Great Debates in Economics: Keynes vs Hayek
2. Keynes believed that it was a waste to save money and it only lead to destruction and prevent economic growth. He didn’t agree with private investment. He felt by keeping money in your pocket is senseless because soon we will all be dead. You can’t take the money with you. He also felt that the government should increase spending during times of recessions. Hayek believed that you must save money so that you could later invest the money wisely. He felt time would multiply your interest. He felt that time did not matter. He believed the same principles of the economy that applied in the 1920 still applied in 2005. The solution was not to print more money, but to invest the money the money saved.
3. Keynes and Hayek had major disagreements. Keynes feels that his efforts to stimulate the economy worked. He felt his success was noted even in 2009. He felt that more government spending would have led to more economic growth. Keynes felt the acts of war were unfortunate; however, there is no denying it stimulates the economy. Hayek disagreed with war. He felt that war should not be a tool to stimulate the economy. He felt that it only destroyed other economies leaving them in despair. He felt that Keynes did not address the true issues. He stated that consumption shrank and scarce resources were misused. Keynes stated that people were taken off production jobs to be employed by the military. He felt the investment made in wars would not correct market failures and would not assure an equitable distribution of income. He felt more damage was done that good.
4. Keynes believed that the development of policies and government intervention would reduce economic instability and correct market failures. Hayek believed that the economy’s stability was determined by the market participants and the decision makers along with incentives to engage in productive commerce.
Reference: Microeconomics, 14e, Gwartney, Stroup, Sobel, Macpherson www.reuters.com www.adamsmith.org
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