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The list is awful. I can't believe it didn't include Becker Murphy Grossman's "An Empirical Analysis of Cigarette Addiction," testing (and confirming) a rational addiction model.

It would be interesting to see similar lists for Journal of Political Economy and the journal of law and economics.

the journal of law and economics would stand up well in terms of papers that can still be read with profit today, and for papers whose enduring contributions make up bread and butter economics.

JPE would do much better than the AER on these criteria too.


p.s. Lucas, Friedman, Mundell, Diamond, and Kuznets are the only papers out of 20 that touch on macroeconomics. of these, two are on growth theory, and one on optimal currency areas. Where are the great journal articles from the Keynesian viewpoint given that Keynesian macroeconomics is so popular again these days?

I think this is a great list. Out of the twenty, there are three written by unambiguous libertarians. Then you have Krueger and Lucas. So arguably a quarter of this list is very free market. Then you have Merton Miller, who is Chicago at least.

The only place it goes overboard is with Diamond, which seems like kowtowing to the Nobel Committee. Even then, OLG isn't exactly the worst macro model ever made.

I mean, look at all the names on the left that are missing. Samuelson? Akerlof? Bueller?

I even like that Shiller paper, but that's just me.

It is interesting to note, I think, that except for the 1920 article by Cobb and Douglas on "The Theory of Production" and Hayek's "The Use of Knowledge in Society" from 1945, none of the other articles selected are from before 1950.

I think this reflects the age range of most of the "distinguished economists" who made up the list, and the articles that may have influenced them when they were in their more intellectually formative or active years.

I really do not mean this as a "slight." I think that is just part of human psychology much of the time -- not all of the time, obviously -- that we are impacted by those ideas when we are either formulating our own conceptions about "how things work" or if they relate to what we are most actively working on and seems relevant to our own trains of thought at that time.

Most of the economists on this list are no longer developing new ideas or creative new variations on ideas. They are "elder statesmen" of the profession (certainly this applies to Arrow, Solow and Feldstein, I would suggest).

And an equally important reason, I think, is the the presumption that much older literature is, well, passe. Either no longer relevant or (if relevant) has been adsorbed into the more modern formulations. This fits in with some themes discussed recently on "Coordination Problem" about the disregard for the history of ideas.

Think if this list was being made up not about the 20 top economics articles from the AER of the last one hundred years, but the top 20 economics books during this period.

Among the books NOT selected would likely be Dennis Robertson's "Banking and the Price Level," or Mises' "The Theory of Money and Credit," or Gustav Cassel's "The Theory of Social Economics," or A. C. Pigou's "Industrial Fluctuations" (possibly his "Economics of Welfare"), or F. Lavington's "English Capital Market" (he formulated very precisely the Cambridge "transaction" and "precautionary" demands for money, using these terms, to which Keynes added the "speculative" demand for money); even Irving Fisher's "The Purchasing Power of Money" might not make such a list (more likely Friedman's "Monetary Theory of the United States" would be listed in terms of a significant defense of the quantity theory); and maybe not even Joseph Schumpeter's "The Theory of Economic Development."

Why? For the same reasons as the ones I suggested about journal articles.

Yet, for anyone with a degree of appreciation and reading into the history of economic ideas over the entire last 100 years, they would likely know the relevancy of these works in having influenced the thinking and controversies over the last 100 years within the economics profession; rather than only during the last, say, 40 or 50 years.

This list of distinguished economists should have included, at the least, a minority who would be considered fairly knowledgeable about the history of economic ideas over the entire period. And not merely economists who, in general, would have only thought about this in the context of their own intellectual life time.

Richard Ebeling

Their account of Hayek's paper is laughable -- an embarrassment.

Hayek.argues aexactly against any need for many of the types of knolwdge these writers claim Hayek shows are "needed".

As early as 1928 in his _MT&TTC_ Hayek attacks this vision of the "knowledge" needed to produce economic coordination.

After 65 years the "mainstreamers" still don't get it -- they are still misusing the Walsarian model.

