Today, we find people are pretty much divided between ideologies to corporations to sport clubs This guy supports this side and the other one is biased to the other one And what is established, is the hatred among the competitors and their followers But what a strange case we find in the economists those people too are divided too between john Keynes and Friedrich Hayek Both are giants in the economic field We already talked about Keynes, the man of the hour during the Great Depression It was when Hayek’s voice was trivialized and nobody paid attention to him But his ideas were better recognized after the second half of the 20th century and was awarded the Nobel Prize in economy So who’s Hayek and why should we know his thoughts? Hayek, the liberal economy Friedrich August von Hayek of Austrian origins was an economist and a psychologist and a social sciences researcher And a Nobel prize winner for his pioneering work in the theory of money and economic fluctuations He follows the Austrian school of economics Hayek considers himself to be a non-conservative liberal and he stressed a lot on the liberalism in his works for he believed that the total freedom of the individual and the market and the capitalism idea of non-government intervention all are the pillars of the economic prosperity And this should not be underestimated When Keynes talked about the necessity of government intervention during the time of recession Hayek thought otherwise, his main idea was that peak periods were unnatural situations and don’t express the true market status Thus it gives misleading information to the investors which leads to some trade transactions beyond the market’s capability to handle and this ultimately causes the notorious troughs that occur between now and then especially in the capitalist economies For Hayek this wave is a natural thing but it can be mitigated through liberalism That’s to say individual freedom So, there are no crazy peaks and no great troughs (recessions) which ultimately leads to the collapse of the economic system Hayek vs Keynes Before continuing here, we would like you to go back to the previous video about Keynes According to Hayek, Keynes’ idea about government intervention in order to encourage the people to spend more, For him it is nothing more than a patch work for bigger problems that didn’t have to happen The main difference between the two was that Hayek thought the problem was in the supply while Keynes thought it was all about demand Hayek even got as far as to say that there’s no need for central banks But to allow the big corporations to use their own currencies to be used in their transactions This was his idea on the theory of money. Because he was a strong believer in the invisible hand. But he was heavily criticized for that Repealing government’s role The government has two methods that Hayek considers them to be of negative influence on the market. The first is printing the bills and flooding the market This causes inflation. The second is reducing the interest rates in order to encourage more loans that are mostly unnecessary. The other method for Hayek is government planning, he claims that it is impossible for any organization, no matter how knowledgeable it is to understand the fine intricacies for the needs of each individual For example, take our friend Mohammed, he used to buy his favorite Yemeni coffee from the grocery store every week for 10$. But because of the wars in Yemen nowadays this caused the rise of the Yemeni coffee price to 20$. Here Mohammed has two choices, he either buys some lesser quality coffee for a cheaper price, or he buys his favorite coffee for 20$ but now he has to make sacrifices and change his priorities concerning his other needs. Such choices and decisions happen multiple times for millions of people every day. And it is impossible for any government to understand and be aware of these daily changes This subject is a very complicated matter and it is difficult … to put some statistics and studies no matter what the situation is. And as Hayek said: “there is no information to be collected from this mess” Examples proving Hayek’s arguments According to his followers, the collapse of the Soviet Union in the last days of his life was the best example of government’s mismanagement. Where the system interfering in every bit of detail in its subjects’ lives. This led to the eventual fall I personally think that mercantilism which also relied on government’s planning falls under this criticism. His bestselling book “The Road to Serfdom” which is still being printed and studied by many, was warning to the west world that the German and Russian socialist regimes will eventually fail because as I said before, government planning does not work. The great recession of 2008 can also be explained by Hayek’s theory, if we go back a little bit to the past, when the dot com bubble happened in 2000 which is a subject of its own and worth to make a video about it, the federal reserve tried to remedy this problem by lowering the interest rates in order to encourage investment. so, this led to higher than usual loans focused primarily in the real-estate sector. And so, the 2008 was a second failure after the first one. Is there a compatibility? Although Keynes and Hayek have different points of view, they can be harmonized in practice in one system. For the fact that Hayed had broader consideration to the macroeconomics But for Keynes his solution was temporary and out of necessity and only during the recession periods.