October 2014

Sun Mon Tue Wed Thu Fri Sat
      1 2 3 4
5 6 7 8 9 10 11
12 13 14 15 16 17 18
19 20 21 22 23 24 25
26 27 28 29 30 31  
Blog powered by Typepad

« Homobasketballicus -- 2008 edition | Main | The Economics of Pirate Tolerance »

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d83451eb0069e200e55216f7828833

Listed below are links to weblogs that reference Happy Hayek's Birthday:

Comments

Feed You can follow this conversation by subscribing to the comment feed for this post.

It's a great quote and in a curious way turned me from a mild socialist (we were all once young) into a libertarian...well at least started my eventual migration to classical liberalism, when I had to write an essay based on this exact same quote for an economic history class during my sophomore year.

While puzzling over its meaning I read the Fatal Conceit (Estonian title "Hukutav Upsakus") by this curiously unpretentious author and it changed the way I view and understand the world.

... "I am afraid that a not inconsiderable part of what is called 'sociology' is a direct child of constructivism when it presents its aims as 'to create the future of mankind' or, as one writer put it, claims 'that socialism is the logical and inevitable outcome of sociology.' "
(Law, Legislation, and Liberty: Vol. 1)

A great post! I think a perfect place to start civility is amongst libertarians and recognize that we have only minor intellectual error differences and simply different strategical perspectives. No reason to throw other people in the dirt.

"I'm deaf in my left ear, as I believe Marx was in his right."

My favorite:
"The problem [of the economy] is precisely how to extend the span of out utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do."

I'm convinced that if more people understood Hayek's knowledge argument (which to me extends far beyond the simple calculation of prices), there wouldn't be any more calls for regulation or command-and-control at all.

Thank you.

my piece to Hayek is here:

http://theforvm.org/diary/john/happy-birthday-fa-hayek

Yes, the only 'libterarianism' left in me comes from my reading and appreciation of Hayek's arguments concerning our inability to rationally construct society. But even Hayek didn't take this line of reasonig far enough, and he has with some justification been criticized for it. There is a sharp distinction to be made between the diffusion of knowledge and a genuine lack of knowledge. On this point, I think the Mises Institute's critique of the Hayekian socialist calculation argument has considerable merit.

But in some respects these economists err as well in their presentation of the "money price" aspect of the socialist calculation debate. I think too much emphasis has been placed on the importance of calculating money prices, when in fact the problem has always been one of social coordination. For example, if we take the Misesian socialist calculation argument to its extreme, we would have to conclude that all individual activities executed in isolation are necessarily irrational due to the absence of exchange and money prices. In a Robinson Crusoe model, there is no way, in Misesian terms, to behave rationally in the use of resources because money prices do not exist. Moreover, there is no way for Crusoe in this model to make calculating errors. In other words, there is no way to meaningfully evaluate the actions of individuals living in an economy populated by self-sufficient persons.

This argument seems misguided, and I believe it is. The inherent problem socialism faces is one of social coordination in an extremely interdepedent economy. And this is precisely the point Hayek made. Many FEE and GMU Austrian scholars have avoided the arguments advanced by the Mises Institute scholars on this topic, believing that the differences between Hayek and Mises have been exaggerated by the scholars in Auburn. This is a mistake. There were important differences between Hayek and Mises, but a rigorous analysis of these differences will reveal that Hayek made the more important contribution (influenced, of course, by Mises).

Hayek's enduring legacy in economics (and the social sciences more generally) will always be the importance he attached to the social coordination problem.

My favorite:
"Economic control is not merely control of a sector of human life which can be separated from the rest; it is the control of the means for all our ends."
- F. A. Hayek, The Road to Serfdom

matthew-

Mises addressed the Robinson Crusoe question. The important point that you are ignoring in your argument is that the reason to need to know prices is because of supply and demand.

But if you are literally the only person in your economy, you know these- you know your own demand aprioristically (your own marginal utility analysis which every person must do in any market economy tells you).