So why haven't these illuminaries thrown their weight around an gotten Alchian the Nobel already?

I wonder why they made the list at all.

I'm not sure it's that different from the list you would have gotten pre-crisis. I was exposed to the large majority of those papers in school - the only one I had never even heard of was the consumer demand paper. That seems like a pretty good measure of what is important at any given time.

To return to Pete's question, I would have nominated Becker and Stigler's "De Gustibus Non Est Disputandum."

I am suprised that none of Samuelson's two dozen or so AER articles made the cut.

Could it be the case that more recent AER papers are so narrow and empirical that their impact is at best marginal or short-lived compared to the articles that are listed that try to answer BIG questions?

How about George Stigler's "The Division of Labor is Limited by the Extent of the Market", JPE, 1951

Krueger did not invent rent seeking. Tullock was first in 1967 in the Western Economic Journal (now Economic Inquiry). Compared to Tullock, her influence on the subsequent literature has been minimal. Tullock's paper was rejected by some major economics journals, including the AER, before it was accepted by the Western. I have seen the editorial correspondence, and it does not shine a kind light on some very well known economists.

Bob,

there was a paper in JEP in the 1994 on great articles that were rejected by leading journals.

see Gans, J.S. and Shepherd, G.B. (1994). How are the mighty fallen: Rejected classic articles by leading economists, Journal of Economic Perspectives 8: 163-179.

the top 20 rejects (often at the hands of AER) included

Akerlof, George, "The Market for 'Lemons': Quality, Uncertainty and the Market Mechanism,"

Becker, Gary, "A Theory of the Allocation of Time,"

Hotelling, Harold, "The Economics of Exhaustible Resources,"

Lucas, Robert E., "Expectations and the Neutrality of Money,"

To follow up Bob Tollison's point, here are some interesting links:

cameroneconomics.com/tullock%201967.pdf

www.ijbe.org/table%20of%20content/pdf/vol2-1/01.pdf

Here is our "distinguish" economists on Hayek's famous paper:

"The author addresses the fundamental question of the nature of the economic system and, in particular, its role in dealing with resource allocation when a fundamental knowledge base is distributed in small bits among a large population. The knowledge needed includes consumer valuations, production relations, and resource availabilities."

Hayek attacked this view already in 1928 -- and it certainly isn't what he was saying in 1945. Hayek's well known "tin" example is used to argue the opposite of what is said here.

This is like a "D" students reading of the paper, at best.

And these are the best and the brightest in "economic science" over the last few generations.

Lord help us.

I was hoping to see:

"Towards an Evolutionary Theory of Production," By Sidney G. Winter

"Mergers and the Market for Corporate Control,"
By Henry Manne

I'm not sure if they were ever published in the AER, though.

And here is Professor Hayek in the lauded paper.

"The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form, but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals
possess."

Sincere question: In what way does the brief introduction by the AER authors so dramatically miss the mark?

The authors say:

"The knowledge needed includes consumer valuations, production relations, and resource availabilities."

This is a typical understanding of the knowledge requirement for economic coordination implicit in the Walras construction -- as Hayek discusses in his 1928 book. Hayek is arguing the opposite -- this knowldege isn't needed.

Our authors assume what Hayek is attempting to disprove.

Greg, modern economics isn't interested in the more abstract type of argument. They think like engineers, not like philosophers. Also, they consider always the simplest type of argument the best and most scientific (perhaps an application of Occam's Razor). So, they have a much less sophisticated interpretation of Hayek than Austrians do.

Jonathan, I think that Hayek really meant that the knowledge is not the type of knowledge that you can put on paper, but the type of knowledge that you need in order to use the information. In other words, is not about the information about the preferences of the consumers, the production technology and the resource endowments, but the knowledge of how to use this information. Given this knowledge the dispersion of information ceases to be a problem to a central planner, since he can simply collect the information.

However, the worst paper in the list is probably this one:

Grossman, Sanford J., and Joseph E. Stiglitz. 1980. “On the Impossibility of
Informationally Efficient Markets"

It is really bad because prices don't "transmit" information, they only make economic decision makers to act as if they had the knowledge that others have. Prices only transmit information in the same sense that anything transmit information, as one can understand the world they live in looking at various elements of it, such as prices.

