Thank You Alex for the Corrective to Krugman and Warsh

|Peter Boettke|

Alex Tabarrok helps to set the record straight on Hayek and modern macro.  Hayek's influence in modern economics is ubiquitous, even if sadly modern economics is not as Hayekian as I would like it to be.  Information economics, theories of dynamic competition, equilibrium theory of the business cycle, and complexity theory all owe a debt to Hayek's economic contributions.  The work on legal origins owes a debt to Hayek's work on law and political-social philosophy as well.  Hayek impacts the DNA of economics and political economy to such an extent that many are unaware of the pervasive influence.

Then add to the mix confirmation bias among certain segments of the economics profession --- such as Krugman.  This is no surprise, Krugman is a Keynesian economist.  To him non-Keynesian economists are a caricature of some position he considers completely unreasonable to hold.  So in his reading it makes no sense but to see Keynes's chief rival at the time as unreasonable (so unreasonable in fact to as not even have been a rival at all --- rivalry implies the competition was close).  Hayek cannot possibly be useful today because he was so soundly defeated back then.  But what if Hayek's defeat was an error of judgement by professional economists and policy makers? 

And moreover, what if we separate Hayek's ideas in economics from Hayek's iconic position within our political culture.  Can Krugman assess the ideas in The Road to Serfdom, rather than the bastardized presentation by those on the left and right of the political spectrum? I am talking about the subtle points about democracy and the limits of agreement; about interest groups and the political economy set in motion by the critique of laissez faire; about the selection process of leadership within a planned economy; and about the tension between socialist planning, democracy and the rule of law.  In short, can Krugman deal with The Road to Serfdom the way Keynes himself did at the time it was written?  I don't think so.  Warsh refers to The Road to Serfdom as an embarrassment, really?  Has he actually read what Hayek wrote and the subtle argument he presents in the book.

The final problem I have with both Krugman and Warsh is that they don't actually consult the historical record and the accounts of those who were there in the 1930s when the battle was engaged or the direct citation evidence from post-WWII thinkers such as Koopmans, Hurwicz, etc., all the way to Lucas, et. al. Instead they rely on impressionistic accounts from their education and discourse communities, and cherry pick from recent journalistic histories of economics.  Why not listen to people like Shackle -- who studied with Hayek at the LSE but became persuaded by the Keynesian argument?  Or, listen to individuals like Coase who were at the LSE in the 1930s.  Or they could consult Sir John Hicks, who wrote in his essay "The Hayek Story" that:

When the definitive history of economic analysis during the nineteen thirties comes to be written, a leading character in the drama (it was quite a drama) will be Professor Hayek. . . . Hayek’s economic writings . . . are almost unknown to the modern student; it is hardly remembered that there was a time when the new theories of Hayek were the principal rival of the new theories of Keynes. Which was right, Keynes or Hayek?

Keep in mind that Hicks wrote that in 1967, a decade latter Bob Lucas would be using Hayek's work on the equilibrium foundations of the business cycle to explain his own work in "Understanding Business Cycles", a few years after that Vernon Smith would frame his market experiments as "testing the Hayek hypothesis", and a decade after that Joe Stiglitz would have a section of Whither Socialism? devoted to Hayek versus Stiglitz.  A lot of attention by some very worthy Nobel Prize winners across the ideological spectrum for a guy who is only known for his political position and not his economics! 

Do I wish the economics profession was more Hayekian in nature?  Of course.  Do I think Hayek gets abused by those on the right and on the left of our political culture?  Of course.  But was Hayek a major figure in 20th century scientific economics?  OF COURSE.

Hayek is the leading representative of mainline economics in the second half of the 20th century (Mises and Buchanan being the others).  These are the men who sit in the seat of Adam Smith and demand our attention, and they are to be juxtaposed to the mainstream of economics which is what is currently fashionable in science and politics.  To miss that, is to misunderstand what is fleeting and what is enduring in the history of the disciplines of economics and political economy.

 

Comments

[Steve Miller]

Well said.

[Becky Hargrove]

One of the things that bothered me about the Warsh article was the assumption that should an economist become a political activist, somehow their status as an economist was invalidated. How limiting is it when we cannot act upon our beliefs, our experiences and all that we are taught?

