Preface by Arthur Seldon

The purpose of the Hobart Paperbacks is to discuss, in the spirit of what was once called ‘political economy,’⁴ the influences which affect the translation of economic ideas into practical policy and the economics of government activity. In the first Paperback Professor W.H. Hutt examined the notion that some ideas are not adopted because they are considered to be ‘politically impossible.’ In the second Mr. Samuel Brittan analysed the consistency of British Government economic policy since June 1970. In the third Mr. W.R. Lewis analysed the conflict between ideas and policy in the aspirations of the Treaty of Rome and the performance of its interpreters at Brussels.

The translation of economic thinking into government action is perhaps nowhere more vividly illustrated than in the work of John Maynard Keynes. He was the most influential economist of our times, his ideas have influenced governments of all philosophic flavours more than any other economist. Yet it is not clear that his work will survive longer than that of some of his contemporaries. Perhaps no economist more than Adam Smith has had both early influence on government policy and enduring influence on the thinking of economists of succeeding generations. The extent to which economic ideas are adopted by government does not necessarily reflect their contribution to fundamental economic truths. The reasons for their adoption may range from respect for the new insights they show on the working of the economy to cynical political expediency. If it is true that a prophet is without honour in his own country it may be that the economists who most benefit mankind are without honour in their own times.

The powerful intellect of J.M. Keynes, his persuasive writing, and his capacity to formulate economic theory as specifics for government action not only made him the dominant economist, but also muted the doubts that some economists had about Keynes from The General Theory of Employment, Interest and Money, published in February 1936, and even earlier. Even though Keynes warned as early as 1945 of some of his followers who had gone ‘sour and silly’, and he seemed to be retreating in 1946 from his supposed demolition of the ‘Classical’ economic thought, his teachings have continued to dominate not only economic thinking in government but also economic teaching. G.D.H. Cole once wrote a book What Marx Really Meant; there may be debate for years to come on what Keynes really meant. Some economists never accepted the Keynesian system. They included not only A.C. Pigou, D.H. Robertson and others at Cambridge, but also the lesser-known but tenacious W.H. Hutt who, in his Economists and the Public, published seven months after The General Theory, warned against its inflationary implications, and in several other works that should be better-known than they are maintained that Keynes’s analysis incorporated decisive defects.

The outstanding critic who was never persuaded by Keynes’s analysis is F.A. Hayek, the Austrian scholar, who was teaching at the London School of Economics in 1936, and who has kept his British passport despite subsequent teaching posts in America, Germany and now in his native Austria.

Long before The General Theory Professor Hayek wrote a critique of Keynes’s 1930 Treatise on Money. In the last 40 years he has written periodic criticisms of the Keynesian system, although at one stage he withdrew from the debate on monetary policy because he considered that Keynes, and the Keynesians, were not discussing the aspects that seemed to him fundamental.

The fourth Hobart Paperback comprises a series of 17 extracts from his writings and lectures, two from Keynes and one from F.D. Graham of Princeton University. They were assembled and are introduced by Miss Sudha Shenoy, an Indian economist who has studied and worked mainly in Britain. Together with a new essay written in July 1971 these extracts form an introduction to Professor Hayek’s writings to which economists may wish to return, and which may induce others to consult for the first time.

Professor Hayek’s writings prompt the reflection that the work of an economist should not be judged by the notice taken of him by politicians or even by other academics of his day. Why was Keynes so influential in his time and Hayek’s (and other economists’) reservations ignored? Why has Keynes dominated economic teaching for so long? How far is Keynesianism responsible for the acquiescence in post-war inflation? Are the doubts of many economists about Keynes now to be reflected in government thinking? Is taxation, as Keynes taught, still regarded as deflationary, or is it at last being seen that high tax rates and large deductions from earnings are inflationary? Has the Keynesian emphasis on macro-economics distracted attention from the structure of relative prices and costs that emerge from micro-economics?

This Paperback is offered as a contribution to the reconsideration of Keynesianism in the 1970s for teachers and students of economics, for policy-makers in government, for the civil servants who guide or misguide them, and for journalists who are sometimes more concerned with the fashionable than with the fundamental in economic thinking.

— Arthur Seldon

October, 1971

⁴Professor T.W. Hutchison, Markets and the Franchise, Occasional Paper 10 (London: IEA, 1966).