Also, in the model the market failure occurs because economic agents act on their private information and pull the prices in the market, revealing their private costly information to the other agents. However, real world prices don't change because of changes in supply and demand, but because of changes in the expectations of supply and demand. They got it 100% wrong.

While in the standard general equilibrium model we already have the correct role of prices as the glue that binds action plans together. They make a set of action plans become coordinated as if they were one plan formulated by a central planner in possession of the knowledge that all individuals involved have. The equilibrium role of prices is already there, no equilibrium model can add to the discussion without forcing it into unnatural directions.

I'm with Jonathan. I don't see where the description of Hayek 1945 goes off the rails. I guess I'm a D student . . .

Greg: If I understand you correctly, I think you could give them a more charitable reading. Sure, this knowledge "isn't needed" if by "needed" we mean that someone must compile and continuously update all of that knowledge in its extended form for equilibrium to be achieved. But I don't think that is what they mean. I think they understand that prices convey this knowledge in condensed form. That's why they are recognizing Hayek.

Well, it's truly bad writing then, William.

Knowing Arrow's prior interpretations of the "invisible hand" and GE, however, I don't think the problem is with the writing.

Roger, which sentence do you believe Hayek would write?

"Understanding the causal process of the market order involves the fundamental question of the nature of the economic system and, in particular, the role relative price signals play in bringing about the coordination of resource uses when an understanding of the elements of the whole economic system are distributed in countless individual judgments of local conditions. The knowledge _not_ needed by those functioning within this signaling system includes consumer valuations, production relations, and resource availabilities."

Or:

"The author addresses the fundamental question of the nature of the economic system and, in particular, its role in dealing with resource allocation when a fundamental knowledge base is distributed in small bits among a large population. The knowledge needed includes consumer valuations, production relations, and resource availabilities."

Here's Hayek in 1929,arguing against C. O. Hardy's account of the informational role of prices:

"The protagonists .. seem to overlook the fact that production is generally guided not by any knowledge of the actual size of the total demand, but by the price to be obtained in the market. In the modern exchange economy, the entrepreneur does not produce with a view to satisfying a certain demand — even if that phrase is sometimes used — but on the basis of a calculation of profitability; and it is just that calculation that will equilibrate supply and demand. He is not in the least concerned with the amount by which, in a given case, the total amount demanded will alter; he only looks at the price he can expect to get after the change in question has taken place."

In other words, the information _not_ needed by the entrepreneur includes: consumer valuations, production relations, and resource availabilities.

Arrow et al seem clearly working closer to a Hardy "givens in a math construct" conception of the "knowledge" involved than anything like a Hayekian profit signal / price signal causal market process involving entrepreneurial judgment.

This is the same gulf you find between Boettke and Stiglitz, and it's at the heart of the difference between Hayek's explication of "the invisible hand" and Arrows (famously, Arrow says Smith's "invisible hand" is just the GE construct).


Greg, what is this 1929 paper you're referring to?

Rafael, this is what alarmed Hayek in the 1930s -- leading to much of his work of the 30s and 40s. Hayek saw the destructive damage an "engineering" type of thinking was doing to economic science -- the key insight for Hayek was the bogus habit of reifying "givens" in a math construct as if these entities could represent actual states of the world or states of knowledge in the minds of folks coordinating their behavior in the market.

Actually, they exist no where but in the pure logic of an economists mind, moving about in a math construct.

Mistaking his view of the contents of his mind when contemplating a math construct for a view of the causal process of the market is, for Hayek, the great fallacy of modern economics.

Rafael writes,

"Greg, modern economics isn't interested in the more abstract type of argument. They think like engineers"

Hayek's _Monetary Theory and the Trade Cycle_, German edition, 1929; English edition, 1933.

Greg:

I can't imagine Hayek using underscores for emphasis in his writing, even in 1945.

