The Economic History of the 20th Century

It’s not often (actually, only once) that I share a video lasting nearly two hours. But this video – revolving around the intellectual rivalry between pro-market Hayek and pro-intervention Keynes – is an excellent summary of 20th-century economic policy.

We learn about the growth of socialism and communism during and after World War I.

This then led economists from the Austrian school – including Hayek – to explain why that approach (genuine socialism, meaning government ownership, central planning, and price controls) was doomed to failure.

But other forms of intervention and redistribution gained new adherents, especially when Keynes argued that the Great Depression was the fault of capitalism (for what it’s worth, I think the video fails to include analysis on how the New Deal actually lengthened and deepened the downturn).

Unfortunately, the Keynesian narrative dominated and the video informs us that the people of the United Kingdom voted for a socialist government when World War II ended. Which then led to the nationalization of the economy’s “commanding heights” and the enactment of the welfare state.

The United States didn’t veer as sharply to the left after the war, but there was no meaningful challenge to the the statist consensus that arose in the 1930s.

On the bright side, Germany rejected socialism by getting rid of price controls and allowing markets to flourish (the video overstated the degree to which a welfare state was imposed). But that was the exception to the rule. The world was gravitating to statism, including the developing world.

My favorite part of the video is that we learn about the creation of the Mont Pelerin Society and the emergence of Milton Friedman and the Chicago School.

That was the start of the laissez-faire counterrevolution. But it didn’t yield immediate results.

The left was in charge of economic policy from the end of the war through the 1970s in the USA and UK, regardless of which political party held power.

But bad policy sooner or later leads to bad results.

And that changed the political environment.

The latter part of the video tells the very happy story on how the sensible ideas of Hayek and Friedman eventually translated into the historic elections of Ronald Reagan and Margaret Thatcher.

If you watch the entire video, you’ll learn about how Reagan and Thatcher successfully overcame major challenges as they shifted their nations toward economic liberty (most notably, Reagan tamed inflation and Thatcher denationalized state-run companies).

And you’ll see that most of the world then followed – including the collapse of the Soviet Empire.

You even get some sympathetic quotes about capitalism from leftists such as Gordon Brown, Larry Summers, and Jeffrey Sachs at the end of the video.

So it seems like a happy ending. And capitalism indeed was the dominant force in economic policy about 20 years ago when the video was released.

Sadly, the track record of the 21st century (Bush II, Obama, and Trump) has not been overly favorable for believers in economic liberty.