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Hayek and Keynes: From a common critique of economic method to different theories of expectations

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  • Anna Carabelli
  • Nicolo De Vecchi

Abstract

The methodological positions of Hayek and Keynes contain striking similarities. Both authors opposed empiricist approaches to economics that assign priority to mere observation as the source of knowledge. Both emphasised intentionality, motivation and human agency. Notwithstanding this common ground, they had different conceptions of how beliefs are formed and had different explanations of thought and action in economics. Hayek grounded his explanation on an evolutionary theory of the mind, i.e. on psychological premises, whereas Keynes based his view of belief formation on probable reasoning, where probability is a logical concept. Starting from psychological premises Hayek maintained that individuals act rationally only by following rules. As a consequence, he considered conventional expectations to be the primary guide for agents in economic life. Keynes agreed that conventional expectations actually guide economic behaviour, but he maintained that they are justified only in situations of total ignorance. In conditions of limited knowledge, agents can base their action on reasonable expectations, independently of conventions. Moreover, agents—particularly those institutions responsible for economic policy—ought to shun conventional behaviour in order to counteract its negative social consequences. We argue that Keynes's theory of expectations is well grounded upon his theory of logical probability. Hence his advocacy of discretionary policy is rationally justified.

Suggested Citation

  • Anna Carabelli & Nicolo De Vecchi, 2001. "Hayek and Keynes: From a common critique of economic method to different theories of expectations," Review of Political Economy, Taylor & Francis Journals, vol. 13(3), pages 269-285.
  • Handle: RePEc:taf:revpoe:v:13:y:2001:i:3:p:269-285
    DOI: 10.1080/09538250120055140
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    References listed on IDEAS

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    1. Steele, G R, 1993. "Philosophical Perceptions and the Precepts of Political Economy: Friedrich Hayek and John Maynard Keynes," Scottish Journal of Political Economy, Scottish Economic Society, vol. 40(1), pages 88-103, February.
    2. Davis,John B., 2008. "Keynes's Philosophical Development," Cambridge Books, Cambridge University Press, number 9780521065511, September.
    3. William N. Butos & Roger G. Koppl, 1995. "The Varieties of Subjectivism: Keynes and Hayek on Expectations," Method and Hist of Econ Thought 9505001, University Library of Munich, Germany, revised 17 May 1995.
    4. Coates,John, 1996. "The Claims of Common Sense," Cambridge Books, Cambridge University Press, number 9780521412568, September.
    5. Marchionatti, Roberto, 1999. "On Keynes' Animal Spirits," Kyklos, Wiley Blackwell, vol. 52(3), pages 415-439.
    6. repec:ucp:bkecon:9780226320625 is not listed on IDEAS
    7. Elke Muchlinski, 1998. "The Philosophy of John Maynard Keynes (A Reconsideration)," Cahiers d'Économie Politique, Programme National Persée, vol. 30(1), pages 227-253.
    8. Anna Carabelli, 1998. "Keynes on Probability, Uncertainty and Tragic Choices," Cahiers d'Économie Politique, Programme National Persée, vol. 30(1), pages 187-226.
    9. Anna Carabelli & Nicolo De Vecchi, 1999. "'Where to draw the line'? Keynes versus Hayek on Knowledge, ethics and economics," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 6(2), pages 271-296.
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    Cited by:

    1. Anna Carabelli, 2012. "A new methodological approach to economic theory: what I have learnt from 30 years of research on Keynes," Chapters, in: Jesper Jespersen & Mogens Ove Madsen (ed.),Keynes’s General Theory for Today, chapter 5, pages 79-97, Edward Elgar Publishing.
    2. Miguel A. Durán, 2005. "The problems of the the Co-Ordination problem," ThE Papers 05/09, Department of Economic Theory and Economic History of the University of Granada..
    3. Pies, Ingo, 2013. "Theoretische Grundlagen demokratischer Wirtschafts- und Gesellschaftspolitik: Der Beitrag von John Maynard Keynes," Discussion Papers 2013-16, Martin Luther University of Halle-Wittenberg, Chair of Economic Ethics.
    4. Vanberg, Viktor J., 2005. "Market and state: the perspective of constitutional political economy," Journal of Institutional Economics, Cambridge University Press, vol. 1(1), pages 23-49, June.
    5. Győrffy, Dóra, 2012. "Intézményi bizalom és a döntések időhorizontja [Institutional confidence and the time line of decision-making]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 412-425.
    6. William Butos & Roger Koppl, 2004. "Carabelli & de Vecchi on Keynes and Hayek," Review of Political Economy, Taylor & Francis Journals, vol. 16(2), pages 239-247.
    7. Fiorillo Damiano, 2007. "Il capitale sociale nel pensiero di John Maynard Keynes," CESMEP Working Papers 200701, University of Turin.
    8. Nicolo De Vecchi, 2006. "Hayek and the General Theory," The European Journal of the History of Economic Thought, Taylor & Francis Journals, vol. 13(2), pages 233-258.

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