Perhaps I am misreading these two quotes. It seems to me that:

(1) Hayek is talking about the knowledge an individual functioning within the system must possess for the system to work--these individuals, according to Hayek, do not need to know consumer valuations, production relations, and resource availabilities.

(2) The AEA committee is not talking about the knowledge individuals must possess, but rather the knowledge the economic system must make use of if the equilibrium allocation is to be achieved. The system needs to account for consumer valuations, production relations, and resource availabilities.

There seems to me no conflict here. Consumer valuations, production relations, and resource availabilities must be accounted for if the equilibrium allocation is to be achieved. But individuals need not know the specifics with respect to consumer valuations, production relations, and resource availabilities because this information is embedded in prices as a result of the market process.

You are making the case for horrendously bad writing, William.

Perhaps you are right. I'd still suggest even in that case that the bad writing is ras suggestive of incomplete and defective understanding as much as it is incompetence with the language.

Case in point, Hayek is suggesting that we don't actually get "an achieved equilibruim allocation which perfectly acconts for "given" Consumer valuations, production relations, and resource availabilities" -- we get something similar in form or structure, and something which approximates that "idea". But it's a conflation of the model for the phenomena to mistake the math construct of an equilibrium "allocation" for the coordinated order of the market.

And note well, this "equilibruim allocation" language is Arrow's language for describing Smith's invisible hand.

William writes,

"Consumer valuations, production relations, and resource availabilities must be accounted for if the equilibrium allocation is to be achieved."

I do not think Hayek would have said, "The knowledge _not_ needed by those functioning within this signaling system includes consumer valuations, production relations, and resource availabilities." Or if he would have, well so much the worse for Hayek.

If we're gonna have pencils, doesn't *somebody* need to know how to run the pencil factory? No one needs to know all the things Leonard Read rightly drew to our attention. But somebody's gotta know the "production relations" of pencil making if pencils are gettin' made.

If we're gonna have pencils, doesn't *somebody* gotta know that a lot of people would like to have pencils? No one needs to know all the demands for all goods. It is not even strictly necessary that anyone work out the aggregate demand for pencils, though I bet Staedtler has done just that. But somebody's gotta know enough about consumer valuations to think it might be a good idea to make pencils.

If we're gonna have pencils, doesn't *somebody* gotta know where to get the stuff you use to make a pencil? No one needs to know the availability of all resources used for all purposes. But somebody's gotta know how to get the inputs to pencil making if pencils are gettin' made.

In other words, what Will said.

The list says something about the editorial policies of the AER since 1981. There is not one article from the last 3 decades in this list.

What can I say, Roger. The whole point of Hayek's famous "tin" example is the opposite of the point you are making here -- the point is that prices communicate information without requiring any knowledge of resource availabilities on the part of that those who grasp these signals.

In any case, you are simply making the bad writing argument, which I don't buy, esp. given the fact of Arrow's interpretation of the "invisible hand", the GE construct, and the efficiency of the market.

Roger writes,

"I do not think Hayek would have said, "The knowledge _not_ needed by those functioning within this signaling system includes consumer valuations, production relations, and resource availabilities." Or if he would have, well so much the worse for Hayek."

I sort of agree that "needed" is poor choice of word, but a contrario I'm not sure Hayek would have used the word "knowledge" if coordination was the result of ignorants doing random transaction...

Then again, it's true that if their introduction to Hayek's article had stressed a little bit more that those "needed" knowledges are local and partial we wouldn't be having this conversation.

The reason for being of Hayek's article is to explain "the marvel of the market" -- which is NOT captured in the GE construct, or in Arrow-type explications of the invisible hand and market efficiency. And the problem isn't merely the implicit perfect knowledge assumption of the GE. The problem is a misinterpretation of the _market_ based on a reification of the GE construct as if the GE construct _was_ the market, or as if it was the "invisible hand" (exactly what you find in Arrow). You can interpret the GE as if it were a distributed knowledge system.

