles Manera

TWO GIANTS OF ECONOMIC THOUGHT Hayek is a member of the Austrian School. He is the main author against Keynesianism. His works earned him the Nobel Prize for Economics in 1974, and provided cover for the “conservative revolution” headed up by Ronald Reagan and Margaret Thatcher in the 1980s. Keynes and Hayek always respected one another, within their deep-seated discrepancies. Their economic duel is of great transcendence in our current age, both for the depth of their analyses and for their applicability to the current scenario of the Great Recession. Prof. Carles Manera

The terms of the debate: Keynes and the General Theory (1936) 1. The markets do not automatically generate full employment. During economic crises, there may be long periods of unemployment. 2. The government has the duty to alleviate the suffering of the unemployed with an increase in aggregate demand and demand for services. 3. Increase in public spending: investment to in turn stimulate consumption. Multiplier theory (k): Aggregate demand Income TM= k>1·(C+I) DA Y Prof. Carles Manera

The terms of the debate : Hayek and the Road to Serfdom (1944) 1. Large-scale public spending programmes to end unemployment incite uncontrollable inflation and political tyranny. 2. Socialism and fascism are identical evils. Danger of economic planning and political oppression. 3. To recover, appropriate spending is required as well as the return to standardised production, free from the distortions caused by easy money. 4. The main cause of depressions is the excessive creation of credit by banks, which lead to excessive spending. Prof. Carles Manera

Hayek, the main liberal capitalism thinker Criticism of Keynes: inflationist bias, in the sense that the money created sets off an artificial boom. The effects of the inflationist supply of money causes damage through the credit markets and expenditure on public projects. Criticism of Keynes: of his theories of capital and money. Hayek says that Keynes ignores the intertemporal structure of production and its complementarity in different stages. Criticism of Keynes: he transfers the focus of the analysis of money as a means of changing money as a liquid asset. Prof. Carles Manera

The causes of economic misfortune: the excessive expansion of credit In contrast to Keynes’ vision of an unstable capitalist system, Hayek indicates that the expansion processes of credit, fed by the monetary authorities, are the main reason for expansive-recessive cycles. The adoption of a policy of expansive demand in periods of recession will only postpone the economic adjustments needed to purge the errors of investment made in the past. Thus, Hayek completes the vision of Ludwig Von Mises on the economic cycle. Prof. Carles Manera

The Austrian business cycle theory (Carl Menger, Eugen Böhm-Bawerk, Kurt Wicksell, Ludwig Von Mises, Friederik von Hayek) The artificial expansion of credit not backed by voluntary saving causes a disruption of the entrepreneurial plans of producers and consumers. The monetary interest rate is positions lower than is natural. The demand for investment will be higher than the supply of savings. The savings deficit will be covered by the creation of banking money. And this will cause inflation. The productive structure undergoes alterations, and must be readjusted. Recession is understood as an adjustment process that returns the economy to a new growth scenario, based on voluntary savings and the accumulation of capital. Prof. Carles Manera

Individualism, freedom, market… Individualism, and not collectivity, is the measure of all things. Competence is the best way of coordinating human efforts. State intervention is always necessary, but planning and competence can only be combined when one plans for competence, not against it. It was submission to the impersonal forces of the market that made it possible for civilisation to develop. Prof. Carles Manera

… against planning Planning and democracy clash because planning calls for a certain suppression of freedom. The State should restrict itself to establishing rules for general situations, and allow individuals full freedom. It is they who are familiar with the circumstances of each case, and they will adapt to them. Prof. Carles Manera