TEN

Hayek Blinks

The General Theory Invites a Response, 1932–36

Through the early 1930s, Friedrich Hayek also watched events unfolding in Germany with a growing sense of foreboding. Before long the rise of the Nazis would long lead to the absorption of Austria into the Third Reich in the Anschluss Österreichs of 1938. Hitler’s public works program of road building and the manufacture of war materiel, backed by the full terror of the Nazi state, was a cruel parody of what Keynes was proposing. But Hitler’s direction of the German economy would prompt Hayek to think beyond economics to consider the importance of the free market in ensuring a free society. Just as his experience of rampant inflation had underpinned his belief in the Austrian School theory of capital, so too did his sympathy with the plight of those under Nazi tyranny, including his close family, lead to a broader philosophical understanding of how denial of the free market could lead to totalitarianism. But as the 1930s slowly began to unfold, Hayek’s mind was still on convincing the insular British of the merits of continental economic ideas.

His exchange with Keynes had reached a stalemate, with Keynes politely hinting that he had become bored. “I doubt if I shall return to the charge in Economica,” Keynes wrote to him in March 1932. “I am trying to re-shape and improve my central position, and that is probably a better way to spend one’s time than in controversy.”1 The new direction Keynes was moving in was clear for all to see, in his open lectures at Cambridge and in his articles for The Times. Hayek’s principal concern, however, was to bring British economists up-to-date with his own writing, for, as his sparring with Keynes had revealed, few except for Robbins had ever looked outside of theory published in English.

Keynes admitted in A Treatise on Money that “in German, I can only clearly understand what I already know—so that new ideas are apt to be veiled from me by the difficulties of the language.”2 Hayek therefore commissioned Nicholas Kaldor and H. M. Croome to translate his 1929 work Monetary Theory and the Trade Cycle, to be published by Harcourt, Brace in 1933. The London School of Economics lectures that had secured him a professorship were revised and published by Routledge as Prices and Production in 1931, and he took pains to revise his ideas in a second edition in 1935. He began collecting a series of essays, published as Profits, Interest and Investment in 1939. And in response to Keynes’s intention to address the inadequacy of existing capital theories, Hayek began writing for Routledge his own thoughts on the subject, in The Pure Theory of Capital, which he hoped would become the counterpart to Keynes’s General Theory.

Hayek meanwhile settled himself, his wife Helen, daughter Christine Maria Felicitas, born in 1929, three years after their marriage, and son Laurence Joseph Heinrich, born in 1934, in a comfortable red-brick home in Hampstead Garden Suburb, a planned ideal “garden city” of Edwardian housing and communal amenities that had become a redoubt for North London’s left-leaning intelligentsia. Among his academic neighbors was Robbins, who had become a close friend. Hayek followed Karl Marx’s example by frequenting the circular reading room of the British Library. He joined the Reform Club in Pall Mall, founded to mark the 1832 Reform Act that extended the voting franchise to the populations of the newly expanded cities of the Industrial Revolution. As London’s principal gentlemen’s club not populated by Conservatives, the Reform’s dazzling clubhouse, based on the Farnese Palace in Rome by the architect of the Palace of Westminster, Charles Barry, was adorned with portraits of British history’s most radical figures. Hayek felt at home among the memorials not only to those, such as Lord Grey, who had passed the Reform Act in the face of Conservative opposition, but also to the regicide Oliver Cromwell.

One of Hayek’s LSE duties was to teach graduate students. P. M. Toms, who attended Hayek’s seminars between 1934 and 1935, left a vivid picture of the incongruous figure Hayek presented to his British charges. He “looked to me at least fifty, though much later on I discovered [he was in his mid-thirties]. It may have been partly due to his old-fashioned way of dressing, in a thick tweed suit with a waistcoat and high cut jacket. I nicknamed him ‘Mr Fluctooations’ as he so often used that word and pronounced it that way.”3 John Hicks, an Oxford economist turned LSE lecturer, also attended. “We seemed, at the start, to share a common viewpoint, or even a common faith. The faith in question was a belief in the free market, or ‘price-mechanism’—that a competitive system, free of all ‘interferences,’ by government or monopolistic combinations, of capital or of labour, would easily find an ‘equilibrium.’ Hayek, when he joined us, was to introduce into this doctrine an important qualification—that money (somehow) must be kept ‘neutral,’ in order that the mechanism should work smoothly.”4