[J Oxman]

Becky,

So then wouldn't Warsh's assumption be ultimately an attack on Krugman? Or, at least, he'd be saying Krugman no longer is an economist, since Krugman is acting as a political activist.

[Greg Ransom]

To be fair, there really isn't a serious book on Hayek's role in the history of economic thought, esp. his role in the "Keynesian Revolution" which was not insignificant.

What we are seeing from Warsh & Krugman is some of the backwash from Wapshott's very shallow, error filled & understanding challenged book on Hayek & Keynes.

[Daniel Kuehn]

I'm sorry, but this post is way off base Pete. All the things you list would have proceeded much the same without Hayek as with him. The one exception may be complexity theory, but even there it's more a matter of a subgroup in that field with strong Hayekian influences, and a lot of other people working on the issue that have nothing to do with Hayek. But the first three have grown largely independently of Hayek. Does Hayek's work complement this work well? Of course it does. But I don't think it's wrong to say that he hasn't made a major mark on it.

Economics is a fundamentally Smithian science. You can't point to every Smithian impulse in modern economics and attribute it to Hayek. What would have been different without him? Certainly little in macroeconomics. The one real solid contribution is the SCD, but who do people generally see as firmly establishing the superiority of the market over planning? Outside of the Austrian blogosphere most people think Arrow-Debreu, not Hayek-Mises. I personally value the Hayek-Mises contribution to the SCD (and actually that's one of the few areas where I even somewhat prefer Mises's contribution to Hayek's). But this attitude that some people have that we'd all be socialists if it weren't for them overstates the case.

re: "To him non-Keynesian economists are a caricature of some position he considers completely unreasonable to hold."

This is a low blow Pete and also obviously false. Krugman is perfectly willing to - and has - noted the importance of contributions by lots of non-Keynesians to macroeconomics. Is his interpretation always kind? No. But it's not a matter of being dismissive of non-Keynesians. He's simply recognizing that Hayek is not particularly essential to the development of macroeconomics.

re: "But what if Hayek's defeat was an error of judgement by professional economists and policy makers?"

Note he specifically says that being marginal to the development of macroeconomics is not the same is not having important economic insights.

I fully concede that Krugman is not going to give us an insightful commentary on TRTS.

I think you're confusing claims here because you're not willing to give Krugman a fair read.

As far as I can tell, the claim is not that Hayek is never cited. The claim is not that Hayek didn't have important insights. The claim is not that Hayek is deserving of his Nobel. The claim is not that the modern renditions of Hayek (many of which have been rightfully lambasted on this blog) are representative of Hayek (quite the opposite - Krugman is claiming these modern renditions give a false impression of the man).

The claim is that Hayek did not fundamentally change the trajectory of macroeconomics. This seems fundamentally right, except that perhaps we could have a respectful argument about whether the Lucas critique would have happened anyway. I don't see how it wouldn't have happened anyway personally, but reasonable minds can disagree on that.

There's way too much vitriol in all of this Keynes v. Hayek mania. People think that if you're not singing Hayek's praises you're saying he's worthless. People think that this is some liberty vs. statism contest. Neither are true.

[Daniel Kuehn]

This is more my read of Krugman - I only skimmed Warsh yesterday, and from what I did read he seemed over the top.

I also would put more importance on the early 1930s debate than Krugman seems to. But I would agree he didn't make that big of an impact on macroeconomics.

I'm curious - what do people think of this statement FACTUALLY: "Without The Road To Serfdom — and the way that book was used by vested interests to oppose the welfare state — nobody would be talking about his business cycle ideas"

Simply as a matter of history. Note he's implying here that the dumbed down readings of TRTS are NOT fair - that TRTS was co-opted. Take yourself out of the community of Austrian scholars - would anybody be talking about ABCT today if political vested interests like Reagan or Ron Paul or conservative movement vested interests like Glenn Beck didn't latch on to TRTS? It seems likely we WOULDN'T be talking much about ABCT outside of Auburn, Fairfax, NYU, Grove City, and a few other places.

[Roger Koppl]

When you can't win with the cards you've been dealt, knock the table over.

