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Keynes? Hayek?  Schumpeter?

I was a business major in college and took the basic economics survey courses (macro and micro).  One thing those courses did not do is cover the history of economics in any detail.

Since much of contemporary political debate has become a discussion of competing economic theories (Marxism, Socialism and Capitalism), I felt the need to brush up a bit on these issues.  There are theological implications here as well.  Remember Gordon Gecko's "greed is good" mantra?  How does one justify that, biblically speaking?

Over the years, I've become a big fan of the Teaching Company, because I have been able to fill in the gaps in the crummy education provided me by the State of California.  I've taken a number of courses in music, art, literature and history.  These are university-level courses, and not distinctly Christian in perspective, much less Reformed.  The survey course on the Reformation is pretty good, the course on Luther is so-so, the course on C. S. Lewis is very good.  I do wish they'd dump Bart Ehrman, however, who teaches most of the New Testament and early church courses.  I won't spend a nickel on these.

One class which has been especially helpful to me is "Thinking About Capitalism," taught by Dr. Jerry Z. Muller from the Catholic University of America.  Click here.  All Teaching Company courses go on sale regularly, so I'd wait until this one goes on sale again (hopefully soon). 

This course offers a thorough introduction to many of the economic issues that people in my circle discuss and debate on a regular basis.  There is no math, nor charts.  The lectures are not about the nuts and bolts of economic theory per se.  Rather, the lectures (quite capably delivered, by the way) deal with the history/ideology behind the various economic schools and famous economists (i.e., Smith, Marx, Keynes, Hayek, and Shumpeter).

The lecturer is friendly towards Capitalism, but not uncritically so.  I have found this material very helpful, especially in weighing the Keynes/Hayek debate.  I'm with Hayek for the most part, have come to especially appreciate the work of Schumpeter, and discovered that Keynes didn't advocate everything which is attributed to him by politicians seeking to pack pork into spending bills to "stimulate" the economy.  Like any economist worth the name, Keynes too wanted a balanced budget.

Reader Comments (16)

Keynes and Hayek -- have you seen ""Fear the Boom and Bust" a Hayek vs. Keynes Rap Anthem "?
September 22, 2010 | Unregistered Commenter"lee n. field"
I appreciate Hayek and Schumpeter, but you should really read Mises.
September 22, 2010 | Unregistered CommenterJDLibertas
Thank you for adding your thoughts and input regarding economics on your blog. Please continue to add more. It is very helpful!
September 22, 2010 | Unregistered CommenterScott Dennis
Very informative little rap song and well done I might add. It sums up the major thought and debate between the two better than a lot of articles I have read. However, I think the Hayek versus are a bit more difficult to understand then the Keynes ones. But the little chorus won't get out of my head now: "We've been going back and forth for a century, Keynes: I want to steer markets, Hayek: I want to sent them free. There's a boom and bust cycle, and good reason to fear it. Hayek: Blame the interest rates, Keynes: No, its the animal spirits.

Like most good debates there seems to be a bit of paradox involved- like the divine decree vrs. human freedom and moral responsibility debate. There is something key to the debate but the answer and solution is very elusive and difficult to understand. Which way you go in the debate is the overall determining factor in whether you become a monergist (believer of reformation or covenant type theology) or synergist (believer in a Arminian. semi-pelagian, revivalistic or dispensational type theology).

I went to Calvin College from 1990 to 1994 during the height of the economic debates between Clinton (the moderate democrats who listened intently to Greenspan by the way) and the Bush, Reagan Chicago school advocates (which were a mixture of Freidman, Hayek, Schumpeter, some Austrian and some supply side economics). The Clinton side had some Keynes mixing in with the Greenspan advice who was a defunct libertarian at the the time due to his monetary policy. The policy worked during the Clinton years but produced some bubbles and regulatory problems which we are now dealing with. This is why it is even more hard to follow the debates because there is a mixture of theory going on all the time.

To make a long story short, I went into Calvin a strict Austrian and Chicago School type (I had been reading a lot of the Christian Reconstructionist literature from the mid-1980's until the early 90's; it was also about this time I started listening to the White Horse Inn after reading Michael Horton's Putting Amazing Back Into Grace and subscribing to Modern Reformation magazine) and left unsure of what to believe. I used to follow the debates regularly but have since found other things to occupy my time with. I came to the conclusion that I am definitely for free markets (socialism does not work but the defining of socialism is the problem here; the point when capitalism becomes socialism is also very elusive) but how much we can tweek the markets is what is the main debate. Also, regulatory issues in the bankiing industry and big capital markets are also elusive. I find it ironic that many in the Church are strict libertarians but you may think twice about that after reading articles like this one: :

