Keynes v. Hayek

The Austrian economist Friedrich Hayek was Keynes's most prominent contemporary critic.

In Hayek's view the main causes of economic crisis were undesirable interventions in the 'natural' market place. He advocated to eliminate the imperfections in markets; especially state interference, monopolistic markets in the factors of production (strong trade unions, for example, or over-concentrated financial sectors), and artificial controls on prices. Hayek felt that application of Keynes policies gave too much power to the state.

Keynes believed that Hayek's acceptance of 'natural' market mechanisms was naive and failed to explain the major movements in the world economy and in national developments.

After the outbreak of World War II, Keynes's ideas concerning economic policy were adopted by leading Western economies. During the 1950s and 1960s, the success of Keynesian economics (maintaining high employment, stable prices, balance of trade) resulted in almost all capitalist governments adopting its policy recommendations, promoting the cause of social liberalism.

Keynes's influence waned in the late1970s. Hayek's ideas and those of Milton Friedman were more influential so that governments were seeking to be less engaged in intervention and more concerned to improve the unimpeded operations of markets.

However, the advent of the global financial crisis in 2007 has caused a resurgence in Keynesian thought. Keynesian economics has provided the theoretical underpinning for economic policies undertaken in response to the crisis by Presidents George W. Bush and Barack Obama of the United States, Prime Minister Gordon Brown of the United Kingdom, and other global leaders.

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