[Roger Koppl]

BTW: Hayek's treatment of the rule of law in The Road to Serfdom was an important source for Fallon's much-cited 1997 survey of the idea. The claim that RTS was insubstantial is itself insubstantial.

Cite: "The Rule of Law as a Concept in Constitutional Discourse," Fallon, Richard H. Jr. Columbia Law Review, 1997, 97 (1).

[Calvin]

Daniel,

How many people were irreplaceable in the history of macro? What is Krugman trying to say? Either your vapid but true point, or something more analytical but false.

It seems highly plausible that Hayek and his theories would have been held up as the opposite of Keynes for the sake of political theatre even without TRTS, since that was indeed the state of affairs in the 30s for some time. Furthermore, what is generally considered a Hayekian consideration of how economics ought to be done and what elements are important to study is quite different from and opposed to what is generally considered a Keynesian consideration of such things.

[Martin]

"would anybody be talking about ABCT today if political vested interests like Reagan or Ron Paul or conservative movement vested interests like Glenn Beck didn't latch on to TRTS?"

Daniel,

if we're talking vested interests, who would be talking about Keynes, were it not for vested political interests?

Also, the rendition of history given by Warsh was horrid, not only did he get the dates wrong (P&P 1927 really?), the facts wrong, he also repeated myths long debunked (Friedman blocking Hayek at Chicago). Am I supposed to believe him on Hayek's impact on the history of macro when he gets everything else wrong?

[Daniel Kuehn]

Calvin -
It's not vapid. Tell me this - what macroeconomic insight important to the field wouldn't we have today without Hayek? I can't think of any obvious ones. I am interested in knowing more about Lucas's inspirations - but I don't see how the Lucas critique depends on Hayek in any way. Like I said in my comment - there's probably a reasonable debate to be had on that one.

This: "Furthermore, what is generally considered a Hayekian consideration of how economics ought to be done and what elements are important to study is quite different from and opposed to what is generally considered a Keynesian consideration of such things."

Is vastly overblown by a lot of Austrians.

What gets called "a Hayekian consideration of how economics ought to be done" is really just a Smithian consideration and it's widely embraced. What gets called "a Keynesian consideration of how economics ought to be done" is generally a lot of bunk that has nothing to do with Keynes. Obviously there are different ways to look at a problem and we should look at them in multiple directions. But you can't point to the fundamental Smithian nature of economists and call that for Hayek. I also don't think you can plausible contend Keynes stands outside of that tradition just because some problems are thought about somewhat differently.

[Daniel Kuehn]

Martin -
re: "if we're talking vested interests, who would be talking about Keynes, were it not for vested political interests?"

I think Keynes would have had about the same currency in the discipline. I've never been particularly convinced by Pete's claim that political convenience explains its rise.

I don't understand why this is so controversial. Austrians say off-handedly all the time that Hayek got frustrated with PTC and abandoned macro after the 1930s to look at other topics. Why is everyone getting so riled when people make the claim that he didn't impact macroeconomics all that much? There's one single reason: Paul Krugman. No matter what the man says, everybody closes ranks and attacks him.

If in an Austrian's post about Hayek it had been written that Hayek didn't have much of an impact on macro after the 30s and became famous for more politically relevant works, nobody would bat an eye. There might be quibbles raised in comment sections about SCD or neuroscience, but this is has been the uncontroversial bio summary... until it comes out of Krugman's mouth.

I think there's a lot of interesting stuff in Hayek's macro myself. That doesn't mean it's made much of an impact on macroeconomics.

[Calvin]

Daniel,

Quite a lot of macroeconomic insights important to the field would have happened without quite a lot of thinkers. I could reasonably and prooflessly argue that Clark, Knight, and Hansen, just to list a few off the top of my head, were ultimately replaceable. Yet it is obviously completely false to say that they were not each "an important figure in the history of macroeconomics."

Paul Krugman is simply making a false claim, and you're defending him by changing his claim to another claim with less content.

"Hayekian" and "Keynesian" economics are clearly different in the relative weight they place on formalism, the way information works its way through the economy (which needs a heavy dose of physics IMO), the nature of the scientific process, and so on. None of these are particularly Smithian issues, nor would I say that Hayek or Keynes were particularly Smithian regarding the elements that made Smith such an effective economist. Coase and Vernon Smith, and now Ostrom, too. Hayek and Keynes, no.

