Ruizismus among the Austrians

Everyone in Boston of a certain age knows the story of Rosie Ruiz, the marathoner who crossed the Boston finish line in 1980 at 2:31.56, flabby thighs and all, having barely broken a sweat.  Despite mounting skepticism, she basked in the glory of having run the third-fastest female marathon in history – for a few days, that is, until a couple of students remembered seeing her jump out of the crowd half a mile from the finish.

Something of the sort has been going on recently with the shade of Friedrich von Hayek.  The Austrian economist, who died in 1992 just short of what would have been his ninety-third birthday, never made false claims for himself – far from it: he knew all too well the loneliness of the long distance runner. And scrupulous work as editor by the late W.W. Bartley, interpreter Bruce Caldwell, and biographer Alan Ebenstein, have made it possible to see the man clear.

But the claims conservatives are making about the role he played as an economist are beginning to smack of Ruizismus.  That is, they have jumped a caricature out of the bushes late in the day and claim that their guy ran a great race.

By now the story of the short-lived contest between Hayek and John Maynard Keynes in the early 1930s is fairly well known, thanks to highly readable books like Grand Pursuit: The Story of Economic Genius, by Sylvia Nasar, and Keynes Hayek: The Clash that Defined Modern Economics, by Nicholas Wapshott. There is always that very funny rap video, too, if you prefer to watch.

It is certainly true that Lionel Robbins had invited Hayek to London in 1930, specifically to battle Keynes. As Nasar writes, British economics at the beginning of the ’30s was in the process of dividing into two broad camps.  There was Cambridge University, the seat of high theory since Newton, home to Malthus and Darwin,  citadel of English economics since Alfred Marshall arrived in 1885, and, withal, of decidedly interventionist temperament.  The Cambridge camp was led by “the Prof” (there could be only one), Arthur Cecil Pigou, though he was about to be upstaged in unexpected ways by Keynes.

And there was the London School of Economics, where the 30-year-old Robbins had set out to assemble a cosmopolitan group of market-oriented liberals, which included John Hicks, from Warwick (not South Africa, as this page maintained for a time); Abba Lerner, from Bessarabia; and Hayek, from Austria. “Robbins’ ambition was to turn the LSE, founded and patronized by Fabian [socialists], into the liberal counterweight to Cambridge collectivism,” writes Nasar.

Hayek arrived in London in January 1931, just as the world slump was deepening. He gave four lectures, arguing, as he had before, that an increase in the money supply would further distort the structure of production and prolong the slump. He was hired by the LSE and got into a fierce exchange with Keynes.

Keynes’ Treatise on Money had just appeared – an attempt to get back to academic economics after a decade of speculation and influential journalism. Hayek panned the book for the “almost unbelievable” degree of obscurity of its equations.  Keynes replied by calling Hayek’s 1931 tome, Prices and Production, “One of the most frightful muddles I have ever read.”  Pigou attempted to referee:  “Body-line bowling [cricket’s equivalent of baseball’s beanball]! The method of the duello! That kind of thing was surely a mistake.”

It turned out that Treatise on Money wasn’t a very important book after all. Keynes hurried on to his General Theory of Employment, Interest, and Money, with its bold claims that a collapse of effective demand had caused the Depression, that a program of government stimulus could end it. And when The General Theory appeared in 1936, Hayek didn’t review it. He may not have been asked.

Keynes’ book was anything but “collectivist” in, say, the manner of Pigou, who in The Economics of Welfare, had argued for the possibility at least of extensive government planning. Instead, the new book argued only for governmental management of the business cycle, through the use of monetary and fiscal policy (macroeconomics, as it quickly became known); the conduct of microeconomics was left to the capitalists.

Thus, in the autumn of 1936, Hayek slowly began to switch to a new and much more philosophical project: an investigation of various spontaneous orders that arise without central direction, and the significance of knowledge in economics.

Thereafter he labored under five distinct handicaps.