Teaching gave Hayek pleasure, though his difficulty with English hampered his ability to transmit his message. “All of us were excited to hear that Hayek had arrived,” recalled Theodore Draimin, an LSE undegraduate in 1932. “When we arrived for the first lecture he commenced to talk in English. After a few minutes, it became apparent that none of us could understand a word he said. Some suggested he speak in German. This he did, and those of us unable to understand had to leave the course.”5 It was a common experience. “Read a new book yesterday,” student Ralph Arakie wrote to a friend. “It is by old Hayek or von Hayek as he is called here. This year he is giving twenty lectures in bad English (God help us) and has recommended us to read [a] book in Dutch!; besides thirty other weighty volumes. But he is a very clever chap.”6 Aubrey Jones,7 an LSE undergraduate, recalled that Hayek “wore a perpetually benevolent smile, a trait which did not belie his nature. But his accent in English was thick and his thoughts appeared tangled. One had to sit near the front in order to follow.”8 It is tantalizing to consider how the debate with Keynes might have turned out had Hayek been as fluent in English as his eloquent rival.

But if Hayek found speaking English a trial, he was more at home when, unhurried, he could collect his thoughts in written English, especially when aided by Robbins, Kaldor, and Croome, among others. The republication in English of his University of Vienna dissertation on monetary theory and the trade cycle in 1932 gave him the chance to offer his explanation of the 1929 stock market crash and the Depression.9 He considered the book “not only a justification of the monetary approach but also a refutation of some oversimplified monetary explanations that are widely accepted.” While Keynes was spurred by a desire to confront real-life dilemmas, Hayek’s works were usually pure theory. But in his preface to the English edition of Monetary Theory and the Trade Cycle, Hayek addressed recent catastrophic events.

Hayek’s reasons for the slump, posited clearly in English for the first time, represented a passing rebuke to Keynes, who believed that the financial mayhem had been exacerbated by the deflation of prices through the Federal Reserve’s raising of interest rates. Hayek conceded that Keynes’s criticism had some merit, but he thought his remedy, to reinflate the American economy, was wrongheaded. “There can, of course, be little doubt that, at the present time, a deflationary process [falling prices] is going on and that an indefinite continuation of that deflation would do inestimable harm,” wrote Hayek. “But this does not, by any means, necessarily mean that the deflation is the original cause of our difficulties or that we could overcome these difficulties by compensating for the deflationary tendencies . . . by forcing more money into circulation.” His preferred solution, however, was based on a false premise. “There is no reason to assume that the crisis was started by a deliberate deflationary action on the part of the monetary authorities,10 or that the deflation itself is anything but a secondary phenomenon, a process induced by the maladjustments of industry left over from the boom,” he wrote. “If, however, the deflation is not a cause but an effect of the unprofitableness of industry, then it is surely vain to hope that by reversing the deflationary process, we can regain lasting prosperity.”11

He concluded that the business cycle had been thrown out of kilter by tinkering and that the “stages of production” would need to be restored for the economy to return to the status quo ante. He suggested that Keynes’s remedy was already being applied in America and had only made matters far worse. “Far from following a deflationary policy, central banks, particularly in the United States, have been making earlier and more far-reaching efforts than have ever been undertaken before to combat the depression by a policy of credit expansion—with the result that the depression has lasted longer and has become more severe than any preceding one,” Hayek wrote.

Hayek continued to press his point, that government intervention only aggravated the problem. “To combat the depression by a forced credit expansion is to attempt to cure the evil by the very means which brought it about.” In conclusion, he feared there was no easy way for the economy to be restored to health, but he was certain that government intervention would only prolong the crisis. “For the last six or eight years, monetary policy all over the world has followed the advice of the stabilizers. It is high time that their influence, which has already done harm enough, should be overthrown,” he wrote. “The opponents of the stabilization program [such as himself] still labor . . . under the disadvantage that they have no equally simple and clear-cut rule to propose; perhaps no rule at all that will satisfy the eagerness of those who hope to cure all evils by authoritative action. But . . . the one thing of which we must be painfully aware . . . is how little we really know of the forces that we are trying to influence by deliberate management; so little indeed that it must remain an open question whether we would try if we knew more.”12