[Martin]

Daniel,

The discipline has seen people before claiming that a recession/depression was due to a failure in effective demand (ie. Malthus, Sismondi etc). In none of these cases did it catch on (Malthus even changed his mind on it later).

More general, in the history of ideas, you can see that ideas that have become popular were expressed by others in earlier times, but then did not catch on just because 'the time wasn't ripe for it/the world wasn't ready'. The point is that, and especially in fields such as economics, new ideas often turn out to be yesterday's fallacies and today's fallacies will turn out to be future innovation, merely because the political climate is ripe for it.

Sure you can deny that, but you'd be implicitly endorsing a 'Whig-view' of history where truth is gradually approximated as time marches on. This is hardly ever the case.

[Roger Koppl]

Daniel,

Maybe I don't know what you mean by "after the 30s," but Hayek's influence on macro is pretty hard to deny. H's infinitely cited paper is Use of Knowledge, which was a huge influence in micro and macro alike. But Hayek is also the one who gave us dated commodities in a GE model, which later found in Arrow & Debreu. In a comment on the Warsh post, Barkley Rosser says Fisher got there at about the same time, but that Hicks got it from Hayek. Lucas had a GE model of the business cycle, which is pure Hayek. Ya' just can't doubt this stuff when, after all, Lucas says he was picking up on Hayek. Somewhat more generally, the people in the Mises Circle, including Hayek, Machlup, Haberler, and Mises, were an important influence on post-war orthodoxy. Just think of the role of the Robbins Essay, whose definition of economics was universal in the textbooks for decades. It was pure Austrianism. Hicks famously gave us a model of the marginal utility of money demand that is pure Austrian. And so on. Your suggestion that people are just reacting to Krugman as some sort of bogey is clever, I suppose, but not informed by any good understanding of the history of modern macroeconomics.

[Martin]

Also Daniel, re-read what Krugman said and compare it to what you're saying here.

"Hayek essentially made a fool of himself early in the Great Depression, and his ideas vanished from the professional discussion."

And again I ask you why should I believe someone who makes so many basic errors on Hayek's history on Hayek's place in the history of thought when it comes to Macro?

Clearly the argument was poorly researched and carelessly written, why should the conclusion hold any weight?

[Niko]

@Daniel:

I am sure the Keynesian revolution could have taken place without Keynes, after all we have so many theories about what Keynes said because:
1. No one reads him (you also admit it that you don't have to read Keynes in order to understand what he said)
2. No one who read him understood what he said, which means that what he said doesn't matter.
3. None of the things what are associated with Keynes came directly from him. Actually Lerner, Kaldor and Hicks are the fathers of what passes as Keynesianism, Post-, Paleo-, New- whatever...

Anyway, I was wondering, after I've read this post, what will you say. I was willing to bet "no, that's not true, you don't read him right, you have to stay on your head, with legs spread wide and facing the ceiling, then everything will make sense." I was almost wrong.

[Richard Ebeling]

In a survey of most cited authors in English-language economics journals that was done a while back, through most of the 1930s, Hayek was number three behind Keynes and Dennis Robertson.

Books on monetary theory or business cycle theory in the 1930s almost always included chapters summarizing and offering critiques of Hayek's monetary and business cycle approach and policy proposals.

Hayek, especially, helped stimulate discussions on the theoretical and policy implications of a "neutral money." Which, clearly, entailed it's flip-side, the "non-neutrality" of money.

And Hayek was (and is) credited with being one of the first to attempt a systematic analysis of the meaning and requirements for intertemporal equilibrium (which was an influence on Robert Lucas, according to him).

There were books by socialists who adopted Hayek's business cycle approach -- though disagreeing with some of his policy conclusions. This includes Hugh Gaitskill, who later became leader of the British Labor Party. An excellent one, very clear in its exposition of Hayek's theory by a socialist is, M.A.Abrams, "Money and Our Civilization" (1934).

