A comment by Josef Šíma, president of CEVRO Institute, Prague neatly explained the difference between Keynesian and Hayekian economic thinking.
People often consider economic knowledge to be utterly theoretical with no direct practical implication for current economic policies. Can we somehow see the importance of the mainstream/mainline distinction when debating economic crises (such as the recent financial crisis) or current regulatory policies?
I will be brief after having gone on so long in the first answer, but ultimately the answer is unequivocally YES. The relevance of the distinction comes up in the most general terms about as I said above the veracity with which one believes the claims about the self-regulating properties of the private property market economy. But it gets even more detailed in debates such as that between “spenders” versus “savers” in the recovery phase of an economic downturn, as well as to whether the “cause” of the downturn is some “aggregate demand failure” or due to “price distortions” brought on by the manipulation of money and credit and impediments to smooth market adjustments to the previous pattern of errors. It was Adam Smith who warned about the consequences of the “juggling tricks” that governments – ancient as well as modern – rely on and that juggling trick is deficit finance resulting in accumulated public debt which in turn is ‘paid off’ through debasement of the currency. If the juggling gets out of hand, Smith warned, it is an economy killer. This is what economists believed from Adam Smith to F. A. Hayek and James Buchanan. The advice was straight forward – STOP THE JUGGLING. Keynes changed that, and his advice – LEARN TO BE A MASTER JUGGLER.