Keynes vs. Hayek – April 8, 2013

by aem00

Keynes says that the economy needs to be spending. Money needs to be flowing through the economy so people can work and spend. This means that the government should be the central planner because the private sector can lead to inefficient outcomes. Events like war can help you get out of a recession because the government is funnelling lots of money into the economy and it gets going again as people work. State intervention is required to help those suffering through monetary policies to steer the economy. This will lead to the economy being stabilized. Bailouts and spending during recessions can be necessary in order to get out of the recession.


Hayek is a proponent of classical liberalism, where the market will decide how the economy goes. He says that central planning is a bad thing and will continue to create bubbles that are bad for the overall economy and for people. People should plan for themselves, and that is not the government’s job to do. Government planning will create even more problems. Hayek says that real growth means production of what people really demand which is entrepreneurship not state planning. Austerity is not a good thing and war does not help economies in bad situations. It is not the government’s role to steer the economy and it should not bail out businesses because they will just do it again and not learn. The market will determine what people want and will dictate what comes next.