The Pure Theory of Capital, his response to Keynes’ success, turned out to be an abject failure.  Hayek had begun the book in 1934, hoping to expand decisively on the earlier arguments of Prices and Production.  He didn’t finish it until 1940; and when it appeared, in 1941, it seemed completely beside the point – “a pebble thrown in the pool of economic science that  seemingly left nary a ripple” was the way Paul Samuelson later described it.

The Road to Serfdom, which appeared in 1944, was an embarrassment. Instead of adopting anti-utopian fiction, as George Orwell did four years later, in Nineteen Eight-Four, Hayek actually argued in the middle of World War II that “it is Germany whose fate we are in some danger of repeating.”  Lumping together the more ambitious vision of post-war Labor governments with altogether more modest efforts at reform that soon would be dubbed “the mixed economy,” Hayek wrote, “[D]emocratic socialism, the great utopia of the last few generations, is not only unachievable but to strive for it produces something so utterly different that few of those who now wish it would be prepared to accept the consequences.” Reader’s Digest excerpted it in the United States, and many of those who voted for Thomas Dewey in 1948 may have read it there.  But it did Hayek’s reputation as a scholar a great deal of harm.

His divorce in 1950 from his wife of twenty years was a scandal; Robbins, godfather to his son, didn’t speak to Hayek for fifteen years. An early courtship had been jinxed by a year that Hayek spent in 1923-24 studying in New York. Through “some misunderstanding of intentions,” the object of his affections married someone else. He then he married, as he put it, “on the rebound.” Returning to Vienna in 1946, he discovered his earlier sweetheart was now free to marry, whereupon he left his wife (who, under English law, wouldn’t grant him a divorce), their seventeen-year-old daughter and twelve-year-old son, in especially churlish fashion. In Keynes Hayek, Wapshott tells the story:

Hayek celebrated Christmas Day with Hella and the children in their snug family home in Hampstead.  Two days later he left them for good, travelling to New York to attend the American Economic Association convention.  Hayek’s finances were more on his mind than economics. To avoid the expense of a contested divorce, he slipped a note under the hotel room door of Harold Dulan, chairman of the economics and business department of the University of Arkansas, Fayetteville, asking for a teaching post.  Hayek’s plan was to establish residency in Arkansas, a state whose permissive marriage laws would allow him to wrest a cheap divorce from Hella. Dulan duly obliged, as did the chancery division of the Arkansas high court.  Hayek’s divorce became absolute in July 1950. “Finally I enforced it,” Hayek recalled. “I’m sure that was wrong and yet I have done it,” he said.  “It was just an inner need to do it.”

Hayek needed a way out of England, too. He had acquired an American backer, the libertarian Volker Fund, of Kansas City, Mo., a foundation willing to pay him $10,000 a year, two or three times an ordinary academic salary. The Institute for Advanced Study wouldn’t hire him, but the University of Chicago, under president Robert Hutchins, would – just not in the economics department, where young professor Milton Friedman objected to Hayek’s economics. So Hutchins persuaded the university’s Committee on Social Thought to appoint him, a second-rate appointment, professionally speaking. Starting in 1950, this permitted Hayek mostly to write and travel; he didn’t participate in the workshop that was remaking monetary economics. These were “wilderness years,” as Wapshott describes them.  In 1969 Hayek moved back to Austria for financial reasons, and began suffering from acute depression, probably arising from the first of two heart attacks whose scars were not detected until much later.

Even when he was awarded the Nobel Prize, in 1974, the occasion was bittersweet. He shared the award with another old rival, Swedish economist Gunnar Myrdal.  Both men had been highly influential in the economics of the early ’30s (Myrdal, writing in Swedish and German, had pretty thoroughly anticipated Keynes); both had stopped working in the field after Keynes’ triumph in 1936.  Myrdal had become a planner, writing two influential books:  An American Dilemma: The Negro Problem and American Democracy and Asian Drama: An Inquiry into the Poverty of Nations.  Hayek had written The Sensory Order, The Constitution of Liberty, and  Law, Legislation, and Liberty. The two thoroughly disliked each other. And both were overshadowed by the presence at the ceremonies that year of Alexander Solzhenitsyn.  The novelist, who had been awarded the prize for literature in 1970, had finally been expelled from the Soviet Union.