Here's Hayek:

"these adjustments are probably never "perfect" in the sense in which the economist conceives of them in his equilibrium analysis. But I fear that our theoretical habits [has] .. led us to apply rather misleading standards in judging its efficiency. The marvel is that in a case like that of a scarcity of one raw material, without an order being issued, without more than perhaps a handful of people knowing the cause, tens of thousands of people whose identity could not be ascertained by months of investigation, are made to use the material or its products more sparingly; i.e., they move in the right direction. This is enough of a marvel even if, in a constantly changing world, not all will hit it off so perfectly that their profit rates will always be maintained at the same constant or "normal" level."

Our distinguished economists completely fail to communicate Hayek's central point -- and use language that indicates they are sliding right back into the picture inspired by the GE construct that Hayek is attacking -- a picture Arrow explicitly endorsed in his writing on efficiency, the "invisible hand" and the GE.

There is something at issue here besides whether the little Hayek writeup was adroitly done. I think we make a fatal error when we scoff at "neoclassical" luminaries for their supposed Utter Failure to grasp the Great Truth of Mises or Hayek. That's a trap. "We, the keepers of the keys have judged you, Kenneth Arrow, and found you wanting. Hah!" That's a terrible Austrian vice, and it's a trap. It gets you off the hook. Having judged Arrow or whomever wanting, you are no longer under any obligation to engage and persuade. For anyone who wishes to be disengaged and unpersuasive, well bully for you. But only a minority of scholars are "Austrian" in the sense of this blog. What's the point of being disengaged? I'd rather stay out of the trap and presume that Kenneth Arrow and others are serious intelligent scholars. I'd rather presume that is it *our* fault if this or that "Austrian" lesson has not been learned. I'd rather remove the beam from my eye than the mote from Kenneth Arrow's eye, thank you very much. In other words, I'm not that big on preaching to the choir.

Thanks all for helpful discussion on the meaning of the introduction to Hayek’s paper. I am inclined to a charitable view…in part because the paper was chosen from thousands to be featured, and in part – having been a coauthor - I know that awkward locutions can survive (no doubt I have been a perpetrator).

On the substance I think that Greg’s recent post regarding the tin example where he states “the point is that prices communicate information without requiring any knowledge of resource availabilities on the part of that those who grasp these signals” gets to the heart of the matter. I agree with this statement, but offer a simple point….“those who grasp these signals” are not the only actors. There are also those who send the signals. Prices change because people take actions. In a “rational economic order” of the type that Hayek is examining, those actions reflect the (imperfect) knowledge of the actor, whether it is a consumer valuing a good, or a producer’s evaluation if the productive capacity of his plant or availability of materials in light of business plans. I don’t think we can imagine a rational economic order absent this knowledge.

Greg Ransom: "The whole point of Hayek's famous "tin" example is the opposite of the point you are making here -- the point is that prices communicate information without requiring any knowledge of resource availabilities on the part of that those who grasp these signals."

Once the price of tin has changed, no one needs to know why. They don't need to know anything about the change in consumer valuations, production relations, or resource availabilities. But prices don't just change. People change them! And the man on the spot who initially says "I should be charging a higher price for tin" does so because he sees that people are lining up for his rapidly diminishing stock of tin. He recognizes that there is some change in consumer valuations, production relations, or resource availabilities. He may not be able to articulate this change. But he observes it. And he gets the ball rolling on sharing this information with everyone else through the price system.

Mathieu Bédard: "Then again, it's true that if their introduction to Hayek's article had stressed a little bit more that those "needed" knowledges are local and partial we wouldn't be having this conversation."

Of the *four* sentences written on Hayek's paper, one states that the "fundamental knowledge base is distributed in small bits among a large population." Given that this phrase takes up about half of the sentence, roughly 12 percent of their paragraph is devoted to this point. If we include their phrase "In particular, general scientific principles, where expert opinion might be best, are only a small part of the knowledge base." as further discussion of the dispersed nature of knowledge, we can say that its roughly 38 percent. And including "an impossible aggregation of information in a central place." takes us to 50 percent.

They are trying to say in one paragraph what Hayek says in 11 pages. It should be no surprise that they are less precise.

