Tim Congdon reviews Wapshott in the TLS, and in the process repeates the often made error in intellectual history that thinkers like Krugman continually make --- namely, to deny that Hayek was a serious intellectual rival to Keynes in the 1930s. As Congdon puts it:
But Wapshott’s book has misrepresented the relative importance of the numerous debates waged by economists, and not just by Keynes and Hayek, in the 1930s. Both the title of the book and the weight of the narrative in the early chapters give the impression that Hayek’s review of Keynes’s Treatise was “the” clash – almost the one and only clash – that defined modern economics. It was no such thing. Bluntly, in the late twentieth century, the dispute between Hayek and Keynes in the early 1930s was regarded by the overwhelming majority of economists as a sideshow to a range of other intellectual battles. Wapshott’s readability may dupe non-specialist readers into thinking that Hayek’s monetary theorizing as a young man was and remains the principal intellectual rival to Keynesianism. That is just not so.
The truth is that Keynes overwhelmed Hayek, simply by making more interesting and relevant statements. Of course, the roundaboutness of production under capitalism may sometimes lead to waste, but that does not justify government inactivity. Economists have squabbled about many things since the 1930s, including the relative effectiveness of fiscal and monetary policies in a world where governments “do something” about deep recessions. But the case for policy activism of some kind is fairly uncontroversial. The concepts and ideas that figured in the Keynes–Hayek debate of 1931 have hardly ever been mentioned in the subsequent debates.
By the 1950s, Hayek was a marginal figure in Anglo-American macroeconomics.
Read carefully, Congdon is simply making an accurate observation --- that the Keynesian avalanche had indeed swept Hayekian macroeconomics aside by the 1950s and 1960s. But I would argue that he gives the reader the wrong impression that the debate was settled in 1931, and did not continue through the 1930s and into the 1940s, and that Hayek's ideas were never seriously considered again after that. And more importantly, that the way the debate evolved was as it should have been because some form of activism is better than doing nothing at all, which was Hayek's advice.
But I wonder why in these sort of discussions the vast majority of individuals do not refer back to Sir John Hicks's "The Hayek Story" (1967), or even to the work by Robert Lucas on the equilibrium theory of the business cycle, and his link to Hayek's "pre-Keynesian macroeconomics". On the actually history of this time period, it might be useful for the various participants in these discussions to look closely at Bruce Caldwell's work, both in The Collected Works volume on Hayek's battle with Keynes and Cambridge, and Hayek's Challenge. And for a detailed discussion of the unity in Hayek's analytical thoughts between the problems of imputation, the problems of the manipulation of money and credit, and the problems of socialism, they all could benefit greatly from reading closely Gerald O'Driscoll's Economics as a Coordination Problem. Finally, all of these discussions would benefit greatly by looking closely at the work of Larry White, and in particular his carefully researched work on Hayek's policy recommendations in the 1930s. Hopefully, Larry's new book --- due out this spring --- The Clash of Economic Ideas (Cambrdige, 2012) --- will sort all this out so we can stop repeating the false narrative historically, analytically, and with regard to public policy.