The great irony is that it was Milton Friedman, honored with a Nobel two years later, who had demonstrated the series of mistakes in monetary policy, tightening when they should have eased, by which the US Federal Reserve Board turned what likely would have been an ordinary recession into the Great Depression.  Hayek had been clearly wrong, at least about the monetary policy that was appropriate at the time.  (It was the policy that had been advocated by Friedman – supplying liquidity in a financial crisis –that in 2008 enabled the Fed to carry the day.) And as for the period-of-production arguments of Austrian capital theory, they remain unsupported by later empirical work.

The recognition of the Nobel added years to Hayek’s life, at least in the view of those who knew him. (He adamantly denied that the award had anything to do with his longevity.) But it was Margaret Thatcher who plucked him from scientific obscurity and put him at the head of her parade. She had read Road to Serfdom while studying chemistry at Oxford, Wapshott says.  He describes the scene when, soon after assuming leadership of the Conservative Party, in 1974, “meeting with the party’s left-leaning research department, she reached into her bag and slammed a copy of Hayek’s Constitution of Liberty on the table. ‘This is what we believe!’” Photo ops with with Ronald Reagan followed, and Presidential Medal of Freedom in 1991.

Since then, there has been a modest flowering of academic interest in his work, particularly at George Mason University – and an explosion of political interest.  “The core Hayekian belief that the size of government should be kept to a minimum manifested itself in the early ’90s in the ambitions of Newt Gingrich, a university professor turned Congressman from Georgia,” writes Wapshott. Flat income taxes, as opposed to progressive rates, a long-time Hayek favorite, have begun to appear on some political agendas. And The Road to Serfdom once again topped the best-seller lists for a time last year, when Glenn Beck touted it on his Fox news show.

But the fact remains that Hayek just didn’t contribute very much to the development of technical economics. With the publication of “The Use of Knowledge in Society” in the American Economic Review in 1945, he essentially won on the “calculation debate,” conducted with Ludwig von Mises and Oscar Lange, concerning the possibility of central planning. But it was Leo Hurwicz who carried the lessons to the next stage, where they began to have practical effect.

Paul Samuelson later said, “I can bear witness that, for twentieth century professional economists, Milton Friedman was infinitely more important for turning economists toward conservatism than was Hayek.” His implication was that the Swedes had made the right choices in the mid-1970s. On another occasion he slyly suggested that the award might have been better still if the prize-givers had cited Cambridge economist Joan Robinson, a partisan of Chinese and North Korean communism, as well.

That combination, Hayek, Myrdal and Robinson, might have cast the contributions of each into sharper relief:  three pioneers who, after important early contributions, gave up economics for political activism.

Was Hayek more important for the lay public?  Whether his thinking played much of a role in “the German miracle,”  the restoration of Germany’s devastated economy after World War II, as Nasar implies in her chapter “The Road from Serfdom: Hayek and the German Miracle,” I have my doubts. The thinking that underlay the Marshall Plan had more to do with The Economic Consequences of the Peace, Keynes’ 1919 polemic against the reparations imposed on Germany after World War I, than with Hayek’s  jeremiad of 1944.

Certainly Hayek made a big impression on me and my friends, when, as young men,  we read him in the 1970s.  We felt the same way about the Harvard philosopher Robert Nozick. With the passage of time, though, nineteenth century liberalism has seemed, by itself, a less and less adequate framework with which to deal with the problems of the twenty-first century. What was fresh the, because it had been forgotten, seems today to be nostalgia — or, worse, nonsense, when incorporated in the platform of Republicn presidential candidate Ron Paul.

Both as a contributor to economic theory, then, and a designer of economic policy, the vigorous figure depicted as Hayek in George Mason economics professor George Mason Economics professor Russ Roberts and filmmaker John Papola’s  two widely-viewed videos, “Fear the Boom and Bust”  and “The Fight of the Century,” and, to a lesser extent, the accounts in Keynes Hayek and Grand Pursuit, seems to have more in common with Rosie Ruiz than with Hayek himself– or at least so it seems to me.

