Sunday, February 12, 2012

Skidelsky on Keynes and Hayek Similarities

Only Two Schools of Thought to Model Crises & Slumps
Sets apart from Classical & Neoclassical schools

Professor Lord Robert Skidelsky, member of the House of Lords, and the one of the UK's preeminent Keynesian economists discusses similarities between Hayek's and Keynes' schools of thought. In this 20 minute clip, Skidelsky explains that during an economic crisis, the Keynesian and Hayekian (Austrian) schools of thought are the points of view which matter most. This is because these are the two most prominent schools of thought which recognize that markets fail and that crises form with some regularity. Aside from predicting that economic and financial crises occur, both school of thought make the attempt to explain how this process occurs.

Under Hayek, it is mal-investment which leads destruction of the capital stock, and ultimately to crisis. Under Keynes meanwhile, elaborated on the effects of uncertainty and volatility, and drops in demand leading to economic contraction. With Classical and Neoclassical schools on the other hand, these events -ARE NOT- predicted to occur. Rather, the assumptions are that all markets clear and that all markets are efficient. Any deviations from this outcome are strictly due to exceptional circumstances and are not really part of the model. Obviously, during a crisis, it does us no good to assume that crises do not occur, except for exceptional circumstances. 

Although the Keynesian and Austrian schools of thought come up with different explanations, and hence different policy solutions, it can be said that both schools of thought have crisis resolution at the center of their intellectual traditions. Furthermore, both schools of thought cite the dislocation and mis-allocation of savings and investment as central to an economic crisis. As such, both schools of thought should be considered to have at least a kernel of useful analysis during and economic crisis. Moreover, the analysis and lessons of both should be considered during times of economic crisis and slump. 

About the Speaker:

Robert Alexander, Barron of Skidelsky is an emeritus professor of economics at Warwick and a member of the House of Lords in the UK. He was elected a Fellow of the British Academy in 1994 and has published an award-winning three-volume biography on J.M. Keynes. 


  1. Is he really an economist? I remember reading his book on Keynes where he states that he is an historian.

  2. He is both. It is not uncommon for economists to have a multidisciplinary background. In fact there are two "historical schools" within the economics discipline, so the combination of economic-historian is not a rare one.

  3. Also, Skidelsky is an Emeritus Professor of Political Economy at the University of Warwick.