Tuesday, June 7, 2016

Hayek and Keynes

The question of trade brings up the matter of independent national economies, which gives rise to the notion of globalization and the supranational state.

David Glasner, What’s So Bad about the Trade Deficit?:
It almost seems tedious to do so, but it apparently still needs to be pointed out that buying less from foreigners means that they will buy less from us for the simple reason that they will have fewer dollars with which to purchase our products.

Thus, even if reducing imports increases employment in industries that compete with imports, it must also reduce employment in export industries.

If you are a globalist, if you like the idea of sacrificing national sovereignty at the altar of an as yet undefined universal state, perhaps the trade deficit is no problem for you.

If you'd prefer to preserve the nation-state, you probably think more domestic employment on domestic production, and less on exports, is a good trade-off.

From The Road to Serfdom:
An international authority which effectively limits the powers of the state over the individual will be one of the best safeguards of peace. The international Rule of Law must become a safeguard as much against the tyranny of the state over the individual as against the tyranny of the new super-state over the national communities. Neither an omnipotent superstate nor a loose association of "free nations" but a community of nations of free men must be our goal.

Hayek approaches the question from a political point of view, placing the individual above both state and superstate. Hayek would not support the European Union.

Keynes approaches the question from an economic point of view. From The General Theory of Employment Interest and Money:
I have pointed out in the preceding chapter that, under the system of domestic laissez-faire and an international gold standard such as was orthodox in the latter half of the nineteenth century, there was no means open to a government whereby to mitigate economic distress at home except through the competitive struggle for markets. For all measures helpful to a state of chronic or intermittent under-employment were ruled out, except measures to improve the balance of trade on income account.

Thus, whilst economists were accustomed to applaud the prevailing international system as furnishing the fruits of the international division of labour and harmonising at the same time the interests of different nations, there lay concealed a less benign influence; and those statesmen were moved by common sense and a correct apprehension of the true course of events, who believed that if a rich, old country were to neglect the struggle for markets its prosperity would droop and fail. But if nations can learn to provide themselves with full employment by their domestic policy (and, we must add, if they can also attain equilibrium in the trend of their population), there need be no important economic forces calculated to set the interest of one country against that of its neighbours.

Keynes, like Hayek, had no need of the European Union.


The Arthurian said...

If nations can not learn to provide themselves with full employment by their domestic economic policy, no political restructuring will help.

The Arthurian said...

Joining the EU was the political restructuring. Getting out is getting back to normal.

David Glasner said...

We can't know what Hayek would think about the EU today, but I know that in the late 1960s Hayek favored Britain's entry into what was then called the Common Market. I know that he favored Britain's entry because he told me so when he was visiting UCLA in the 1968-69 academic year.

The Arthurian said...

Thank you for the visit, sir. I find your blog most interesting -- right up to the point where my brain gets overloaded :) And you are right, we can't know yadda yadda yadda. Clearly, however, Hayek rejected the "omnipotent superstate".

And clearly, the Common Market and the European Union are different animals. The EU presents an unstable equilibrium which must either disband or move toward that universal state.

Disband. Let nations learn to provide themselves with full employment by their domestic policy. If this cannot be done on the national level, then it cannot be done on the superstate level.

David Glasner said...

As an American, I don't have a well-thought out opinion about the EU, but any institution that inspires the extreme antipathy of Vladimir Putin cannot devoid of good qualities.

The Arthurian said...

argumentum ad hominem