And you know supply because you know your own labor. To the extent that you don't know supply, you don't know it as any individual entrepreneur doesn't know it. This will limit your capabilities, and it would be better if you had others in the economy, as they would also seek out new supply, you'd have division of labor and gains from exchange and specialization, but this is just the limit of a single person economy.

I am not trying to diminish Hayek's contribution, or the importance of social coordination analysis, but I think you misrepresent Mises and the calculation arguments.

Not all of us have ignored it Matt.

http://www.gmu.edu/rae/archives/VOL17_4_2004/1-Horowitz.pdf

I made it the topic of my SDAE presidential address.

I don't think talking about the diffusion or lack of knowledge takes it far enough. Due to the division of labor and the increasing use of specialized computers, actors in an economy are often simply incapable of even understanding knowledge held by others. Hayek mentioned this, but I rarely see it brought up. The act of gathering diffused knowledge, as difficult as it may be, seems trivial next to gathering (via command) a mind or set of minds that could even understand the knowledge presented to them.

I suppose this would probably have been much easier in Hayek's time, though. Today's society is much, much more complicated, with many more micro-cultures and odd points-of-view that have difficulty understanding each other.

liberty,

If the existence of market prices are indeed prerequisites for rational action, then, taken to an extreme, it would be impossible for individuals modeled in an economy of self-sufficiency to behave rationally. This need not be the case. There is a reason why we use the Robinson Crusoe model. And there is a reason why Austrian economists use the equilibrium model (See Boettke 'where did we go wrong?'). I am trying to show here that the excessive preoccupation with monetary calculation is inconsistent with the real issue being debated --- the feasibility of social coordination in a highly interdependent economy. The emphasis on monetary calculation taken on its own terms diverts our attention away from the real problem.

Dr. Horwitz,

I have read your paper before. It is very good. But I cannot help but think that your argument misses the point. I would like instead to take the Misesians on their own terms and show that their position is confused and inferior to Hayek's. By the way, I thought Salerno's papers were great when I first read them. They forced me to think very deeply about these issues.

Grant,

You make an interesting point. I think you could answer the questions you raise in different ways, depending on what approach is taken ---"lack of knowledge" or "diffusion of knowledge." For example, the diffusion of knowledge argument championed by Hayek is similar to other arguments made by important economists. Leibenstein's paper on X-efficiency and H. A. Simon's 1947 book on bounded rationality come to mind. These arguments all basically make the same point. Knowledge is present, but it is either: (1) scattered, (2) difficult to manage due to our incompetence, or (3) too complex for us to process and utilize rationally. The "lack of knowledge" argument, on the other hand, argues that the relevant knowledge is non-existent. Nicholas Talem Talib makes this point brillinantly in his "The Black Swan". Useful knowledge is knowledge we cannot have, and once we have it, it is no longer useful. This is a far more appropriate approach to take, because it confronts directly the reality of our own ignorance.

Read all the great neoclassicals: Alchian, Demsetz, Coase, North, etc.... They all speak of ignorance in terms of costliness. It is costly to be ignorant. Or we are ignorant because it is costly to acquire the relevant knowledge. This to me misses the point (but I need to do more reading on this in order to really support my argument).

Matt,

Monetary calculation does not divert us from social coordination. Monetary calculation is the very process by which social coordination takes place. That's why Mises and Hayek are ultimately two halves of a whole. And that's precisely the argument I was trying to make in that paper.

There is a great quote, possibly near the start of the third part of "The Counter-Revolution of Science" along the lines that the most important and dangerous ideas at any time are those that rival schools of thought hold in common. A similiar statement can be found at the very start of Bruce Caldwell's book "Beyond Positivism", attributed to Alfred N Whitehead.

Today Pete Boettke should contemplate the error of his ways in calling himself a "Misesian." On a different note, I don't think I would have become an economist had it not been for the influence of Hayek's work. Even though I didn't understand it all by any means, I first read the Road to Serfdom in high school. It took me a long time and I studied every word.(I may still have the copy I read.)I knew I was reading a work of a genius and I wanted to be a part of his world.

