Keynes v Hayek: Two economic giants go head to head
Lending rates hit all time highs.
Banks are squeezing households by record amounts with high interest rates on overdrafts, mortgages and credit cards, despite the Bank of England base rate being at an all-time low.

Figures from the Bank of England (BoE) show that the gap between the interest being charged on the average mortgage and the central bank’s base rate of 0.5 per cent are the highest since records began in January 1995 Photo: REX FEATURES
Figures from the Bank of England (BoE) show that the gap between the interest being charged on the average mortgage and the central bank’s base rate of 0.5 per cent are the highest since records began in January 1995.
The average lending rate on overdrafts is 19.5 per cent, also the highest since comparable records started.
Credit card holders are also being hit. The average interest rate being charged on credit cards is 17.3 per cent, the highest for 11 years, the BoE said.
Experts accused banks of profiteering at a time when lending rates should be low. The BoE’s base rate has been at its current low rate for three years.
WHO KNOWS THE REAL TRUTH?
Keynes is perhaps one of the best known of all economists. This is hardly surprising for two main reasons. The first is that his work was perhaps the most important work that had been done for decades and changed the whole face of post-war economic policy. The second, more flippant reason for his fame is that he is perhaps the only economist to have a whole branch of economics named after him. Though it would be nice to argue that
Milton Keynes was named in tribute to the work of two great economists -
Milton Friedman and John Maynard Keynes - it would be totally untrue! So Keynes remains the only person to be honoured in this way.
His main contribution to the economics debate of the time was in putting together a coherent critique of the existing
classical economic theory that dominated policy-making circles. Keynes' father was an economist and his mother was Mayor of Cambridge for some time.
Keynes went to Eton (as a scholar) and then went on to King's College Cambridge to study Classics and Maths. He worked for a short time in the Civil Service but didn't like it much, and so left and went back to Cambridge as a Fellow. In 1911 he was made editor of the
Economic Journal - Britain's foremost economics publication.
He was a varied character - not at all the stereotypical economist of people's assumptions. He married a
Russian ballerina and was for much of his time a member of the
Bloomsbury Group - a group of intellectuals whose ranks included well-known names such as
Virginia Woolf,
E.M.Forster and
Bertrand Russell. He speculated considerably and as Bursar of King's College made the college very rich! He also acted as an advisor to a number of companies. In the
Second World War he made his peace again with the
Treasury. As a result he was instrumental in providing the framework for post-war economic recovery.
Economists - Friedrich August von Hayek (1899-1992)
Hayek, like Friedman and most other Monetarists was a great believer in free markets. Also like Friedman Hayek was awarded the
Nobel Prize in Economics. This was given jointly with another economist called
Myrdal in 1974 - just after Friedman received his Nobel prize. However, there the similarity ends - initially. Hayek, as you can guess from his name is Austrian and so is often considered as being a part of the '
Austrian school'. He was a passionate opponent to
Socialism and along with another economist called
Ludwig von Mises formed the
Mont Pelerin Society. This society was pledged to give individuals the freedom to make their own economic choices and campaigned to make people aware of the dangers of Socialism.
Hayek was born in
Vienna and from 1927 until 1931 was Director of the
Austrian Institute for Economic Research. However, he was then drawn to the English-speaking academic world initially at the
London School of Economics, but then at the
University of Chicago from 1950 until 1962. Here the Monetarist connection becomes clear, as the
Chicago School of Monetarists at Chicago University was where
Friedman was based.
Hayek returned to Austria as a Visiting Professor of Economics at the
University of Salzburg in 1969. For more details on his work and theories follow the links below.