I’ve just finished reading Nicholas Wapshott’s enjoyable book Keynes-Hayek: The Clash That Defined Modern Economics. I’ll be writing a full review for The Business Economist, so will save the detail for then. But one thing that struck me was actually a striking similarity between the two of them, compared to the kind of macroeconomics prevailing since the 1940s. That is the role dynamics played in their thinking. I mean real dynamics, one kind of reaction following another, unfolding in time and not in the abstract. Keynes clearly saw this as a disequilibrium process, Hayek as a process that was extended over time because of the role of investment and capital.
Keynes Hayek: The Clash That Defined Modern Economics
What a contrast in either case to the comparative statics, giving way to the instantaneous solving of differential equations, that has characterised modern macroeconomics. Post-crisis, we know the modern macro is wrong, a discredited intellectual framework. Who knows yet what will crystallise the new consensus – but it has something to take from Keynes and Hayek.
As it happened, as I finished the book, Tim Harford alerted his devoted Twitter followers to this blog by Greg Fisher looking at Hayek through the prism of complexity theory. Very interesting.