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James Grant: Hayek Versus Keynes

Great article by James Grant from the weekend edition of the WSJ on the different economic philosophers, including Friedrich Hayek, Irving Fisher, John Maynard Keynes, Karl Marx and others, based on his book review of "Grand Pursuit: The Story of Economic Genius."

Irving Fisher, too, gave a better account of himself in theory than in practice. There was seemingly nothing that didn't interest the tireless Yale economist. He made time for the hard sciences and the soft. He was an entrepreneur, scholar, exercise fiend, Prohibition exponent, paper-money zealot and eugenics advocate. Attempting to develop a model of the U.S. economy, he didn't just settle for a mathematical exposition but designed and built a hydraulic contraption to raise his ideas to the third dimension. They called him a genius.

Like Keynes—indeed, like Milton Friedman—Fisher had no time for the gold standard. Economists could do better with paper money, he insisted. Actually, economists have not done better with paper money. Of Friedman, a later monetarist, an exasperated critic once said he wished that he (the critic) was as sure of anything as Friedman was of everything. Fisher, too, had the cocksureness gene. In 1914, he insisted there would be no war because the nations were economically one. And in 1929 he was certain that there would be no bear market—stock prices, he famously declared, had reached what "looked like a permanently high plateau." Fisher by then was a rich man—in his spare time he had helped to found Remington Rand—but he lost everything in the Depression. People mocked and scorned him.

You wonder how he could find the strength to swing his legs out of bed in the morning. "Public recrimination and ridicule added to the stress and humiliation of financial ruin," Ms. Nasar relates. Yet Fisher not only bore up but also produced some of his best work, including a 1933 essay, "The Debt Deflation Theory of Great Depressions," that sophisticated investors, post-2008, have avidly rediscovered.

Once upon a time, economics was called political economy. Reading "Grand Pursuit," you more than ever regret the change in nomenclature. Economists turn out to be political creatures, much like the rest of us. It's a nice question whether, for instance, Friedman espoused floating exchange rates because he believed in the principle of unfettered action or because he believed that floating rates were technically superior to fixed rates (the kind in place for most of modern economic history until 1971). Ecumenically, Ms. Nasar's cast of economists includes righties as well as lefties: Friedman, Hayek, Schumpeter in the cause of more or less free markets; Joan Robinson, Sidney and Beatrice Webb, and Marx himself for collectivism. The author plainly sides with the interventionists, but she calls a Red a Red.

Link to full article:

http://online.wsj.com/article_email/SB10001424053111904836104576557360442970594-lMyQjAxMTAxMDEwMTExNDEyWj.html?mod=wsj_share_email

About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

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