At the end of 1932, Keynes and others, including Arthur Pigou, sparked a correspondence in The Times about the need to spend, not save. Their letter to the editor, which reads as if Keynes had drafted it, argued that when there was a lack of business confidence and a sharp reduction in spending, individual savings did not automatically translate into productive investment. “Instead of enabling labour-power to be turned to a different and more important use,” Keynes and his colleagues argued, “[saving] throws them into idleness.” They concluded that “the public interest in present conditions does not point towards private economy; to spend less money than we should like to do is not patriotic.” And in words that unmistakably suggest Keynes’s pen, the economists suggested that “if citizens of a town wish to build a swimming-bath, or a library, or a museum, they will not, by refraining from doing this, promote a wider national interest. They will be ‘martyrs by mistake,’ and, in their martydom, will be injuring others as well as themselves. Through their misdirected good will the mounting wave of unemployment will be lifted still higher.”13

Two days later, The Times published a response from Hayek, Robbins, and other LSE colleagues. While they agreed that “hoarding money, whether in cash or in idle balances, is deflationary” and that “no one thinks that deflation is in itself desirable,” they could not agree that it did not matter whether money was spent or invested. “We regard it as little short of a disaster if the public should infer from what has been said that the purchase of existing securities and the placing of deposits in building societies, &c., were at the present time contrary to public interest or that the sale of securities or the withdrawal of such deposits would assist the coming of recovery,” they wrote. “We are of the opinion that many of the troubles of the world at the present time are due to imprudent borrowing and spending on the part of public authorities,” they wrote. “[Such practices] mortgage the Budgets of the future, and they tend to drive up the rate of interest. . . . The depression has abundantly shown that the existence of public debt on a large scale imposes frictions and obstacles to readjustment very much greater than the frictions and obstacles imposed by the existence of private debt.” Their advice to the government was “not to revert to their old habits of lavish expenditure, but to abolish those restrictions on trade and the free movement of capital (including restrictions on new issues) which are at present impeding even the beginning of recovery.”14

In 1933, Hayek moved away from economic theory when he discovered that “people were seriously believing that National Socialism was a capitalist reaction against socialism. . . . The main exponent whom I came across was Lord Beveridge. He was actually convinced that these National Socialists and capitalists were reacting against socialism. So I wrote a memorandum15 for Beveridge on this subject.”16 Socialism and Nazism were not diametric opposites, he argued, they were near identical in their removal of the free market, thereby curtailing the liberties essential to a free society.

To promote his line of thinking, Hayek moved to ensure that key works published in German and other languages that explained the importance of prices in determining a free society should be made available in English. It was his belief that prices reflected the innumerable economic judgments made by individuals. As he would explain, “I am convinced that if [the price mechanism] were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind.”17 In 1935 he brought together key texts, Collectivist Economic Planning: Critical Studies on the Possibilities of Socialism, which featured as its centerpiece Mises’s caustic critique of the shortcomings of socialist planning, “Economic Calculation in the Socialist Commonwealth,” originally published in Austria in 1920. Hayek’s concluding essay took to task “market socialists” who believed they could combine prices freely arrived at by individuals with prices fixed according to demands laid down by socialist planners.

As the 1930s progressed, Hayek found the news from Austria and Germany increasingly alarming. His travels to Vienna and the graphic reports of Nazi brutality in what remained of the German free press confirmed his belief that Nazism had to be defeated. Hitler’s informal pact with anticommunist business leaders, who wished to avoid a repeat of the Spartacist coup in Berlin in 1919, amounted to the establishment of a corporatist state with all business decisions dependent on Nazi patronage.

As the news from Austria and Germany grew darker, Hayek began to shun his Austrian roots. In his early years in London, the Hayeks spoke English in public and German at home. As the decade progressed and a second world war began to seem likely, he decided to speak English at all times and quietly abandoned any thoughts of returning to live in Austria. “I became in a sense British, because that was a natural attitude for me,” he recalled. “It was like stepping into a warm bath where the atmosphere is the same temperature as your body.”18

Meanwhile, Keynes became increasingly confident that The General Theory would profoundly alter the traditional political divide between capitalism and socialism. Socialist theorists, like Marxists, assumed a crisis in capitalism was unavoidable. Fabian socialists like George Bernard Shaw believed that their brand of mixed- economy socialism could save the troubled system from outright socialism or communism. Keynes believed that by providing an intellectual justification for intervening in the economy to cure mass unemployment, he could ameliorate conditions so effectively that the predicted collapse of capitalism would be postponed indefinitely. It was therefore with a typical sense of mischief that on New Year’s Day 1935 Keynes wrote to Bernard Shaw, announcing that, thanks to his upcoming book, a Fabian future would no longer be in the cards.