That said, it is pleasing to think that Hayek himself may yet turn out to have been a very great economist after all, far more significant than Myrdal or Robinson, when seen against the background of a broader canvas.  The proposition that markets are fundamentally evolutionary mechanisms runs through Hayek’s work. Caldwell, of Duke University, notes that, starting with the Constitution of Liberty, “the twin ideas of evolution and spontaneous order” become prominent, especially the idea of cultural evolution, with its emphasis on rules, norms, and decentralization.

These are today lively concepts in laboratories and universities around the world. “It could have been that Hayek was running a different race, and the fact that he didn’t do well in the Walrasian race was that he wasn’t running in it—he was running in the complexity race,” says David Colander, of Middlebury College. Hayek may yet enter history as a prophet of evolutionary economics, a discipline dreamt of since the days of Thorstein Veblen and Alfred Marshall in the late nineteenth century but not yet forged, whose great days lie ahead.

49 responses to “Ruizismus among the Austrians”

  1. “[Hayek’s] equilibrium theory offered a wealth of suggestions that were to be taken up in the literature of the 1940s and 1950s. The idea of intertemporal equilibrium, which was to be precisely defined in axiomatic terms by Arrow and Debreu, took shape in his writings of the 1920s and 1930s.” (Bruna Ingrao & Giorgio Israel, The Invisible Hand: Economic Equilibrium in the History of Science, 1990, p. 233)

  2. “I can date my own personal ‘revolution’ rather exactly to May or June 1933. It was like this. It began . . with Hayek. His Prices and Production is one of the influences that can be detected in The Theory of Wages; it could not have been otherwise, for 1931 was a Prices and Production year at the London School of Economics . . I did not in fact find it all easy to fit in with my own ideas. What started me off in 1933 was an earlier work of Hayek’s, his paper on ‘Intertemporal Equilibrium’, an idea which I found easier to reduce to my preferred (Paretian or Wicksellian) pattern.” (John Hicks, The Theory of Wages, 2nd Edition,1963, p. 307)

    “.. it was from Hayek that I began [the breakthrough essay “Equilibrium and the Cycle” (1933), the original beginnings of Hick’s influential work on the topics of intertemporal equilibrium, monetary theory, and trade cycle phenomena] “. (John Hicks, Money, Interest and Wages, Cambridge: Harvard U. Press, 1982, p. 28).

    “There were four years, 1931-1935, when I was myself a member of [Hayek’s] seminar in London; it has left a deep mark on my thinking.” (John Hicks, Classics and Moderns, New York: Basil Blackwell, 1983, p. 97).

    B. Ingrao & G. Israel, “Hicks elaborated the concept of temporary equilibrium, perhaps the most original contribution of Value and Capital, following the path laid down by Hayek and the Swedish school.” (B. Ingrao & G. Israel, 1990, p. 239)

    “Hayek was making us think of the productive process as a process in time, inputs coming before outputs ..”. (John Hicks, Classics and Moderns, New York: Basil Blackwell, 1983, p. 359).

  3. Dave,

    Greg overdoes it with intertemporal equilibrium as Irving Fisher was onto that at least as early as Hayek was, although Hicks would have gotten it from Hayek.

    However, your last two paragraphs are important. Caldwell argues that it is this later complexity Hayek who is more important in the longer run, and I agree with him and with Colander on that (and have written on the matter, see stuff on my website).

    Regarding Road to Serfdom, one does need to distinguish between the book itself and the bowdlerized Readers’ Digest and comic book versions that were popularized. The former is much subtler and more defensible, although perhaps Hayek can be held to task for allowing these simplified versions to get about.

    Also, while I think you are right that Friedman was a better analyst of how monetary policy affected the Great Depresion, Nasar is right about what happened in Germany in the postwar era. The US was only partly influential with its Marshall Plan. It was the Germans themselves who developed their successful system, led by Ordo-Liberals, some of whom were involved with Hayek through the Mont Pelerin Society and beyond that. What is funny is that current Hayekians often ignore the social part of Road to Serfdom, where Hayek supported national health insurance, a view that was consistent with the social market economy approach (sozialmarktwirtschaft) of the Ordo-Liberals who actually ran West German economic policy after the war. Hearing of politicians in the US Congress citing Hayek while opposing the much weaker Obamacare has been utterly hilarious (although Hayek would later criticize British socialized medicine after his son had a bad experience working for it, but that is an extreme system far beyond simpler national health insurance as we see it successfully in place in countries such as Germany, France, and Canada).