He equally had a major impact on the German-language discussions and debates, alas, cut short by the Nazi regime after 1933-1934. He was also influential on, if critically evaluated by, the leading members of the Swedish, or Stockholm, School during the 1930s -- Bertil Ohlin, Erik Lindhal, Gunner Myrdal, Johan Akerman, in particular.

The problem was that Hayek and the Austrians, and many other thinkers and schools of monetary thought (the Stockholm School), were swept away in the Keynesian avalanche.

Clark Warburton was a brilliant monetary and business cycle theorist -- widely published in leading journals in the 1930s and 1940s and early 1950s -- who emphasized both theoretical and empirical analysis, and who offered much of the same quantity theory analysis that Milton Friedman later became credited for, but he was totally "forgotten." It was a slow process in the mainstream of the profession for what Howard Ellis referred to in the 1950s as "the rediscovery of money" as an important element in macroeconomic analysis. But in the process, the significance and status of many good economists during that earlier era were "lost" down a sort of Orwellian "memory hole."

And Hayek, unjustifiably, was one of them.

Richard Ebeling

[Greg Ransom]

Hayek was a major influence on most of the most significant creators of the "Keynesian Revolution", including Hicks, Lerner, Keynes & Kaldor.

A sophisticated account of Hayek's seminal role in the formation of the economics of the British creators of the Keynesian revolution has never been told.

[Peter Boettke]

See Russ Roberts's response --- http://cafehayek.com/2011/12/f-a-hayek-economist.html

Russ correctly emphasizes the "pretense of knowledge" aspect of Hayek's critique of macroeconomics.

[Greg Ransom]

Imagine someone saying that Mach had no role in the history of physics or Linus Pauling had no role ine the history of microbiology, when Einstein was thinking or Mach & grappling with Mach when he developed relativity theory and Watson & Crick were thinking of Pauling and grappling with his problem situation & construct when they came up with their double helix.

[Becky Hargrove]

J Oxman,
While I never thought of Krugman as an example in this instance, my problem is that people are sometimes devalued because they take what they learn from conjecture and theory to apply it in the real world. When this happens knowledge and social integration become impossible.

[Greg Ransom]

Imagine if someone said that Frege, Kant & Wittenstein had nothing to do with the development of modern philosophy because few today can be called strict "Fregeans", "Kantians" or "Wittgensteinians".

People rightly would call you an idiot, a hopelessly ignorant idiot.

Own it, Paul.

[J Oxman]

Becky,

Ah, the old 'selling out' syndrome. Yes, one would want to always be graded on the quality of the work, without being automatically devalued because of the name on the paycheck.

[Becky Hargrove]

J Oxman,
My argument must have been confusing in that it is not necessarily monetary or even having to do with professionalism. What I especially advocate is the active use of knowledge at local levels, irregardless of one's formal education. I believe all individuals should be able to take part in the use of knowledge integration, to the best of their ability. I do not like, for instance, that people fight over what to teach the young, for often that only lessens the young person's belief in knowledge itself.

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[Jule Herbert]

My post on the NY Times:

Curious that apparently none of the posters here have read any of Hayek's macro writing. Certainly The Road to Serfdom does not qualify. I suggest his Monetary Theory of the Trade Cycle written prior to the crash in 1928. http://mises.org/resources/680 This is mainly a critique of the "stabilizers" like Fisher (and Krugman). Best line: "The same superficial view which sees no other harmful effect of a credit expansion but the rise of the price level, now believes that our only difficulty is a fall in the price level, caused by credit contractions." (This from the 1933 English preface.)

[Not to be critical of any of you "monetary equilibrium" guys and those advocating the central bank targeting aggregates.]

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[Peter Boettke]

Greg reminds readers in a post at Cafe Hayek, that Gerald O'Driscoll's book, Economics as a Coordination Problem demonstrates the continuity between Hayek's work on monetary theory and the trade cycle, and his work on the problems of economic calculation under socialism. This continuity is being forgotten.

Time for everyone to re-read O'Driscoll if they want to see the links between his macroeconomics, his microeconomics, and his methodology (including that of complex systems).

Pete

[Richard Ebeling]

In looking at and understanding Hayek's writings (indeed, I'd say any thinker's ideas) we should not forget that the individual's ideas do not emerge miraculously, fully developed, at one instant in time.