“I believe myself to be writing a book on economic theory, which will largely revolutionise—not, I suppose, at once but in the course of the next ten years—the way the world thinks about economic problems,” he wrote Bernard Shaw. “I can’t expect you, or anyone else, to believe this at the present stage. But for myself I don’t merely hope what I say,—in my own mind I’m quite sure.”19 Keynes spent the rest of 1935 revising and refining his General Theory and amending the waves of page proofs from the publisher.

The General Theory of Employment, Interest and Money was published on February 4, 1936. Keynes had done such a good job of drumming up interest that the book was pounced on, particularly by young economists eager to boast an early familiarity with the new ideas in its four hundred pages. To maximize the book’s sales and impact, Keynes set a low cover price, just five shillings. The General Theory was far from an easy read. To head off Hayek’s criticism of A Treatise, Keynes attempted to merge his often idiosyncratic economic terms with those used by traditional economists. He accommodated counterarguments posed by friends and collaborators, and attempted to anticipate objections from classical economists. As simple as he tried to make his case, however, much of his reasoning remained beyond the reach of the lay reader. As he explained, “I cannot achieve my object of persuading economists to re-examine critically certain of their basic assumptions except by a highly abstract argument.”20

Paul Samuelson,21 the Massachusetts Institute of Technology economist who was to become Keynes’s greatest evangelizer, summed up the accomplishment of The General Theory: “It is a badly written book, poorly organized,” he wrote. “It is arrogant, bad-tempered, polemical, and not overly generous in its acknowledgements. It abounds with mares’ nests and confusions. . . . Flashes of insight and intuition intersperse tedious algebra. An awkward definition suddenly gives way to an unforgettable cadenza. When it is finally mastered, we find its analysis to be obvious and at the same time new. In short, it is a work of genius.”22 John Kenneth Galbraith,23 who was to appoint himself Keynes’s high priest, agreed. “Unlike nearly all of Keynes’s other writing, this volume is deeply obscure,” he wrote. “Perhaps had it been otherwise and had economists not been called upon to debate his meaning and intentions, it would not have been so influential. Economists respond well to obscurity and associated puzzlement.”24

Keynes was in combative mode from the opening paragraph, declaring that the target of his general theory was traditional economics. He had in his sights everyone who had gone before, not only his close Cambridge colleague Arthur Pigou but even his generous mentor, the founder of Cambridge economics, Alfred Marshall. But above all Keynes relished mounting an unforgiving assault on his archrivals in the Austrian School, Mises, Robbins, and Hayek. Indeed, on first reading the final draft, Roy Harrod, who had repeatedly urged Keynes to make the attack less personal, was taken aback by the severity of the onslaught against Hayek and his kind.

“He went out of his way to stress differences from and find weaknesses in traditional economic theory,” Harrod recalled. “Would it not have been wiser to stress his own contribution and leave it to others to decide how much scrapping of established doctrine was entailed? To some he seemed to take a mischievous pleasure—perhaps he did—in criticizing revered names. In fact this was done of set purpose. It was his deliberate reaction to the frustrations he had felt, and was still feeling, as the result of the persistent tendency to ignore what was novel in his contribution. He felt he would get nowhere if he did not raise the dust.”25

Keynes appeared to relish pointing out the Austrian School’s errors and magnified the abuse not only by singling out those like Hayek and Robbins who failed to understand the shortsightedness and lack of vision in their adherence to the “classical school” but also by dismissing their obduracy not in the main text but in a footnote, as if he were not vanquishing dragons but swatting flies. Orthodox economists like Hayek were simply out of touch with reality, he contended. “It may well be that the classical theory represents the way in which we should like our Economy to behave,” he wrote. “But to assume that it actually does so is to assume our difficulties away.”26

“The characteristics of the special case assumed by the classical theory happen not to be those of the economic society in which we actually live,” he wrote, “with the result that its teaching is misleading and disastrous if we attempt to apply it to the facts of experience.”27 Keynes argued that classical economists had tacitly blamed the unemployed for their plight. “A classical economist may sympathise with labor in refusing to accept a cut in its money-wage, and he will admit that it may not be wise to make [such a cut] to meet conditions which are temporary; but scientific integrity forces him to declare that his refusal is, nevertheless, at the bottom of the trouble.”28 Keynes demonstrated why he believed that while demands for increases in pay may be a factor in joblessness, they were by no means the principal reason for unemployment, as classical economists had long insisted.