Hayek: “The discussions of every age are filled with the issues on which its leading schools of thought differ. But the general intellectual atmosphere of the time is always determined by the views on which the opposing schools agree. They become the unspoken presuppositions of all thought, the common and unquestionangly acccepted foundations on which all discussion proceeds”.
Thanks to Jacob at Orgs and Markets.

All:

I believe that Matthew is DEFINITELY on to something here. What I believe is part of the issue is not that monetary calculation serves as a near miraculous co-ordinating social mechanism. It obviously does. Matthew believes that it does. (And, yes, Mises and Hayek are writing within the same tradition. I happen to believe that the Mises scholars are fully aware of this, but they feel, with good reason, that Mises was slighted by the Nobel committee.) But, methinks, and what I think Matthew is getting at, what needs further exploration are the "non-market" social co-ordinating functions. In short, the instrumental and strategic actions of Crusoe should be supplemented by discussions of "non-calculative" human action.

If this is not the case, then nearly all of human behavior may be explained in marginal terms. Is this the case?

A favorite -- Hayek explaining how to pronounce his name.

"It's Hi-ak, as in High Explosives -- (laugh)"

He seemed to be tickled that this ideas were intellectual dynamite.

Nice post, and a good way to commemorate Hayek's birthday!

I have many personal favourite Hayek quotes, but a particularly powerful one is the following:

"Part of our present difficulty is that we must constantly adjust our lives, our thoughts and our emotions, in order to live simultaneously within different kinds of orders according to different rules. If we were to apply the unmodified, uncurbed, rules of the micro-cosmos (i.e., of the small band or troop, or of, say, our families) to the macro-cosmos (our wider civilisation), as our instincts and sentimental yearnings often make us wish to do, we would destroy it. Yet if we were always to apply the rules of the extended order to our more intimate groupings, we would crush them. So we must learn to live in two sorts of world at once."

This quote speaks of the need to ensure that human actions are applied to their most appropriate circumstances. It also suggests that Hayek was acutely aware of the presence of different types of order at any given time, and of the conditions most conducive to their co-existence.

Steve wrote:

"Few humans can say they have profoundly changed the world of ideas and the world in which they live."

Absolutely true. But I hear tell that many many chimps can say they have profoundly changed the world of ideas and the world in which they live.

Brian - I completely agree with you here, as my recent research would suggest. Monetary calculation is necessary but not sufficient for the broad notion of social coordination that concerns Hayek. And because monetary calc is necessary, we cannot talk about Hayek's broader vision without also discussing Mises's sharper focus on the underlying microeconomic processes.

Julie - that was my second choice for my favorite quote. That quote also provides the core of the title for my current book project on the family and classical liberalism: "Two Worlds at Once".

A lot here to talk about.

Fav Hayek: his use of Hume's dictum to "use reason to whittle down the claims of REASON."

On Mario and Misesianism: the bottom line is that without Mises there would be no Hayek! Mises set the intellectual agenda. Not the way many modern day "Miseisan" try to capture Mises's program. But the way Hayek understood economics and social philosophy, and the way that Kirzner saw technical economics as aligning Mises and Hayek. I think Mises's research program is much "richer" than is currently communicated to students and faculty colleagues. If the Misesianism that is usually talked about was truly Mises, I with Mario would reject Mises. But I see so much more in Mises -- that makes possible Hayek and Kirzner ... and beyond. But I see myself as trying to pursue a Mises/Hayek paradigm in economics and political economy, though of course if you pushed me I would say that is Misesianism --- but if I am denied that label, fine --- though I think it sad that Mises would not be seen for the progressive thinker he was in the 20th century.