It were the challenges and criticisms and alternative conceptions of the economic process and the business cycle that "forced" Hayek to rethink and refine his conceptions of the economic order.

In the introduction to Jerry O'Driscoll's book on "Economics as a Coordination Problem," Hayek writes that is was only after reading Jerry's exposition that he even saw how a variety of distinct ideas that he had been thinking about and developing over many years, in fact, seemed to all fit together in a way that he had not realized at the time that he was working on them.

There is a very clear (short) passage in "Monetary Theory and the Trade Cycle," originally published in German in 1929, that refers to the guiding role of prices to coordinate all that happens in the market, and how monetary manipulations could distort the information the prices are meant to convey.

But that does not mean that Hayek, then, fully understood and had worked out in his mind the significance of prices for market coordination in the form that was more distinctly crystallized only by the time his "The Use of Knowledge in Society" article appeared more than 15 years later in 1945.

It took those intervening years of responding to his critics on business cycle theory and the challenges from the advocates of socialism -- especially people such as Oskar Lange, and Lange's attempt to defend the possibility of a "market socialism" through the use and application of a version of the perfect competition model assumptions -- that made Hayek ask, and answer, the questions that only found their formulation in 1945, and, then, a few years later in "The Meaning of Competition."

The idea of an "early" Hayek and a "later" Hayek on matters that we now refer to as "macroeconomic" issues, only reflects a thinker continuing to think, and seeing things in some of his earlier ideas that he did not see the full and possible implications of in his earlier formulations and understandings.

Even, in comparision, Ludwig von Mises who seemingly had an amazingly clear and developed "world view" of how things "fit together" at a relatively earlier time in his intellectual career, continued to reformulate and refine his ideas in various ways.

Also, in thinking about Hayek's contributions and his development of them, we should keep in mind what he says in his short article on "Kinds of Minds," in which he compares the "master" and the "muddler."

The "master" has read everything, remembers everything, and sees easily how it all fits together. The "muddler" easily forgets what he has read, has to constantly rethink other's and his own arguments, and gropes around to see how the "parts" may fit together.

Hayek contrasted Boehm-Bawerk (the "master") and Wieser (the "muddler"). But in conversation back in the 1970s, Hayek said that the real contrast he had in mind was between Lionel Robbins and himself. Robbins was the "master" who read everything, and remembered all that he read, and could explain how the arguments fit together. (Having once met Robbins at the LSE, and argued with him about Austrian Economics, I can confirm he was the "master" of all that he had read.)

Hayek viewed himself as the "muddler," who had to constantly go back, re-read, rethink, retrace his mental steps to remember and remind himself of others' and his own arguments, as he restated and reformulated his own ideas.

If we remember all this, we can more fairly and reasonably evaluate Hayek's (and other's contributions), and their "limits" or "incompleteness" at various stages of the author's life, as we evaluate and judge it from our much later perspective in time.

Richard Ebeling

[John P. Cochran]

Pete is correct to point out that much of Hayek’s work on calculation, information and knowledge, and the nature and use of an equilibrium concept in economic analysis developed from his attempts to clarify his business cycle theory to an English speaking audience not familiar with Wicksell-Austrian capital structure theory. These developments, which marked Hayek’s movement away from an underlying Walrasian framework, have been labeled Hayek II by Hutchinson (1981 The Politics and Philosophy of Economics: Marxians, Keynesians and Austrians) and Milgate (1982 Capital and Employment: A Study of Keynes’s Economics).

Given the perception that modern macro is basically flawed, perhaps a more important than the question of what have been Hayek’s contributions to macroeconomics is what was lost as Hayek’s influence waned? Backhouse and Laidler (2004, 46 “What Was Lost with IS-LM.” History of Political Economy, vol. 36, no. 1 (annual supplement), 25-56) sum it up nicely, “With the eclipse of Austrian Economics in the 1930s, a key perspective on the importance of the economy’s supply side in economic fluctuations was lost.” By ignoring that current investment has an impact on not just the size but also the composition of the future capital stock, Keynes and IS-LM Keynesians, to an even greater degree, lost sight of key insights developed most fully by the Austrians but also by Keynes’s English contemporaries such as Robertson (Balckhouse and Laidler 2004 and Laidler 1999), that “mistaken investment decisions made in the present had a capacity to disrupt future equilibria between supply and demand” in either the economy as a whole or in key sectors.