I was trying to soften my previous sentence. I don't disagree.

Roger.

I'm not an Austrian economist.

My main research focus is on the problem of how economics provides explanations -- and the related problem of making sense of economics as a science.

Right at the core of this problems is the problem -- how do we make explanatory use of the GE construct?

Arrow and Hayek provide paradigms of two importantly different ways to use the GE construct to answer the questions that interest me.

What I"m interested in is figuring out how to cleary explicate the explanatory differences between Hayek and Arrow -- and how to at the same time explicate the fact of their common interest in the GE construct.

This isn't easy. But it is made harder when people muddle over the issues at hand -- or fail to see them at all.

In other words, how can one engage a contest of explanatory paradigms if one makes the differences which matter disappear by muddling them and obscuring them?

And secondarily, I'm interested in red flagging the signal fact of the explanatory failure of the "mainstream" approach to economic explanation -- something Hayek himself became less reluctant to do in public as the years passed.

This is important as a matter of good public policy.

Economists have done damage to the economy -- and my neighbors -- directly as a result of patent deficiencies in their erroneous effort to explain things "scientifically".

Bad science which damages people and which is part of the public debate does not deserve deference simply because the bad science -- the bad explanatory strategy -- is coming from folks who at one time produced clever math constructions.

And frankly, I've had it with the low quality of the literature on Hayek.

People (no matter who they are) shouldn't have a pass when they produce work referencing Hayek that doesn't stand up to examination -- this has been all to common in the scientific literature of academic economics. And it is an embarrassment to you profession.

And Arrow is one of the people who comes to mind when I think of this -- and Arrow's purposes are not free of an agenda. Arrow has grossly mischaracterize Hayek's Burkian and evolutionary in order to dismiss Hayek. Galbraith ans Samuelson did the same thing with the public choice work in Hayek's _The Road to Serfdom_ for similar agenda driven reasons.

These guys need to be called out on this, as Hayek realized too late in the case of Samuelson -- after Samuelson's attacks had seriously damaged Hayek's reputation among young scholars.

Sorry, make that:

"Arrow has grossly mischaracterized Hayek's Burkian and evolutionary arguments about property law and cultural institutions."

Let me make one suggestion about this debate.

We have to be careful not to read Hayek anachronistically. His own view of the argument he makes in the 1945 article changed, evolved, and became more sophisticated in his later years. For example, it's hard, in my view, to really make the case he was talking about truly tacit knowledge in the 45 piece. It's sorta there, but not really. It IS there later on.

We, and I include myself here, often want to read into a scholar's early work all the fruitful insights that he or she developed in later work, even though they may not be there.

My own view is that the 45 article lends itself to either reading. (In fact, one of my colleagues and I recently talked about just this as he has always had the "neoclassical" reading of the 45 piece but I at least persuaded him that there's an alternative interpretation one could make.)

In other words, it's possible that the AER guys have offered a reasonable interpretation of the 1945 article, but a bad reading of *Hayek's larger vision* that one couldn't really see until later.

Greg might argue it was all there in 1945. Maybe, but it wasn't clear and it wasn't explicit and thus the AER editors' reading of it is, in my view, not implausible, though it IS inferior.

Steve, the point I'm making about prices and information is there -- explicitly -- in Hayek's 1929 book.

And his point about how to use -- and how not to use -- the GE construct was there in his 1937 article and in is 1941 book.

And it's there in his 1945 article, in parts I've quoted or referred to just above.

Already in 1929 Hayek is talking about profits and loses as the key coordinating signals producing market order -- and prices as providing signals for coordination without communicating all of the information contained in an economists model of the economy / price system.

Greg:

Will's point above is also well-taken. It's not possible for *everyone* not to have to know everything. Someone has to know that the supply of tin has declined has to act on that knowledge. For the rest of us, yes, prices serve as "knowledge surrogates" but that doesn't mean there is no need EVER for the sort of knowledge that the AER folks are talking about.

