Slaves to Defunct Economists

tl;dr: Keynes vs. Hayek. The debate isn’t over yet.

I know I’ve been on a kick about the book,?Devil Take the Hindmost: A history of financial speculation?(blog post), but this is probably the last one, since I just finished it.

During the entire book, as I figured out “ah, every cycle is basically the same movie, but with different actors,” I found myself nodding my head.

Until the epilogue, which starts with a quote from?John Maynard Keynes

“The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else.

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist.”

I guess the question is: “what makes for a defunct economist?”

I don’t know the answer to that, of course, but I found the very last paragraph of the book to be a contradiction to the quote above.

Chancellor writes:

When the tide turns against the speculator there is an inevitable loss of liberty.

In?The Road to Serfdom,?(first published in 1949), the Austrian economist Friedrich von Hayek declared that state control of foreign exchange dealing was a ‘decisive advance on the path to totalitarianism and the suppression of individual liberty.”

Hayek believed that from a mixed economy there would be inevitable progression to socialism.

History has proved Hayek wrong.?[italics mine]

HIs analysis underestimated the power of speculation , even in quasi-socialist economies, to pull the opposite direction. Speculation undermined the Bretton Woods system of fixed currencies and, more recently, it has destroyed the state-managed capitalism of Japan and other Asian nations.

As an anarchic force, speculation demands continuing government restrictions, but inevitably it will break any chains and run amok. The pendulum swings back and forth between economic liberty and constraint.

The book was written in 1999, 50 years after Hayek published his work.

To say, after such a relatively short time (and only 28 years after the gold standard was abolished by Nixon) that “history was proved Hayek wrong” seems to be, as Hayek would say, “a fatal conceit.”

In the last 20 years, the fiat-based economies have continued to expand in their control and power and when the government even thinks that monitoring transactions above $600 makes sense, one could argue that we are on the road to serfdom.

Maybe he’s right. Maybe the pendulum swings back and forth.

But maybe he’s wrong.

As Chancellor’s own book proved frequently, the very regulators responsible for ensuring that speculation didn’t get out of control were, themselves, participating and enabling the speculation.

Maybe there are some “chains” that they can’t break, after all ??