  4. I might add that Paul Samuelson was perfectly fine with Hayek receiving the Nobel for his work on information economics and also completely agreed that he and von Mises were basically right about Soviet central planning. In his last paper on Hayek, published by me in JEBO in January 2009, Paul even bragged about how when Hayek got the prize, he was the only one in the MIT faculty lounge who knew who he was and also defended his prize.

    Of course, Paul had some other remarks that were more critical, and Greg Ransom has publicly criticized me for publishing Paul’s paper due to those other remarks he made. But I figured that Paul should be able to express his final views on the matter without too much fiddling by me as an editor.

  5. There are a couple of additional errors here.

    The claim that the General Theory

    ‘argued only for governmental management of the business cycle, through the use of monetary and fiscal policy (macroeconomics, as it quickly became known); the conduct of microeconomics was left to the capitalists’

    neglects the concluding chapter of the book which calls for the ‘socialization of investment’ (which was not meant be socialism but still involved government involvement beyond using monetary and fiscal policy to control the business cycle).

    On monetary policy, David Warsh states:

    ‘Hayek had been clearly wrong, at least about the monetary policy that was appropriate at the time. ‘

    This elides the the fact that Hayek does seem to have been in favor of some kind of nominal income targeting against deflation (although he did not think this would solve all of the misallocations in the capital market) as Larry White has shown.


    David Warsh is correct to note that Hayek’s influence on the development of formal economics after 1945 was limited. However, to go from this point to saying that

    ‘But it was Leo Hurwicz who carried the lessons to the next stage, where they began to have practical effect’

    is strange to say the least. While I am a fan of the mechanism design literature, I’m not sure what ‘practical’ lessons policymakers get from Hurwicz that they could not have got from Hayek.

    Finally, I was under the impression that the view that Friedman blocked Hayek’s appointment was a myth and that it was other figures within the Chicago economics department.

  6. Note well, the most important part of Hayek’s work on socialist planning and monetary cycle theory is all about exposing the pathologies embodied in the misuse of “technical economics” — and working out how economics can in fact provide sound contingent causal explanations for empirical patterns in our experience using entrepreneurial learning and systematic failures of learning as the key contingent causal component.

    Hayek’s perspctive on the pathologies of “technical economics” is well captured independently by Mark Blaug:

    The important thing is that Hayek’s massive contribution to economics comes as much from his critique of standard uses of “techmical economics” and from his alternative account of how to provide sound casual explanations using it, as it does from Hayek’s introduction of such landmark things as dated goods and information into “technical economics”.

  7. I am afraid that this is a mess of an article, and I really do not see what Hayek’s marital problems, which you suddenly introduce in the text, have to do with a discussion of his work as an economist and social philosopher.

    The fact remains that the Road to Serfdom does raise serious concerns about some of the unintended consequences of state planning; it makes a useful contribution to a necessary debate, as anybody who has witnessed the imposition of unelected leaders in welfare state Italy and Greece in the last few weeks, is aware; this does not mean that welfare states are necessarily authoritarian or undesirable, but Hayek pointed out the potential downsides which more than a few people have since witnessed in one way or another.

    A bit more subtlety please, and a bit less of the strutting, ad hominem stuff.

  8. As a newspaper editor currently working as a copy editor for a newspaper in the nation’s largest libertarian chain, which some of you might guess, from our editorial page, I can hugely attest to Hayek’s influence at George Mason. Doorknob, I’d love to strangle Walter Williams at times.

  9. What, no mention of Kaldor or Sraffa?

    In the 1930s Hayek was completely refuted by Piero Sraffa and Nicholas Kaldor (Hayek’s own follower who turned Keynesian) both of whom exposed the internal contradictions of his analysis.