And I quote from the article, with the relevant portions in caps:

"All that the users of tin need to know is that some of the tin they used to consume is now more profitably employed elsewhere and that, in consequence, they must economize tin. There is no need FOR THE GREAT MAJORITY of them even to know where the more urgent need has arisen, or in favor of what other needs they ought to husband the supply. IF ONLY SOME OF THEM KNOW DIRECTLY OF THE NEW DEMAND, and switch resources over to it, and if THE PEOPLE WHO ARE AWARE OF THE NEW GAP thus created in turn fill it from still other sources, the effect will rapidly spread throughout the whole economic system and influence not only all the uses of tin but also those of its substitutes and the substitutes of these substitutes, the supply of all the things made of tin, and their substitutes, and so on; and all his without THE GREAT MAJORITY of those instrumental in bringing about these substitutions knowing anything at all about the original cause of these changes. "

Steve -- I get it that people have to be aware of many things.

But think about it. In classic "mainstream" accounts of the "invisible hand" and the "efficient market hypothesis", if you are talking about resource allocation assuming a distributed knowledge of consumer valuations, production relations, and resource availabilities, this knowledge comes in "bits" described in mathematical terms, as "givens".

Now, if I'm starting say a gold mining operation, I don't need to know the "consumer valuations" mapped out in an indifference curve for anybody, I don't need to know the production relations involved in industries upstream or downstream from my own, and I don't even need to know much of anything very specific about resource availabilities -- in other words, I don't need to know if prices are going up because of a change in tastes or because of a drop in production elsewhere, or because of a change in how things are produced using my product.

And I have no doubt, that when our economists use the language of "consumer valuations, production relations, and resource availabilities" what they have in mind are the "given" bites of distributed knowledge in their mathematical constructs.

The whole point of Hayek's article is to draw attention to the "marvel" of the signaling role of prices -- and to get economists to see that knowledge implications of the "given" bites of "knowledge" distributed in the equilibrium construct go far beyond the knowledge conveyed by prices -- or needed for the coordination of economic activities. The "neoclassical" reading of the '45 piece as found in Arrow or many textbooks just is a "distributed knowledge" interpretation of the "givens" of the GE (i.e. Arrow's version of Smith's "invisible hand" or the distributed knowledge / prices version of efficiency claims about the market).

Sorry, make that "claims about market efficiency under conditions of distributed information" rather than "the efficient market hypothesis".

I'm assuming some of you have read Arrow's account of "the invisible hand".

Is that assumption correct?

Greg,

You know that I don't disagree with the point you're making above about the difference between Hayek's view of these issues and the GE take. I've been making that argument for 25 years (see Boettke, Prychitko, Horwitz 1986 for starters).

My point was only to say that the GE reading of that paper is not because people like Arrow etc are stupid or malicious or lazy. Given their worldview, that paper is open to that reading. It's a wrong reading I think, but it's not utterly implausible if you approach it with their priors. Calling them stupid and bad scholars etc for their reading deserves exactly the response Koppl gave you.

I've posted a challenge for those of you who find the AER summary wanting.

http://perfectsubstitute.blogspot.com/2011/02/aer-recognizes-hayek-1945.html

Steve, I didn't call anyone stupid.

And I don't care what their priors are. As a reading of the paper, it's not even close. It misses the point -- the point about prices, the point about the misuse of the economist's construct, etc. That's why I say as an account of Hayek's paper it's something other than an "A" student explication, in fact, it is an embarrassment. If you miss those things, you really are missing the reason for being of the article.

And their "world view" or their status in the profession doesn't make it the opposite of what it is.

"the GE reading of that paper is not because people like Arrow etc are stupid or malicious or lazy"

No. It's not.

I haven't said or suggested that it is.

When I was talking about Arrow's attack on Hayek's Burkian conception of tradition, I was extending my argument for holding the literature and the members of the profession to some minimal standard of professionalism and competence.

I've not suggested any such thing in the GE case, but in fact Arrow sometimes has been stupid and malicious and lazy in his efforts to diminish and marginalize Hayek -- stuff in the published record I'm guessing you are not familiar with.

