Hayek vs. Keynes: On individualism and collectivism

With the demise of anarchism in the 1930s and communism in the 1990s, we may say that the boundaries in the political spectrum on the role of the state in capitalism are defined by the extremes of the liberal (socialist in the European sense) and the libertarian movements. Currently, the bibles for both left/right-wing libertarians and liberals are still Hayek’s Road to Serfdom (1944) and Keynes’s General Theory (1936).

The two “prophets” were contemporaries, but Hayek outlived Keynes by almost fifty years. Indeed, as Hayek admitted later on his autobiographical interview, they engaged frequently on controversy but “remained personally on the best of terms, and I [Hayek] had in many respects the greatest admiration and liking for him as a man”. Keynes himself said of The Road to Serfdom: "In my opinion it is a grand book...Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement".

However, today’s supporters of Keynesian and Hayekian theories behave as fanatical or newly-converted followers. Often their behavior resembles that of the fanatics in the Abrahamic religions and sects who believe that their particular faith is the only truth and all other believers are infidels and enemies. Both religious and economic followers fail to recognize that their “prophets” followed the same god and ideals (liberalism) and that their differences were mostly about how to achieve them. Keynes and Hayek embraced the same theory of political economy based on market capitalism and economic liberalism.

Both believed that they should be based on nineteenth-century individualism and not in its misleading meaning of selfishness and egoism used today. The advantages of individualism as recognized by Keynes were: 1) the best safeguard of personal liberty; 2) greater efficiency (through decentralization of decisions and the play of self-interest); and 3) best safeguard of the variety of life and peace. Similarly, for Hayek the merit of individualism rests on recognizing the super individual forces which guide the growth of reason. Individualism is thus an attitude of humility before this social process and of tolerance to other opinions.

If they differ only by degree and not on fundamentals, where are then their key differences? The key differences are the result of how they see the trade-cycle and the trade-off between individualism and collectivism. Although both favor individualism over collectivism, Keynes is willing to sacrifice the first to achieve full-employment. Hayek refutes such compromise and doubts that collective (government) action can achieve such objective without running the greater risk of creating a totalitarian society (greater concentration of decision-making power).

So, their “followers” would do better by focusing on the limits of their theories and on studying the circumstances under which they can be applied.