That is my .o2 cents worth. It is an interesting debate to follow but my addiction to it faded after I realized how complex it gets and you could spend most of your waking hours trying to figure it out. Since I have no policy making vocation in the arena at this time I bowed out and let those with better minds than mine try to hash it out. I do check in with the debate every now and then though but it usually gets frustrating trying to sort out where the person is coming from and what theory he is using for his thinking. As I said most mix theories these days which causes more confusion. Politicians are master distorters too so it behooves one to go to the Wall Street Journal editorial page to get more honest debate. At least they usually tell you the perspective they are coming from.
September 23, 2010 | Unregistered CommenterJohn Yeazel
I also might add that there were some good youtube vignettes of the Hayek and Keynes debates at the rap song video site (sidebars). Some of them are worth checking out.
September 23, 2010 | Unregistered CommenterJohn Yeazel
Kim, I would also recommend the 3 part (6 hour) PBS documentary "Commanding Heights"

John Yeazel - regarding your link: Ayn Rand did not invent limited government, free market advocates. Having similar ideas to Rand on these points in no way suggests affiliation with her anti-Christian philosophy. For example, see the staunch Christian free market defender John Robbins' powerful dissection and refutation of Ran: "Ayn Rand and the Close of Her System"

The bank failure was the result of the Fed, not free market, pro-business philosophy.

I also very highly recommend Robbins' "Freedom and Capitalism"
It is the best treatment of the subject from a Christian perspective, though it is not exhaustive (he died before a systematic treatment could be written)

Kim - as to your question about "Is Greed Good" - I too have wrestled with how to answer that issue from a Christian perspective. I have concluded that from Gecko's materialistic perspective, greed is good. The problem with greed is not that it destroys wealth, but that it destroys the soul. (It may also destroy wealth when that greed leads businessmen to buy politicians to help them in their lust for wealth - an important factor that Oliver Stone conveniently left out)
September 23, 2010 | Unregistered CommenterBrandon Adams

I did not blame the bank failure on free markets although I do lean towards better regulation of the industry. I'm not sure you can only blame the Fed either. It was the Harvard MBA types who were making mortgage loan products more complicated then those who were selling them could comprehend and then bypassing insurance regulations in order to get the products (loans) to market. I guess that is blaming the markets for allowing products like that to become so popular. It was all very complex and even those at the Fed who watch this stuff on a daily basis were duped by it all. They did not foresee its coming at all. Some did and tried to warn the powers that be but they would not listen.

I am not sure you can put this all within a "Christian perspective" either. You would get a good scolding from the 2K advocates if you did. I do realize you can dissociate your economic beliefs from the philosophical perspective of the advocates of certain economic theories. Ideally, one should be able to use his reason to come to economic conclusions regardless of philosophical or theological persuasion. I am not sure how much this (philosophical and theological persuasion) influences someone's reasoning in a field of study. Most Christians I know hop on the free market and libertarian bandwagon with Rush and Beck without listening to or understand the alternative viewpoints. And the discussion can get quite complex when you really look at the issues and some good empirical studies of the problems (such as if regulation of certain markets is called for) facing the particular fields of study. That is all I was saying.
September 23, 2010 | Unregistered CommenterJohn Yeazel
Let me add that these Harvard MBA types walked away with a lot of money and the banks took the hit for buying these loan products from them and then not being able to collect the money on the bad loans from the consumers. It all was very complex. An interesting study would be to follow these guys who thought out these mortgage loan products. They are long gone and choose to remain anonymous. I do not know anyone who has tried to locate these people. That is all cloaked in mystery.
September 23, 2010 | Unregistered CommenterJohn Yeazel
Hi John,

I don't want to hijack Kim's post. You can comment on my post on the topic if you are interested:

To boil it down, the only reason the mortgage loans were successful for as long as they were (people did make money) was because of the increased money supply that created the forever increasing real estate values. In a free market, this would not have happened and these fraudulent loan practices would not have succeeded.

Of course the Fed didn't see it coming. They're fools. Austrians were warning about this collapse in specific detail for a decade.

"I am not sure you can put this all within a "Christian perspective" either. You would get a good scolding from the 2K advocates if you did."

Of course I will, but I prefer to be biblical rather than follow their faulty Natural Law 2K division of life ;) (and no, I'm not a reconstructionist/transformationist)
September 23, 2010 | Unregistered CommenterBrandon Adams
"Let me add that these Harvard MBA types walked away with a lot of money and the banks took the hit for buying these loan products from them and then not being able to collect the money on the bad loans from the consumers."

