A Tiger by the Tail

By Friedrich A. Hayek, compiled by Sudha R. Shenoy

Synopsis: This book is a compilation of selections of F.A. Hayek’s writings over the span of 40 years from various works, which address the various aspects and claims of Keynesian economic theory. When John Maynard Keynes came out with his destructive General Theory work which took the economic field by storm, many looked to Hayek for a response. But Hayek, engaged in other work and not convinced that Keynes’ work would be enduring, neglected to provide a response. This proved to be a fatal error. The editor, Sudha Shenoy, compiled this book in the 1970’s to compile the Hayekian response to Keynes’ General Theory that Hayek never organized himself. Following the path of Keynesian policy with its attendant inflation is, according to Hayek, like having a tiger by the tail.

Strong Points: This book provides a penetrating critique to the Keynesian system, and undermines many of its basic assumptions. Inflation as a misguided and dangerous method to secure “full employment” is a major theme of the book. The reader will find much in the way of ammunition against Keynesians within the pages of this book.

Weak Points: Many parts of this book are rather technical, and while the book is supposed to be comprehensible to the layman, even a well-read layman on the subject will struggle with some of the material. Consequently, since the concepts were not always condensed into simpler terms, the reader will find their interest waning. As a result, it was not an entirely pleasurable read. 

Interesting: 2.3/5

Must Read: 2/5

Overall: 2.7/5

Pages: 162

Selected Quote: “Full employment policies, as at present practiced, attempt the quick and easy way to giving men employment where they happen to be, while the real problem is to bring about a distribution of labour which makes continuous high employment without artificial stimulus possible. What this distribution is we can never know beforehand. They only way to find out is to let the unhampered market act under conditions which will bring about a stable equilibrium between demand and supply. But the very full employment policies make it almost inevitable that we must constantly interfere with the free play of the forces of the market and that the prices which rule during such an expansionary policy, and to which supply will adapt itself, will not represent a lasting condition. These difficulties, as we have seen, arise from the fact that unemployment is never evenly spread throughout the economic system, but that, at the time when there may still be substantial unemployment in some sectors, there may exist acute scarcities in others. The purely fiscal and monetary measures on which current full employment policies rely are, however, by themselves indiscriminate in their effects on the different parts of the economic system. The same monetary pressure which in some parts of the system might merely reduce unemployment will in others produce definite inflationary effects. If not checked by other measures, such monetary pressure might well set up an inflationary spiral of prices and wages long before unemployment has disappeared, and – with present nationwide wage bargaining – the rise of wages may threaten the results of the full employment policy even before it has been achieved.
“As is regularly the case in such circumstances, the governments will then find themselves forced to take measures to counteract the effects of their own policy. The effects of the inflation have to be contained or ‘repressed’ by direct controls of prices and of quantities produced and sold: the rise of prices has to be prevented by imposing maximum prices and the resulting scarcities must be met by a system of rationing, priorities and allocations.
“The manner in which inflation leads a government into a system of overall controls and central planning is by now too well known to need elaboration. It is usually a particularly pernicious kind of planning, because not thought out beforehand but applied piece-meal as the unwelcome results of inflation manifest themselves. A government which uses inflation as an instrument of policy but wants it to produce only the desired effects is soon driven to control ever increasing parts of the economy.” (p. 66-67).

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