[Mario Rizzo]

I resolved not to get involved. But I couldn't help myself:

http://thinkmarkets.wordpress.com/2011/12/07/yes-paul-it-is-hayek-versus-keynes/

[Justin]

Daniel Kuehn:

"The claim is that Hayek did not fundamentally change the trajectory of macroeconomics. This seems fundamentally right, except that perhaps we could have a respectful argument about whether the Lucas critique would have happened anyway. I don't see how it wouldn't have happened anyway personally, but reasonable minds can disagree on that."

Saying things like this makes it seem like you just don't want Hayek to have had an influence. I could just as easily say, maybe Hicks wouldn't have developed the IS-LM model if it weren't for Keynes, but I don't see how it wouldn't have happened eventually anyway. Does that mean Keynes didn't change the trajectory of macroeconomics when he theorized the fundamentals of IS-LM? If this even part of your argument, you may as well say that there has never been an influential figure in economics.

[McKinney]

Dr. Ebeling’s reference to Hayek the “muddler” and Robbins the “master” is very interesting. I would guess that Robbins had pretty close to a photographic memory. So why was Hayek the better economist? He had better analytic/synthesis skills. Some people can remember everything they read but can’t do much with it. Others can do a lot with the little they can remember. I think those with great memories lack an ability to separate the wheat and chaff. While Hayek couldn’t remember everything, he apparently could remember the important things.

While I agree with most of the criticisms of Krugman, do we protest too much? Keep in mind that macro for Krugman is Keynesian and nothing else counts. Krugman has admitted he is not a macro expert. And since DSGE models dominate neo-classical econ, where is Hayek’s influence on them other than to force a representative agent on them? From a certain perspective Krugman is right, but he’s too arrogant to see how impoverished mainstream macro is without Hayek.

[Troy Camplin]

I agree with Krugman and Daniel Kuehn that Hayek was and is not an important figure in the history of macroeconomics:

http://zatavu.blogspot.com/2011/12/things-that-never-happened-in-history.html

[Greg Ransom]

I fully agree with Richard Ebeling.

It's also important to see that Hayek often forgot or failed to see the full significance of what he'd written or seen earlier.

E.g. Hayek 1929 clearly stated the foundationally significant difference between real world price signals / relative price adjustments and the math constructs found on a chalk board or in an economics paper or textbook -- and he tied this to the difference between tautological/formal constructs and real causal process.

I.e. Hayek lays out his 1936/7 "discovery" already in 1929.

But it took the socialist planning debates, his continuing work on monetary theory & Keynes every-page use of the word "given" to finally see the full implication of this distinction, esp. when a friend of his kept making fun of everyone using the non-sense phrase "given data" when talking of elements of their math constructs.

[von Pepe]

I hope Prof. Rizzo continues to not be able to help himself.

[Russell Nelson]

Becky, you can adopt politics without abandoning economics. Krugman, alas, has abandoned even his own economics; not to mention any kind of better economics available to him.

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[Peter Boettke]

Bruce Caldwell wrote this at Economic Principals --- it is very important to listen to the Editor of the Collected Works of Hayek and the author of the best intellectual biography on Hayek -- Hayek's Challenge.

"Since I am twice invoked by David Warsh, I feel some obligation to comment on his column. The most charitable reading I can give to this article is that Warsh thinks that Hayek’s work on complex orders and the knowledge problem is more important than his work on the business cycle and his ideas in The Road to Serfdom.

That said, it is a horribly convoluted argument. Why bring up Rosie Ruiz? Why talk about his divorce or his health problems? Why mention snide and sly remarks? Is Warsh simply trying to criticize the 2 books by others (Nasar and Wapshott) he mentions? I just don’t get it.

There are some factual errors in the article that must be pointed out. Price and Production was published in 1931, not 1927. The General Theory does not argue in favor of “government management of the business cycle, through the use of monetary and fiscal policy.” David should read Brad Bateman’s excellent article “Keynes and Keynesianism” in the Cambridge Companion to Keynes rather than his fellow journalists.