Keynes denied one of the most commonly accepted laws governing economics, Say’s Law, which says that supply creates its own demand.29 The notion “still underlies the whole classical theory, which would collapse without it. . . . Contemporary thought is still deeply steeped in the notion that if people do not spend their money in one way they will spend it in another,”30 which leads, he suggested, to another misconception of the classical school, that “an act of individual saving inevitably leads to a parallel act of investment.”31

Denying Say’s Law was central to the fresh thinking in The General Theory, leading to the notion of “liquidity preference,” Keynes’s explanation for why savings did not automatically translate into investment. Keynes had concluded that the way classical school economists came to assess what contributed to the cost of money, or rate of interest, was inadequate. Though he had once subscribed to similar views, it was, as he put it, “a nonsense theory.”32 For classical economists, interest rates depended on the relationship between savings and investment: if too many people saved, interest rates fell, encouraging them to invest in businesses to maximize their yield; if too few saved, interest rates rose to attract more savers.

Keynes explored the motivation of savers and came to a quite different conclusion. He believed that rather than lodge money in a bank or invest in stocks and shares, savers often preferred to keep their savings in “liquid” form (i.e., cash), so that they could take advantage of rapidly changing circumstances. The notion of liquidity preference upset the traditional understanding of the relationship between savings and investment, for if a saver believed he would get a better deal by waiting, he would keep his savings in cash, or jewelry, or gold. The implication was clear to Keynes. Because of liquidity preference, interest rates were kept higher than necessary because banks had to offer savers a premium to part with their money.

Keynes believed that liquidity preference negated the “commonsense” notions about the virtue of saving over spending that underpinned classical economics. “The absurd, though almost universal, idea that an act of individual saving is just as good for effective demand as an act of individual consumption” is a fallacy, he wrote. “It is of this fallacy that it is most difficult to disabuse men’s minds. It comes from believing that the owner of wealth desires a capital asset as such, whereas what he really desires is its prospective yield.”33

Keynes introduced other novel concepts, among them the multiplier. Each pound spent was worth far more than a single pound, as the money was spent again and again as it worked its way through the system. To persuade the noneconomists who thought public works financed by borrowing to be profligate, irresponsible, and wasteful, he departed from the otherwise sober approach to conjure up a suitably absurd project to demonstrate that even apparently “wasteful” schemes could cure chronic unemployment and pay for themselves.

“If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again,” he wrote, “there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”34 To emphasize how a commonsense grasp of economics differed from how economics worked in real life, he repeated his ominous conclusion that “just as wars have been the only form of large-scale loan expenditure which statesmen have thought justifiable, so gold-mining is the only pretext for digging holes in the ground which has recommended itself to bankers as sound finance.”35

Importantly in the light of Hayek’s subsequent writings about the threat to liberty of the state intervening in the economy, Keynes raised a key issue about the problems posed for individual freedoms when governments assumed an expanded role to achieve full employment. “The central controls necessary to ensure full employment will, of course, involve a large extension of the traditional functions of government,” he wrote. “Furthermore, the modern classical theory has itself called attention to various conditions in which the free play of economic forces may need to be curbed or guided.”36 He later conceded that “the theory of output as a whole, which is what [The General Theory] purports to provide, is much more easily adapted to the conditions of a totalitarian state than is the theory of the production and distribution of a given output produced under conditions of free competition and a large measure of laissez-faire.”37 But Keynes was optimistic about human nature and did not believe that authoritarianism was a necessary corollary to his theory, nor that his reforms would lead to a creeping tyranny, what Hayek would call “serfdom.”

