Keynes vs. Hayek

Corey Robin draws an interesting, perhaps flawed, connection between Nietzsche and the Austrians. Robin is aware of his critics, and highlights Kevin Vallier critique from the right, On Robin’s Tenuous Connection between Nietzsche and Hayek, and Philip Pilkington's from the left, The Ideology to End Ideologies – A Response to Corey Robin on Nietzsche, Hayek, Mises, and Marginalism.

I'm somewhat unique. I'm a fiftyish economics undergraduate student who thought and read a lot about economics before I started school, and I have a pronounced Marxist bias. I've also spent many years reading as a lay person about physics and meta-physics (i.e. how physicists and philosophers think about the task of "doing physics").

In a related article Marginal Utility Theory as a Blueprint for Social Control, Pilkington believes that the marginal theory of value is simply absurd, resting on obviously false assumption, and leading to a picture of reality so far removed from the actual reality that it has no real intellectual value at all. In Eb on What they Teach in School, the inimitable Buce weighs in, albeit peripherally.

Even as a Marxist, however, I'm not so sure.

One idea that was drilled into my head in my studies in physics is that a model is a model. The map is not the territory. I look at all the marginalist models I've just finished learning in Intermediate Micro and Macro (the last time, I think, an economics undergraduate will ever look at the underlying models), and I see, well, models. Given some assumptions that seem to hold (or at least be useful) sometimes, they seem to provide some insight into some kinds of behavior. Some sometimes some some. Physicists seem to have few conceptional problems with some and sometimes. I don't see any fundamental metaphysical conflict between the marginal theory of exchange value and the Labor Theory of exchange value; indeed I wrote a paper on the subject: The Labor Theory of Value.

As I see it, there are two fundamentally competing metaphysical views on economics, and these views compete on the descriptive, normative, and valuative levels.

In the descriptive sense (according to my admittedly half-expert understanding) the marginalist/Austrian view, and especially the neo-classical macroeconomic view, maintains that the economy is always in the one and only socially optimal equilibrium, no matter what we might observe happening. There are no "technical" fixes that can be made by anyone, especially the government. The underlying physical fundamentals of the economy — technology, productivity, physical and human capital development — can and do change, but they change only slowly, and it takes a lot of work to change them. All interventions to try to change our economic behavior without changing the fundamentals move us away from equilibrium. The market will adjust automatically and quickly, so the best these interventions can be is ineffective. When interventions are extreme enough to actually alter our economic behavior, the do their worst: they force us to stop trying to change the fundamentals and actively work just to restore the equilibrium the government has disturbed. Hence the response to the Nixon stimuli was the Volker recession. The marginalist/Austrian view in this sense is: it ain't broke; don't try to fix it.

In the descriptive sense, the competing Keynesian view maintains that the economy can, sometimes, be persistently out of equilibrium, or stuck in a socially sub-optimal equilibrium. Individual consumers and firms often, but not always, correct economic imbalances; when they cannot, the government must step in to correct it. The government, in the Keynesian view, is hardly perfect, and they can err; it is a distortion of Keynesianism to say that whatever the government does is good. However, the government can, at least sometimes, do good.

Intertwined with these descriptive views are normative views. In the marginalist/Austrian view, the market outcome is by definition the socially optimal outcome. Not only is the market always in equilibrium, it is always in the socially optimal equilibrium, by definition.

In the Keynesian view, the market outcome and the socially optimal economic outcome, while related, are substantively different things. I'm not talking about values and outcomes that are fundamentally outside the realm of economics; I'm talking about purely economic outcomes. For example, market outcomes tend to produce income and wealth inequality; we might decide, socially, that less inequality is a more socially optimal economic outcome, even though the "market" must be "distorted" to achieve this outcome.

The question of values is not quite as clear. In The Reactionary Mind, Corey Robin makes a strong case that "reactionaries" (i.e. marginalists/Austrians) view political inequality as a positive virtue. Descriptively, political inequality exists when some individuals have the power to arbitrarily command other individuals. (The notion of individual, arbitrary command is different from socialized command, e.g. submission to democratically agreed-upon constraints on behavior.) Reactionaries, according to Robin, think that relations of individual domination and submission are not only a virtue, but the primary, fundamental raison d'être of human civilization. Keynesians value political equality, the state where no individuals can arbitrarily command others.

There's nothing disreputable per se about having political values, and seeking to express those values in a society. Furthermore, all political expression of values involves some degree of coercion and imposition. If the marginalists/Austrians value political inequality, that's what they value, and they are just as much citizens and human beings as I am. I cannot expect but that they will try to express — and, to some degree, coerce and impose — those values in a society. There is, however, something fundamentally disreputable in describing reality inaccurately, intentionally or ignorantly, in order to achieve the political expression of one's values.

Thus, the Keynesian critique of the reactionary, the Austrian, the marginalist, etc. takes place at two levels. The first is on the level of competing values. The Keynesians want political equality; the Austrians want political inequality. They Keynesians are going to like democracy; the Austrians are not going to like it. I know I personally like Keynesian values more than Austrian values, but there is no objective sense with which we can scientifically say that one is more accurate than the other. All we can do is discover who has sufficient will, power, cleverness, skill, and ability to make their values preeminent in society.

The second level of critique, however, goes deeper. We Keynesians assert that in addition to the legitimate and reputable project of imposing their values on society (just as we legitimately and reputably seek to impose our own values on society), the Austrians are guilty of inaccurately describing objective reality. The sort of marginal analysis they use is, while useful and applicable under certain circumstance, not a universal description of economic reality. The sort of perfectly competitive markets they talk about when they assert that markets lead, by definition, to socially optimal outcomes, do not actually exist in reality, and the few markets that even approximate perfect competition are rare, limited, and usually separated from ordinary consumers by a layer of monopolistic or oligopolistic markets. And, as Marx has shown, if all capitalist markets were in fact perfectly competitive, capitalism would self-destruct. That capitalism has not (yet) self-destructed does not by itself disprove Marx; it shows only that capitalists are not, in fact, actually capitalists in an economic sense. Capitalists have enough intelligence to know that they cannot subscribe in practice to the ideology they endorse in theory.