It must also be noted that it is a rumor, not a fact, that Friedman played a role in Hayek not getting a job at Chicago. And when Hayek was there his salary was paid by the Volker, not the Volcker, Fund (don’t get Paul Volcker involved in this mess!)

I think further that Warsh has grossly underestimated Hayek’s contribution in The Road to Serfdom. Pete Boettke has spoken to this on another blog, and I have too, in my editor’s introduction to the Collected Works edition of that volume.

I’ll just say here that Hayek’s target in that book was the collectivist planning that accompanies state ownership of the means of production, which is what socialism is. Many self-identified “socialists” think it means the welfare state or the fact that someone cares about “social justice.” “Reasonable” people in the 1940s were calling for socialism after the war. Hayek was trying to point out what it would actually mean.

Those who think that it is a “core Hayekian belief that the size of government should be kept to a minimum” should read chapter 3 and chapter 9 of the book, where Hayek recommends many interventions, including a safety net and minimum income. (I disagree with Barkley that he would favor a national health plan, especially of the kind we have in place today, that achieves cost controls by fixing maximum reimbursement prices.)

Nuance has disappeared from our political discourse. It is increasingly disappearing from our public discourse. There are signs too that it is disappearing from our academic discourse. This is probably why David Warsh’s column upset me. Are there any adults left out there?"

Tuesday, December 6, 2011 at 7:39 pm

[Barkley Rosser]

Pete quotes Bruce Caldwell at length while leaving out some context, particularly regarding Bruce's reference to me.

This had to do with my disagreement with Dave Warsh about the influence of Hayek on post-WW II policies in Germany. I argued that Hayek was at least a partial influence on the Ordo-Liberals, such as Walter Eucken and Ludwig Erhard, who were main promulgators of the sozialmarktwirtschaften (social market economy) system. While they went further in supporting a wide social safety net than Hayek did, he did support national health insurance in several works of that period and for some time after.

I also noted that Hayek would later appear to change his mind on this somewhat, at least to criticize the British version of this, which has involved full-blown socialized medicine, with physicians and nurses full state employees, based on his son's experience working in that system. I noted that Obamacare does not even go to a national health care system with universal coverage, and that there are systems between the UK and US ones that do not involve socialized medicine, but do provide for universal coverage.

Bruce then makes the remarks quoted here in response to this. I then posted noting that indeed the Obamacare and earlier US systems are a mess, but then asking what did Hayek support on this, which Bruce did not respond to. I certainly did not say that Hayek would have supported either Obamacare or the pre-Obamacare US health system.

In any case, the question remains open, and Bruce does note that Hayek supported "a safety net and minimum income" without specifically noting that this safety net included national health insurance, although I must grant that Hayek never spelled out more precisely exactly how he thought such a system would work, although I stand to be corrected here by whomever.

[Roger Koppl]

I liked Bruce's comment a lot, particularly the tag line. But Barkley is right that Bruce flubbed the healthcare issue a little bit. Hey, it's a blog comment, so minor flubs are no big deal. Anyway, in Chapter 9 of The Road to Serfdom Hayek supports a "comprehensive system of social insurance" to help in "providing for" some "common hazards of life" that include "sickness and accident."

[Cheap Nike Free]

Can we care about something more important here than another self important overrated overpaid jerk and his goldigging fame deaperate loser tramp?
Nuff said.
Damn I must be bored I can't believe I wasted 3 minutes in this while I took a dump!

[Nike High Heels]

At the time, Marilyn was the principal percussionist for the San Antonio Symphony and an auxillary percussionist for the Chicago Symphony Orchestra. That she was my teacher only briefly owed to my lack of discipline… which, translated, means that I never found time to practice. (Granted, this was because I was already a contributing writer for the campus newspaper, a music director at the campus radio station and a member of every musical ensemble the school had to offer.)

[Nike High Heels 7]

I'm quite sure that autism is a genetic disability. It may have environmental triggers, but nobody has really identified what those triggers might be. But beyond that, nobody knows what's going on. The scientists can't identify which genes are the autistic genes, because there are probably different genes or different combination of genes that lead to autism. Actually, autism may not be one particular thing at all.