Keynes believed that a prosperous society in which everyone is employed was the surest way of maintaining the independence of thought and action he considered the guarantor of true democracy. “There will still remain a wide field for the exercise of private initiative and responsibility,” he wrote. “Within this field the traditional advantages of individualism will still hold good.”38 Furthermore, he thought that “individualism, if it can be purged of its defects and its abuses, is the best safeguard of personal liberty in the sense that, compared with any other system, it greatly widens the field for the exercise of personal choice.”39 Keynes had no intention of ushering in a grim gray future in which individual liberties were lost under a welter of state regulations. His prescription was a light hand on the tiller and a prosperous and contented crew. As his biographer Robert Skidelsky put it, “He gave people hope that unemployment could be cured without concentration camps.”40

Keynes further anticipated Hayek’s pessimistic assessment of the effects of departing from a free market when he offered an olive branch to the classical school by suggesting that classical theory still had an important part to play. “Our criticism of the accepted classical theory of economics has consisted not so much in finding logical flaws in its analysis as in pointing out that its tacit assumptions are seldom or never satisfied, with the result that it cannot solve the economic problems of the actual world,” he wrote. The means to bring about full employment did not imply a socialist, or semi-socialist, or social democratic society. “If [government-inspired investments in public works succeed] in establishing an aggregate volume of output corresponding to full employment as nearly as is practicable, the classical theory comes into its own again from this point onwards,” he wrote. “Apart from the necessity of central controls to bring about an adjustment between the propensity to consume and the inducement to invest, there is no more reason to socialise economic life than there was before.”41 Keynes argued that when full employment was reached, many of the certainties of the classical school would come into their own.

The General Theory was an implicit invitation to Hayek and his kind to respond. Indeed, Keynes specifically taunted Hayek at a number of turns. “When Professor Hayek infers that the concepts of saving and investment suffer from a corresponding vagueness,” he wrote, “he is only right if he means net saving and net investment.”42 He dismissed Hayek’s account of the doctrine of “forced saving” as “interesting”43—that damning term when employed by an Englishman. But for the most part, to avoid a repetition of the nitpicking debate over definitions that had occupied Hayek when criticizing A Treatise, Keynes devoted whole chapters of The General Theory to defining economic concepts, such as “saving,” “forced saving,” and “investment,” so that those who wished to take issue with his central argument—that increasing aggregate demand was the key to full employment—should not become waylaid by semantics.

Similarly, Keynes addressed arguments Hayek had raised concerning the replacement of redundant plant that had formed a central part of their meandering correspondence following Hayek’s review of A Treatise. He also specifically questioned the usefulness of elements of Hayek’s celebrated LSE lectures on the “stages of production” and “roundabout” methods of production. It was with Hayek clearly in his sights that Keynes wrote, “It is true that some lengthy or roundabout processes are physically efficient. But so are some short processes. Lengthy processes are not physically efficient because they are long. Some, probably most, lengthy processes would be physically very inefficient, for there are such things as spoiling or wasting with time. With a given labour force there is a definite limit to the quantity of labour embodied in roundabout processes which can be used to advantage.”44

Keynes’s principal aim in writing The General Theory was to alter the way economists thought about the operation of the economy and through them to persuade decision makers to adopt measures to increase aggregate demand. An important secondary purpose, however, was to challenge Hayek and others to counter the ideas in his magnum opus. Keynes’s ideas could take firm root only if classical economics was shown to be wrong, so Keynes, ever confident that he had anticipated all objections, was eager to hear the classical economists’ rejoinder. Hayek, who had set himself the formidable task of contradicting the steady stream of arguments emanating from Keynes’s prodigious pen, now seemed honor bound to respond.

Why was the raising of aggregate demand an inappropriate way to increase employment? In what way did the multiplier not operate as Keynes and Kahn suggested? Why did the notion of liquidity preference not undermine the classical explanation of how interest rates were set? If The General Theory was riven from top to bottom with misapprehensions, misleading assumptions, false logic, and inappropriate and deluded leaps of imagination, this was surely the time for Hayek to dismantle Keynes’s arguments before they took hold.

But answer came there none. Hayek remained hushed. Faced with confronting Keynes at full flow, Hayek blinked. Weeks passed, but his expected counter-blast was not forthcoming. Hayek’s life purpose, the very reason Robbins summoned him from Vienna to the LSE, a key reason Beveridge had leapt at the chance to appoint him to the LSE staff, appeared to have come to nothing. Keynes’s great work was met with neither a bang nor a whimper. Hayek’s response, so keenly awaited by classical economists throughout Britain and the continent, was a yawning silence.