To Matt and Brian: first, I would stress that Steve Horwitz is right in my opinion; it is monetary calculation that enables complex social cooperation under the division of labor. Money is, as Mises pointed out in TM&C, a essential aid to the human mind without which social cooperation under the division of labor would not be possible. Second, I would stress that the problem of social coordination OUTSIDE the realm of monetary calculation is a signficant area of confusion. Kirzner, for example, will tell you that while there is entrepreneurship outside the market realm, there is not the competitive entrepreneurial process. Prychitko and I, deal with many of the issues in our piece on whether or not there is a signficiant market failure in the realm of philanthropy. Rathbone and I, deal with it in the realm of scientific funding. And, more broadly, Coyne and I address the issue across a wide variety of social phenomena outside the realm of the market. The bottom line --- coordination within the market setting is achieved through the functioning of property (incentives), prices (information), and profit/loss (innovation/learning). Through these filters, wishful conjectures are disciplined and actions are brought into alignment with the plans of others. They do not work perfectly, as Mises pointed out in Socialism, but they work as effectively as is humanly possible. The question become how, outside of this realm, do you find the functional equivalent of the filter mechanisms of property, prices and profit/loss so that wishful conjectures are disciplined and actors align their activities to produce socially desirable outcomes?

Think of each of the examples Hayek gives: money, markets, law, morals, science, etc. You have to go through an identify the incentives, information and feedback mechanisms that in operation.

Matthew raises these issues, however, as if they aren't on the research agenda of modern social scientists. But they are --- from Seabrights The company of strangers, to Coyne's After War, to the classic treatments of "How is Society Possible?" by Simmel --- modern social science has been grappling with the question of social order and in particular the problem of social change. Heck the Mercatus Center has an entire group of scholars working on questions of Social Change.

And yes, Steve Horwitz is working on a book dealing with the family -- and not reducing it to market transactions.

Finally, not sure why Matthew libertarianism has escaped your mind? Can you tell us why intellectually, not sociologically, you know longer find the argument for greater freedom and autonomy persuasive?

"Yet to break the principle of equal treatment under the law even for charity’s sake inevitably opened the floodgates to arbitrariness (Hayek, 1979, p.103)"

Walter Williams (see Econtalk) once asked Hayek what one law he would pass in congress if he could. He said it was easy: a law that required all future laws to be generally applicable to everyone, without exceptions.

He gave the pig farmer example, in which congress sometimes enacts laws that pays them NOT to grow pigs (when there is excess supply). That kind of law would not be allowed. This law would be ok though: EVERYONE in the country that decided not to grow pigs would be paid. Talk about a way to whittle down the power of pressure groups and lobbies.

Gosh, I just realized I highlighted this Hayek quote in 1967, from a second-hand copy of The Counter-Revolution of Science:

"The universal demand for 'conscious' control or direction of social processes is one of the most characteristic features of our generation. It expresses perhaps more clearly than any of its other cliches the peculiar spirit of the age. That anything is not consciously directed as a whole is regarded as itself a blemish, a proof of its irrationality and of the need completely to replace it by a deliberately designed mechanism. Yet few of the people who use the term ‘conscious’ so freely seem to be aware precisely what it means; most people seem to forget that ‘conscious’ and ‘deliberate’ are terms which have meaning only when applied to individuals, and that the demand for conscious control is therefore equivalent t the demand for control by a single mind.”
(Free Press 1955 edition, page 87)

Incidentally, does anyone have a pdf or link to Larry White’s introduction to the new edition of The Pure Theory of Capital?

ohhhh Jule, I am thinking exactly like you are. I would love to read that introduction by Dr. White. I almost bought the book for $50 just to read that introduction. A .pdf would be great!

Matthew: I agree, but apparently it is not available. I have the 1975 paperback University of Chicago reprint. I emailed Pro. White about this and he indicated that he was away from his office computer (where he thought he had a .doc version of his intro) for several months.

I assume that it is not just an introduction in the new edition, but also editorial footnotes and so forth. So I pulled the One Click at Amazon and should have the new edition soon.

The comments to this entry are closed.