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« UFM Presentation of Living Economics: Yesterday, Today and Tomorrow | Main | Doctorado Honorífico Universidad Francisco Marroquin (May 5, 2012) »


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Wow, that is a great video. However, his statements here (against aggregation of money and prices) seems at odd with the argument that he supported maintaining monetary equilibrium.

Aren't we lucky to have had Hayek? When you read him so many other "great" economists seem small.

More than a dozen previously unavailable Hayek essays are now available on the web at the new periodical & book archive:

Jonathan -
That whole line is just a jab at Keynes. It also contradicts his (fruitful) use of aggregates elsewhere. There's nothing wrong with aggregates. It's code for "I'm not a fan of Keynes".

Thanks for the essays, Greg - these look very interesting.

And happy birthday Hayek!

Daniel Kuehn is right about aggregates, I think. Nobody hesitates to talk about the demand for "shoes." But size 9 and a size 6 are hardly the same. Think of all the very different sizes, shapes, and colors on display in the store. And yet we happily aggregate all that heterogeneous mess together and call it "shoes."

The particular aggregates Keynes discussed mask changes in prices and quantities that are crucial to the Austrian story. In this sense, we may absolutely criticize how both Keynes and the Keynesians aggregate. But the criticism should be directed at a particular use of a particular set of aggregates, not at aggregates as such.

Daniel and Roger,

I'm not sure that's right. It's true that Hayek calls Friedman a "Keynesian" (referring to his macroeconomic modeling), but I don't think the particular point, that I pointed out above, was a "jab at Keynes." Rather, he is critiquing the mechanistic (Fisherian) quantity theory of money — something he did as early as 1929 (as Daniel ought to know, since a long time ago we went through Monetary Theory and the Trade Cycle together).

If it was a jab at Keynes, that would certainly be interesting. Hayek, if I recall correctly, actually, very generally, "praised" (maybe too strong of a word) Keynes' [what Hayek considered to be a] "transitory" approach to money in A Treatise on Money. He might have thought it incomplete or inadequate, but it was signs of improvement over the Neoclassical mechanistic quantity theory of money. This is the same idea that Dennis Robertson found confusing in his own review of Keynes' book. It is the same approach that Hayek later lamented that Keynes largely abandoned in his final version of The General Theory.

Rather, what Hayek here seems to be critiquing is the belief that by maintaining the equation MV=PT (and more advanced versions of this equation) there is a causal connection with price stability and, consequently, stability in economic calculation. This goes well beyond Keynes; it is a criticism of the entire Neoclassical approach to money.

Hayek never opposed the use of aggregates; he criticized the misuse of aggregates. As Daniel rightfully points out, Hayek used aggregates throughout his analysis (something Sraffa criticized him on in the review of Prices and Production — i.e. a criticism that a "deaggregation" of his theory of interest leads us to problems regarding time preference and discount schedules between various goods). The idea of a "structure of production" is an aggregate, as it the idea of a "stage" in the "production process." But, Hayek deaggregated when necessary (well, this was his intention) — consider Lachmann's continued emphasis on Hayek's theory of capital complementarity — and this was, essentially, his criticism of the mechanistic quantity theory of money. While a truism, it hides crucial causal mechanisms that aid our understanding of the role of money in the division of labor.

I think both Daniel and Roger are right, when looking at his later criticism of Keynes,* that Hayek may have unfairly attacked certain parts of Keynes' analysis (including, perhaps, aggregation [effective demand?]). But, this is not the case with the specific comment by Hayek, made in this interview, that I was addressing.

Roger -
I think that's right, but we also have to consider that Keynes's use of the aggregates was fine and not exhaustive.

I could criticize the Austrians for missing points by not aggregating enough, but that seems silly.

Better to say "the Austrians have [or have not, depending on what you think] identified an important mechanism or process that you need to disaggregate to talk about", and "the Keynesians have [or have not, depending on what you think] identified an important mechanism or process that you need to aggregate to talk about".

Besides, I think it's wrong to say that Keynes only deals with aggregates - his chapter on capital discusses disaggregated, heterogeneous capital - and indeed it emphasizes that it's precisely because capital is not homogenous that savings are not necessarily matched by investment without a fall in expenditure.

This is one of the points I will be discussing in an upcoming Critical Review article on Hayek and ABCT - that capital heterogeneity was a very important point for both Keynes and Hayek in understanding recessions.

Damn you Catalan and your italicization!!!!!


Jonathan: I really only meant to make a point on aggregates. I happily withdraw any (implicit) claims about Hayek merely poking at Keynes. And I agree with your 3rd and 4th paragraphs. I don't really have an opinion on whether Hayek's later criticism of Keynes was unfair, but I am not expressing any particular doubts about what you said either.

Daniel: You address me, but quote Jonathan, so I'm not sure what comment was aimed at whom. It is surprising to read "that capital heterogeneity was a very important point for . . . Keynes." I look forward to reading the argument. Cool and interesting if you are right.

Roger -
Hmmm... maybe it was a confusing exposition. I didn't even read Jonathan's comment until I finished mine.

I'm addressing your point that: "In this sense, we may absolutely criticize how both Keynes and the Keynesians aggregate."

The macroeconomy is complex and there are a lot of mechanisms at work. Keynes talked about one mechanism that you need to look at highly aggregated data to talk about. Austrians talked about another mechanism that you need to look at somewhat less aggregated data to talk about. A lot of Austrian criticism of Keynes on aggregation amounts to "Keynes's aggregation doesn't let him see the Austrian point". My response is "Duh - he was making another point!". I doubt you're guilty of this in your criticisms of Keynes, but a lot of people seem to think that because two different points are made, and because the Austrian point is sensible, that's proof positive that the Keynesian point is not sensible.

That's wrong I think - there are lots of mechanisms at work.

Then I just made the general point that a lot of these ham-fisted synopses of Keynes ignore the very important role that capital heterogeneity plays in the General Theory.

btw Jonathan - thanks for the detailed background on the specific quantity theory point.

I (tried to?) closed the italics here, since I can't edit my last comment.

As Daniel will probably point out, it was Keynes' explicit (through a footnote in ch. 4 of TGT) agreement with Hayek's argument in "The Maintenance of Capital" and the latter's criticisms of Fisher and Knight that led him (Keynes) to opt to define aggregates in their relation to employment of N men, which he thought you could adequately aggregate.

Wasn't even thinking of that - I was thinking of his later discussion of the implications of capital heterogeneity in ch. 16. But right, the way he homogenizes labor is the same way we do today - with the concept of an efficiency unit of labor. That deals with some heterogeneity, but of course doesn't deal with factor specificity. You just have to ask yourself "is specificity important to the mechanism I'm trying to illustrate right now?". Too many peoples' criticism of economic models boils down to whining "he wasn't talking about what I want to talk about!". This is unfortunately the root of a lot of bad criticisms of ABCT too.

Everyone should keep up with Jonathan's discussion of the General Theory on his blog - he's doing a chapter by chapter review, and it is very good. A nice combination of summary and commentary.

My bad, Daniel. I don't know why I thought you were quoting Jonathan. (Doh!) It looks like we pretty much agree on aggregation. As you say, Keynes chose aggregates suitable to the argument he was trying to make.

I do think it is fair to complain that the old mainstream macro somewhat tended to define macroeconomics as hydraulic Keynesianism. But that's not exactly Keynes's fault! Later it was DSGE that was often viewed as basically almost defining the field. Kirman griped pretty heavily against that sort of thing and with good reason IMHO. The crisis seems to have dealt DSGE a mighty blow, so maybe now things will be more open at least for a little while.

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