Hayek’s arrival helped establish the LSE as a center for economists who dissented from the views associated with Keynes and Cambridge. Within six months of his visiting lectures, he published the fi rst of two lengthy critiques of Keynes’s Treatise on Money in the LSE’s journal, Economica. He excoriated Keynes for the total absence of capital theory from his analysis. Keynes conceded the criticism but then turned to an attack on Hayek, ridiculing his assumption that there was an “automatic mechanism in the economic system” to equalize the rates of savings and investment. Hayek, in turn, replied by observing that Keynes failed to provide a coherent explanation of the causes that led the rates of savings and investment to diverge. Keynes acknowledged that his analysis required further revisions, but he indicated in private correspondence with Hayek that there was “a better way to spend one’s time than in controversy.” His colleague Piero Sraffa then continued the assault, arguing in a devastating journal article that Hayek’s theory relied on a strangely simplifi ed conception of money and that his assumption that there was a single natural rate of interest was absurd. Over time the tone of these disputes became increasingly vitriolic. Keynes described Prices and Production as “one of the most frightful muddles I have ever read,” and Sraffa added that Hayek built up “a terrifi c steamhammer in order to crack a nut— and then he does not crack it.” By the end of 1932 Hayek was widely recognized as the leading theoretical opponent of Keynes’s ideas, but neither had emerged with his arguments unscathed.

Angus Burgin, The Great Persuasion, loc. 70