Keynes and Hayek: some common elements in business cycle theory

ABSTRACT Keynes and Hayek are usually perceived in the history of economic thought as intellectual rivals. Although it is true that terms policy recommendations, they have not always seen eye to eye, there numerous theoretical elements two economists tend share. This especially if one follows Axel Leijonhufvud (1976) considering Keynes’s fundamental work Treatise General Theory. In early 1930s, following works Wicksell (1989), both explained business cycles caused by a discrepancy between savings investment. They considered modern economy interest rate cannot speedily adjust these magnitudes. To certain extent, even agreed on dynamic sequence prices “normal” depression. By time Theory came out, liquidity preference obscured most commonalities economists. introduced short run friction his 1941 Pure Capital, he could accept determinant rate. However, 1970s began believe Hayekian crises further degenerate into Keynesian depressions. focusing development prior elaboration parallel with Hayek’s evolution throughout life, we argue selective reading their lead model which scenarios specific cases more general theory.