On one of my recent trips up to Sydney from Canberra I listened to the debate hosted at the London School of Economics and produced as a program for the BBC with the theme of Keynes vs. Hayek. I listened to the ‘complete’ version availble on iTunesU, posted by the LSE. Keynes is traditionally understood to belong to ‘the left’ and Hayek to ‘the right’. I listened with an accute curiousity that developed into a sense of disbelief. The most sensible voice in the debate was Lord Robert Skidelsky who suggested that a targeted investment program would get most western economies out of the slump they find themselves in. On the other hand, from a systems theory perspective the Hayekian approach seems the most sensible — let the market-based systems sought themselves out, booms and busts equalise over the long term. But, for Hayekians, how does this happen? Representing the Hayekian side is Professor Georg Selgin. In the written version of his prepared speech (Skidelsky’s presentation is also there), Selgin says:
Liquidate, in short, the whole sub-prime bubble-blowing apparatus that was nurtured by easy monetary policy.
That would have meant letting insolvent banks that lent or invested unwisely go bust.
But instead our governments chose to keep bad banks going and that is why quantitative easing has proven a failure.
Quantitative easing failed because almost all the new money the government created has gone to shore up the balance sheets of irresponsible bankers.
‘Irresponsible bankers’? Ok. This sounds great! In fact, both sides of the debate seemed to agree that at a certain point economics becomes a discussion of morals. For the Keynesians it is a question of recognising the humanity of those suffering because of irresponsible decisions mostly by others (i.e. Selgin’s “irresponsible bankers”). On the other hand, the Hayekians argue that governments should not support ‘markets’ (or the legacy organisation of commercial entities that function “irresponsibly”) through spending because that will just encourage further irresponsibility, so the only appropriate response is to weather the downturn and work on making sure it doesn’t happen again when a ‘bust’ rips through a society.
What I do not understand from the Hayekian position, based on what Selgin was saying, is that the unfettered “market” is both the source of freedom and the ‘fairest’ way to distribute responsibilities while at the same time also the mechanism by which agents that constitute the market (i.e. “irresponsible bankers”) are morally censured/reprimanded (or something) so they will not participate in or contribute to unsustainable ‘booms’ again. I was actually shocked by this suggestion. Firstly, that most “irresponsible bankers” couldn’t care less what damage they do to ‘markets’ through their unfettered pursuit of profit, and, secondly, that the ‘market’ is the same mechanism that enables this unfettered pursuit of profit (discussed by Hayekians in terms of ‘liberty’ or ‘freedom’) will also somehow distribute punitive measures to those deservingly responsible. Is there not an inherent contradiction here, where the ‘market’ is asked to do two things at once? I know there are some allegedly intellectual Hayekians so I’d welcome any response that attempted to resolve this contradiction.
Let me frame it another way. Below is a clip of one of the “irresponsible banker”-types that Selgin is discussing. Real capitalists (who are the real problem) do not care where their profit comes from; they game the markets to exploit any opportunity possible. This is a pathological position based on an active disavowal of humanity and the suffering that accompanies the collapse of a market (or for that matter the unethical production of surplus value). (Found via here and here.)
The ‘market’ as discussed by the trader above is not the Hayekian market of Selgin — one that is both the source of ‘freedom’ and moral disciplinarity — it is the market constituted by thousands of capitalists who attempt to embody the most pathological dimensions of capital itself. There is no discussion of the creation of real value and no discussion of how to correct the immorality of previous consitutent participants of an obviously failed composition of the ‘market’. How would a Hayekian respond to the above trader? How would a Hayekian concerned with booms as well as busts respond to the current mining boom in Australia? What mechanisms would be put into place to restrict the irresponsible boom that is currently being created through the commodities market?
Do Hayekians have a concept of a sustainable opportunity? This is my interest in all this. I am thinking about the current state of the journalism industry that can no longer rely on legacy business models from the print-era or broadcast-era media industry. Is there a Hayekian concept of opportunity that is not framed in terms of the entrepreneurial recognition of a capitalist profit that only has to be actualised through a commercial enterprise, but is rather turned towards a sustainable commercial model? I have been researching this and I have not come across anything like the concept of a “sustainable opportunity” in any of the economics/business literature.
This is why Skidelsky’s response seems to be the most appropriate to me. A targeted investment plan does not mean investing money into capitalist enterprises solely designed to realise profit and hence game an inherently pathological market (i.e. the stupidity of the bank bailout), it means investing in projects that will produce real value.