It's been almost 20 years since Esteban Thomsen's _Prices and Knowledge_.

At what point do we hold professionals accountable for knowing the professional literature on this topic?

Their high power status doesn't exclude them from professional accountability, I wouldn't think.

Greg - please can you provide a reference for where Galbraith attacks Hayek's public choice work. Thanks in advance.

"In other words, it's possible that the AER guys have offered a reasonable interpretation of the 1945 article, but a bad reading of *Hayek's larger vision* that one couldn't really see until later."

I can see how that paper could be taken that way. I remember in a discussion somewhere else someone writing in a comment to me that "Hayek doesn't take account of asymmetric information" in that paper. Which was a very different way of looking at it to those of us who think it's about asymmetric information.

However, I think it's a difficult to look at it that way if you've read just a little more. The next article in "Individualism and the Economic Order" directly after "The Uses of Knowledge in Society" is "The Meaning of Competition".

Greg,

I think you are correct in arguing that a flaw in Hayek's approach may have been that it was to non-confrontational to ideological opponents. In an interview Hayek gave he explained that he and Keynes were friends because they stopped talking about economics. So we had to wait for Russ Roberts's rap video at a MUCH later date to bring to public attention the clear ideological dichotomy.

The Galbreith article is a survey piece collected in some economics anthology. My copy of the article is currently in the attic.

Galbraith studies with Hayek at the L.S.E. -- making Galbraith's behavior particularly petty and partisan.

Hayekian writes,

>>Greg - please can you provide a reference for where Galbraith attacks Hayek's public choice work. Thanks in advance.<<

Hayek was an old school, old world, gentleman.

He had standards and he had class. This didn't always serve him well as a scientist or as someone trying to make his way in a career.

One example of Hayek's sense of decorum: when Hayek presented his 1945 paper at Harvard, he dropped the last 4 paragraphs of the paper out of personal courtesy to Schumpeter (who had aided Hayek's early career).

Similarly, Hayek always waited a long decent interval, until someone was very cold in the ground -- dead for years -- before beginning to tell the truth about the person, or his real considered views about their work.

But in his old age Hayek did begin to speak his mind -- calling out Laski as a chronic liar, calling out Keynes as an economist with very knowledge or training in the economic literature, etc. But even in these accounts, Hayek explicitly holds back ..

It's also true the Hayek sometimes challenged economic ideas without being very specific about exactly whom or exactly what he was challenging.

This may have been the result of the fact that Hayek was so badly burnt by his careful and detailed evisceration of Keynes' _Treatise_ -- all it earned Hayek was a vicious and powerful below the belt foe with many followers.

And focusing on the work of others wasted so much time, to so unsatisfactory an end.

And Hayek genuinely liked Keynes as a man -- at the time Hayek seemed not to understand what Keynes had done to him, or what attitude Keynes took to him behind his back.

Keynes was a long time hero to Hayek, and I think he felt a bit flattered by his not unwarm personal relationship with the great man.

Jmcclure writes,

"I think you are correct in arguing that a flaw in Hayek's approach may have been that it was to non-confrontational to ideological opponents. In an interview Hayek gave he explained that he and Keynes were friends because they stopped talking about economics. So we had to wait for Russ Roberts's rap video at a MUCH later date to bring to public attention the clear ideological dichotomy."

In the early 1980s Hayek wrote a piece in the Economist laying out his differences with Keynes, and one or two pieces sprinkled over the decades, one in the late 1950s, another in the early 1970s, etc.

Back to the articles. In my view, many of these articles lack precise definitions which enable measurement of the variables discussed and the authors aldo do not try to do so (exceptions: Kuznets, Mundell, Hayek, Friedman more or less, Shiller, Cob and Douglas). I think this lack of scientific method is symptomatic for much economic thinking. In most sciences, you get famous because you discover something like DNA or ancient scrolls. Not so in economics: who said when what about whom, what did he mean with that and who misunderstood that - come on guys, lets move on, to a measurable world (take the example of Krugman, who's getting better at this every week).

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