The Relationship Between John Maynard Keynes And Hayek

The central question posed in the battle of ideas is determining what the relationship between government and the market should be, posed between John Maynard Keynes and Friedrich Hayek. This is also the central theme of Rodrik’s book. Keynes thought society should have a global market with free flowing trade. He had a bohemian social circle and activist outlook on the world. Keynes was the first to associate the economy with GDP, unemployment rates, rate of inflation in response to the world economy collapsing. Roosevelt’s governmental intervention through social programs and the creation of jobs in building railroads, illustrated Keynes’s ideas for the relationship between government and the market. When it is needed, government should intervene in the market. This was ultimately government regulating capitalism

Hayek views towards inflation became his foundation for viewing economics. In Hayek’s eyes, inflation became the antithesis of democracy because of its effects from hyperinflation deteriorating the middle class during World War 1, and resulted in the rise of the Nazi’s. Hayek equated government planning to power, neither of which he believed government should have a significant amount of. Hayek believed that too much government power led to an enslaved citizenry, so by implementing Keynes’ methods, a state was on the slope of totalitarianism. His thesis was that freedom was an axiom and therefore the market system had to work itself out, that times of crisis were unavoidable and would work themselves out. Hayek was globally deemed to have been on the wrong side in his economic debate with Keynes. One of Rodrik’s primary ideas is the concept that because the international system is anarchic, it created higher transaction costs. These costs can be minimized domestically through government