And under a free market, those banks would have collapsed and all those who put their trust in banks would suffer the consequences. TINSTAFL There is no such thing as a free lunch - and that includes trusting banks with your money. Allowing the free market to dish out free market consequences for bad decisions would prevent bad decisions in the future. When the government spends trillions bailing out bad decisions, it only insures more.
September 23, 2010 | Unregistered CommenterBrandon Adams

I read a couple of those trinity foundation articles and am intrigued. There may be a possibility for a Christian Economics if we are defining what this is properly. A question I have is that we cannot have exhaustive knowledge in this life and our knowledge is analogical not univocal or equivocal. We can have analogical knowledge in regards to theology and soteriology but does that analogical language translate into economic theory? In other words, we know enough analogically for God to get through to us in regards to our redemption but is it enough to produce a theory of economics? I suppose theoretically that is a possibility but the 2K advocates would certainly not agree with you. But that does not seem to bother you. Many of us had a big debate about this at Darryl Hart's old life site (Putting the TR back in Trueman and it got pretty heated- If Kim objects to the discussion here I will certainly continue the discussion at your blog site.
September 23, 2010 | Unregistered CommenterJohn Yeazel

1) IF our knowledge is so-called analogical, that applies to all our knowledge, not just knowledge from Scripture. Therefore secular economics is just as doomed to failure, if not more so, than any biblical economics. In other words, if that is true, we shouldn't even talk about economics.

2) The theory of knowledge you are espousing is unbiblical. See Reymond's Systematic somewhere around page 90 ("God's knowledge and man's knowledge) for a great summary objection.

3) I have tried to interact with Hart:
see also:
September 23, 2010 | Unregistered CommenterBrandon Adams

I do not have access to Reymond's Systematic so that is unhelpful. If you link it for me I will certainly read it. My point about analogical knowledge was that God reveals much to us about our redemption and not so much about economic theory. God knows exhaustively, we know only what he chooses to reveal to us. God is on a different plane than us so His knowledge is different than ours. So, our knowledge and God's knowledge are not univocal. He does reveal analogical knowledge to us in His word but in our falleness we suppress this truth.

Since the Bible is primarily a book about our redemption in Christ I find it hard to comprehend that a detailed economic theory can be extracted from its pages. Just as I find it difficult to believe that one can extract a detailed political theory and biological theory from its pages. One can draw presuppositions about fields of study but how detailed this can become is what I am questioning.

How do you Clark and Robbins followers distinguish yourselves from reconstructionists and transformationalists? What makes you guys different from them? You obviously have problems with Van Til but I am not sure on the reasons for why the split took place between Van Til and Clark. You Reformed types are always splitting with each other about something.
September 24, 2010 | Unregistered CommenterJohn Yeazel
The issue is about foundations. Every system needs proper foundations and if you start with unbiblical foundations, you'll end up with a failed system. The founding fathers started with the foundation that man is evil, not good, and built their political theory largely around that central idea.

Austrian economics is deductive, not empirical like the Chicago school. Mises wrote his magnum opus "Human Action" by starting from one premise: humans act. The system is one of deduction and we simply need biblical guidelines and foundations for those deductions. See Robbins' "Intermediate Economics" MP3 lectures for more on this.

As for separating myself from transformationists - it's somewhat simple: I'm not interested in transforming culture. I'm interested in proclaiming God's name and saving individuals. That may end up in a transformed culture, but that is not the goal and it is not what I devote my time and energy to. Furthermore, I'm amillenial not postmillenial, which makes a difference. As a Christian, however, I need answers to a lot of questions in life, and I believe the Bible is a reliable guide and foundation for answering those questions. Of course, the Bible does not provide instructions for building a combustion engine, but that's not the point. As for Robbins, see the numerous articles on his site critiquing Reconstructionists (search for the term, or search for North, James Jordan, Bahnsen, etc). See also his quote here

As for the Clark/Van-Til controversy - it wasn't really a split. Professors at WTS attempted to make Van Til's idiosyncratic epistemology a matter of confessionalism and therefore they attempted to defrock Clark for his disagreement with Van Til after he was ordained in the OPC. Clark eventually prevailed, but long story short he was wounded and tired of devoting his energy to continuing to fight over the issue in the OPC so he left for another denomination. Here are some intros to the issue:

Many will attempt to bully you and tell you all kinds of nasty things about Robbins and Clark. Just do yourself a favor and read them for yourself.
September 24, 2010 | Unregistered CommenterBrandon Adams

I read those articles and am not convinced that Scripturalism is a valid philosophy that you can use in developing a world and life view. I also came across these articles: and they were more convincing to me. However, I am not adequately trained in philosophy to have much significant to say accept your view seems to have lots of problems. I still find it hard to believe that you can come to the economic conclusions you come to also based on the philosophy you think from.
September 28, 2010 | Unregistered CommenterJohn Yeazel
I meant except rather than accept.
September 28, 2010 | Unregistered CommenterJohn Yeazel

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