"Three questions to" Nicholas Wapshott, author of "Keynes/ Hayek".

See article about the book here

Why do you consider that “the relation” between Keynes and Hayek is “the clash that defined modern economics”?

The core of the dispute between Keynes and Hayek 80 years ago was identical to the political choice presented to politicians and voters today: can governments intervene in the economy to ameliorate unemployment and slow growth? And if so, should they? Until Keynes's General Theory published in 1936, governments were reluctant to manage their economies. Since World War Two appeared to prove that vast government spending (on armaments) cured employment and provoked a booming economy, governments in the western world freely used Keynesian methods to boost their economies in time of recession. Since stagflation in the 1970s, however, tight monetary limits restricted the action of governments. Monetarism was the policy designed by Miltron Friedman, an admirer of Hayek's dictum that governments should be kept small.

Do you consider that the American Government is following Keynes? If so, Why? And In Europe… can you see an economic “orientation towards one of these Economist”?

After the financial crisis of 2008 and the freezing of the banks that followed, George W. Bush's Treasury team proposed an 800 billion dollar Keynesian stimulus to prevent the American economy tipping into a catastrophic recession, that was likely to be as deep and lasting as the Great Depression of the 1930s. Obama borrowed the money to put this stimulus program into action. Within months, however, there was borrowers' remorse, led by the Tea Party movement in the US, and any further stimulus measures were frozen when Obama lost control of the House of Representatives at the 2010 mid-term elections. The Republicans continue to dominate the House and have put a stop to continued Keynesian stimulus measures that Obama has asked for. The showdowns between the House and the White House over last summer's debt limit and currently over the fiscal cliff continue the battle between Keynes and Hayek in the early 1930s. Keynesians such as Obama are concerned with unemployment and Hayekians like the Tea Party are more concerned with inflation and the growth of the state that is a natural corollary to the large scale government spending that Keynesianism entails.

In Europe, the Germans under Angela Merkel follow the conservative Hayekian notions that governments should beware of inflation and keep spending in check. This has meant imposing austerity upon the whole of Europe, but particularly the Mediterranean nations whose governments have taken out large amounts of debt. Austerity provokes unemployment and sharply reduces the size of the state. But it also induces a recession in countries that need full employment to pay off their borrowing. The Hayekian approach is therefore self defeating. In contrast to Merkel, Francois Hollande of France has suggested concentrating first on encouraging growth -- a Keynesian impulse -- though the German dominance of the European Union means that he, too, has been obliged to throw people out of work to reduce French government borrowing. It is pure Keynes v Hayek.

What was the biggest surprise for you that emerged while you were writing this book?

The big surprise for me when researching the lives of Keynes and Hayek was to discover that the popular perceptions of these two great thinkers has been way off the mark. In America, Keynes is portrayed by conservatives as a socialist or a communist, though of course he was never even a member of the social democratic Labour Party. He is portrayed as an enemy of the free market and of capitalism. It was therefore a surprise to discover that Keynes understood the market perfectly and was able, through his mastery of how the market worked, make himself two vast fortunes. He used to stay in bed until lunchtime, a glass of champagne in one hand and the telephone to his broker in the other. Although he was briefly employed by the government, to negotiate the Allied borrowing from American bankers to wage World War One, for the rest of his life he offered his advice free. He was the chairman of an insurance company and sympathetic to business, even urging Franklin Roosevelt during the Great Depression that the president shouldn't be so hostile to businesses.

Hayek is known as the patron saint of the free market and businessmen love him and his ideas. However, he did not work for the private sector for a minute of his life. Indeed, the only time he ever got close to taking part in free enterprise was when he was penniless in New York and took a job as a dishwasher. Before his hands were plunged into the suds, however, he was rescued by an economics professor who gave him money. Hayek always worked for the public sector, benefiting from charitable donations from businessmen funneled into a succession of academic institutions. However, by the time he was nearing retirement he was obliged to sell his library to the Unviersity of Freiburg to raise funds for his old age and he died penniless. There is a lesson there, I think, for those who insist that only those who know about business -- Mitt Romney, for example -- are competent to manage an economy.