31 January 2009
Adam Davidson, National Public Radio
I enjoyed your and Alex Blumberg's Jan. 29 report on the resurgence of Keynesian economics. In your list of anti-Keynesian schools of thought, though, you missed an important group of scholars: the Austrian economists, whose most prominent exponent was F.A. Hayek. Unlike Keynesians and monetarists, Austrians reject the idea that recessions are due chiefly to aggregate demand being too low. Instead, Austrians focus on the time it takes to correct any misdirections of resources caused by distortions in the complex pattern of individual prices.
Sadly, almost no one today has heard of – and even fewer people pay serious attention to – the Austrian theory. But it was once influential. We have it on the authority of the late Sir John Hicks, himself a Nobel laureate economist, that in the mid-1930s "the new theories of Hayek were the principal rival of the new theories of Keynes."
Keynes's theory cannot adequately explain the experience of the 1970s. Perhaps it's time to look again, not at Keynes's work, but at Hayek's.
Donald J. Boudreaux
Don Boudreaux is the Chairman of the Department of Economics at George Mason University and a Business & Media Institute adviser.