Why Hayek is Right against Keynes?

In: Journal des économistes et des études humaines: JEEH, Volume 22, Issue 1, p. 15-23

Abstract

Abstract
It is argued in that paper that Hayek came out the winner in the debate opposing him to Keynes. Keynes argued in favour of specific economic policies without a prior analysis of the causes of business cycles. His discussion of economic policy is backed on an ad hoc account of cycles that would, according to him, be based on the irrationality of economic actors and the non-effectiveness of price adjustments. As a result, he says, quantities have to adjust which leads to unemployment. Hayek and the Austrians propose, by contrast, a well-articulated theory of business cycles rooted in a micro-economic approach (agents are rational, albeit badly informed). This leads them to identify the source of the cycle in monetary shocks. In our modern economies, as in the Austrian theory, economic policies conducted by the states are the main driver of the cycles. The consequences of this analysis in terms of economic policy are clear: When excessive regulation and fiscal burden cause a recession the solution must be found in tax cuts and deregulation, not in (Keynesian) monetary or fiscal policies that will do nothing but foster mal-investment.