07: Rethinking Economic Theory: A Return of the Masters?

Friedrich A. von Hayek and John Maynard Keynes were both neglected for many years but later received much more attention when economists found themselves facing unexpected problems. With the collapse of communism, there was renewed interest in Hayek s analysis of the workings of market economies and of the problems of socialism. After the financial crisis of 2008, there was a revival of interest in Keynesian policies to prevent a global depression. However, both of these economists pose a theoretical challenge for modern economics, which has become highly formalized. For many years, economic theory has been dominated by methods that can be traced back to Leon Walras and William Stanley Jevons, writing at a time when physics was seen as the science that economics should emulate, and making economics look more and more like a branch of applied mathematics.

The purpose of this seminar is to compare and contrast the thoughts of Hayek and Keynes: two scholars who  though they disagreed over issues of economic theory and economic policy  were both sceptical about whether economics could become a mathematical science. Given the many areas where economic theory has failed to provide reliable guidance, from the performance of transition economies to diagnosing and dealing with the recent financial crisis, there is great interest in turning to past economists who may be able to provide ideas about how economic problems should be tackled. In their different ways, Hayek and Keynes both provide perspectives on capitalist economies that are informed not only by judgements about technical economic theory but also by politics and ethics.