The Debate Continues: Keynes, Pigou, & co. vs. Hayek, Robbins, & co.

|Peter Boettke|

We have been hearing a lot lately about the parallels between the 1930s and today.  And there are concerns about policy measures, such as raising taxes (and to some cutting spending), in the middle of a recovery which will set back any recovery.  Personally, I have argued throughout the current discussion that our policy steps have consistently turned a market correction into an economy wide crisis, and nothing in terms of argument or evidence has persuaded me to the opposite of that position yet.  There is so much regime uncertainty caused by the policy steps of the past two administrations, and such bad policies followed that distort incentives and confuse the economic signals actors rely on in making decisions that it is a miracle that our situation is not worse.  And I would stress that there is a significant difference between cutting public expenditures and raising taxes on individuals and businesses; cutting wasteful government spending is a good, taking money out of the hands of individuals is a bad.  Recovery requires government to get lean and out of the way, and individuals to pursue opportunities for mutual gain through trade and wealth creating entrepreneurial ventures.

But the purpose of this post is not to debate my position, but instead to provide a link to the discussion that took place in the early 1930s in competing letters in the Times of London from the two different sides on "fiscal stimulus". Download Cambridge_vs._LSE,_1932  The debate continues ...

HT: Richard Ebeling.

Comments

[Mario Rizzo]

It is amazing that these letters could have been written today by each side in the debate. BTW, just to further emphasize that the idea of fiscal stimulus did not originate with Keynes, see "Chicago, Keynes, and Fiscal Policy" by
E.P. Caldentey: http://www.cfeps.org/pubs/sp-pdf/sp7-perez.pdf

And while you are at it, I posted something at ThinkMarkets on these letters:
http://thinkmarkets.wordpress.com/2010/06/30/keynes-versus-hayek-past-is-prologue/

[Jerry O'Driscoll]

Further to the origins of fiscal stimulus being at Chicago, not Cambridge:

J. Ronnie Davis, The New Economics and the Old Economists.

[Greg Ransom]

Hoover and Sen. Wagner were followers of Foster and Catchings and their advocacy for fiscal stimulus in the 1920s.

An early draft of Keynes' General Theory shows that Keynes was a follower as well.

A good case can be made that Keynes made F& C respectable for Marshall trained economists -- and then buried the evidence.

[Greg Ransom]

The influence of Foster & Catchings both on academic economists and the public arena is massively under acknowledged in the current literature.

I don't think this is an accident.

[Greg Ransom]

I've typed up Hayek's letter here:

http://hayekcenter.org/?p=3057

[Steve Horwitz]

Foster and Catchings were Krugman without a Nobel Prize.

[Peter Boettke]

The conversation at ThinkMarkets is very good on this ... http://thinkmarkets.wordpress.com/2010/06/30/keynes-versus-hayek-past-is-prologue/#more-3522

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