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Tuesday, August 9, 2011

Hayek versus Keynes

George Selgin, professor of economics at the University of Georgia’s Terry College of Business and a Freeman contributor, debated Robert Skidelsky of the University of Warwick on the merits of F. A. Hayek’s and John Maynard Keynes’s views on booms and busts. The debate was held at the London School of Economics, where Hayek taught for many years, and was sponsored by BBC Radio 4. Selgin is a leading exponent of free banking and the author of several related books. Lord Skidelsky is a biographer of Keynes. Selgin’s debate partner was Jamie Whyte, a management consultant. Skidelsky was supported by Duncan Weldon, an economics blogger.

The debate focused on Keynes’s view — and Hayek’s critique of it — that once an economy is mired in deep recession, the only solution is for the government to borrow and spend in order to increase aggregate demand and stimulate investment and job-creation. Thus for Skidelsky, cutting government spending is precisely the wrong thing to do. Selgin, however, insisted that government spending impedes recovery by depriving the private sector of capital for investment. He said that government spending, whether on digging and filling up ditches or bailing out insolvent banks, is a tragic mistake with many ramifications. Selgin also drew attention to the artificial boom created by central bank money creation, without which there would be no bust. “The economy is like a drunk throwing up the morning after the night before,” Selgin said.

You can download the 44-minute audio file here. Read accounts of the debate here and here.

Though I am admittedly biased, I believe Selgin and Whyte carried the day. The large audience came in decidedly pro-Hayek — and left that way as well.

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.