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John Maynard Keynes vs Friedrich Hayek - Research Paper Example

In the period after Word War 2, there was a pertinent economic question that sought to examine the right role that government should play in the economy. According to Keynes, the governments’ role related to the borrowing of funds for spending on pertinent issues like public works. In turn, the deficit spending would be utilized in job creation that eventually increases purchasing power. In addition, Keynes argued that attempts at balancing the budget by the government during a slump would only make situations worse rather than better Arnon, Arie, Weinblatt, and Warren, 23). This was in reference to the Great Depression that occurred between 1929 and 1932. Keynes noted that owing the contraction of economies, governments adjusted by setting up budget deficits through cutting spending and raising taxes. Consequently, he formulated the General Theory in 1936. The theory attempted to explain why recovery was increasingly feeble. To this end, he theorised that in the advent of a major shock, in most cases a drastic drop in investment, there existed no automatic recovery systems in a market economy. Furthermore, the economy would witness a increase in shrinking until it attained a measure of low stability. Keynes termed this phenomenon as “under-employment equilibrium” (Keynes, 35). ...
On the other hand, during an economic boom, the right policy at the Treasury is a hair shirt. To this end, Keynes’s point of view created the foundation for macroeconomics which provided a holistic view on government

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use of deficits, fiscal policy, tax and spending. Moreover, Keynes asserted that such economic tools could be applied in the management of aggregate demand and consequently guaranteed full employment. Friedrich Hayek challenged Keynes economic views. As opposed to Keynes, Hayek was of the opinion that long term recovery from a post-boom crash extended beyond the need for adequate spending. In addition, it called for resumption to sustainable production era distortions due to easy money. To this end, it is critical to note that Hayek was negatively referred to as someone out to liquidate, farmers, labour, stocks and so on. Furthermore, Hayek believed that the primary cause of economic slumps was excessive credit generated by the banks which ultimately led to overspending. Consequently, the slump represented the reality while the boom was majorly an illusion. Hayek equally contradicted Keynes economic views by placing blame on the central planning mechanisms. To this end, he noted that there lacked a mechanism of economic calculation which would influence rationality in decision making when deciding on where to put place resources or purchase a good from somewhere. This was due to a lack of a pricing system capable of weighing alternatives. Consequently, central planners were capable of making technical decision but incompetent at economic decisions. Moreover, Hayek believed that minimal intervention by the government translated to increased economic freedom.


Name Professor Course Date John Maynard Keynes vs Friedrich Hayek Since the end of World War 2, the fundamental and conflicting ideals pertaining to economic freedom between Friedrich von Hayek and John Maynard Keynes have engulfed the economic landscape for a long time…
John Maynard Keynes vs Friedrich Hayek
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