    Kaldor’s first critique (“Capital Intensity and the Trade Cycle”), for example, resulted in Hayek completed rewriting his theory while Kaldor’s second article (“Professor Hayek and the Concertina-effect”) showed that Hayek’s Ricardo Effect was only possible under some very special circumstances and so highly unlikely. (Kaldor, “Essays on Economic Stability and Growth”, pp. 120-147 and pp. 148-176)

    Piero Sraffa refuted Hayek in “Dr. Hayek on Money and Capital” (The Economic Journal, vol. 42, no. 165, pp. 42-53) and “A Rejoinder,” (Vol. 42, No. 166, pp. 249-251)

    In short, Hayek lost the debates of the 1930s. Strangely enough, most books on “Austrian” economics by “Austrians” fail to mention Kaldor or Sraffa.

  10. I don’t understand why Hayek’s divorce is a relevant issue here. It seems that the author is bent on throwing every possible ad hominem attack against Hayek.

  11. Haven’t we gone past Hayek-Keynes debate, yet? We know that Keynes established effective demand as major driver of economic growth, which takes into account liquidity traps. And Rutgers econ historian James Livingston added that effective or aggregate demand only boosted by consumer and govt. spending, not corporate profits. Why is therefore Hayek even relevant? Evolutionary Econ great conceptual tool, but only to document history of economic thought. It can’t tell us about effective demand!

  12. Thank you for an information article.

    I’ve been thinking about Hayek for a long while now thanks to Glenn Beck. He is used by the conservative right as a hack – to provide an intellectual veneer to their misguided libertarian economics – which itself is a front behind which they pursue unfettered government penetration and manipulation.

    I’ve actually come to respect his theory of information – how price contains a lot of economic information. If Adam Smith provided us the invisible hand, Hayek at least provided one cover for one of the fingers – that the hand operates through the information embedded in price.

    Also, Hayek correctly points out that central planning ala socialism is bad because it centralizes economic decision making – when it is so actually abundant and distributed – and for this reason, it is inferior to capitalism in the allocation of economic resources – a point I completely agree with.

    Then the type of concentration of economic assets and wealth that the unfettered free market ideology of conservative libertarianism (which is a front) results just as well in the centralization of economic decision making in the hands of the few oligarchs of the economy – and is just as well inefficient.

    Central planning results in permanent stagnation – after the initial excitement dies off. Extreme concentrations of wealth, income, and market powers as is happening today results in more frequent and more devastating booms and busts for the well to do and lingering stagnation and depression for the poor and middle class – and Hayek can help explain this.

    Of course the conservative right wing ignores Chapter 3 of The Road to Serfdom where Hayek recognizes a significant role for government in resolving market failures – that is in the promotion of competition, creating ideal environment for markets, protecting the environment, and providing for minimal welfare assistance – all these things which today’s exotic conservative right wing deride as socialist.

  13. 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?

  14. Hayek endorsed even more interventions in The Constitution of Liberty, which prompted a very critical review by Murray Rothbard.
    I agree that Hayek’s personal life has nothing to do with his views, and amounts to a sort of character assassination.
    Austrian capital theory ought to be rehabilitated and combined with a theory of free banking in an elementary economics textbook, not some Routlege x hundred dollar number.

  15. The V.S. Bruce Caldwell asks, “Why mention snide and sly remarks?”

    …but ends with, “Are there any adults left out there?”

  16. Bruce,

    Hmmm. Well, since you are invoking me in a critical way, what do you think Hayek would have supported regarding national health insurance? Something more like what Canada has that is actually universal rather than the hodge-podge mess we have in the US that even after Obamacare does not cover everybody? Or did he really turn against it because of his son’s experience in UK, which, as I noted, is an extreme form of it, full-blown socialized medicine, that we see in few countries that have universal national health insurance?

    I do agree with you that Dave should have left out all the stuff about Hayek’s personal life.

  17. For what it’s worth, this past February, the American Economic Review (specifically Kenneth J. Arrow, B. Douglas Bernheim, Martin S. Feldstein, Daniel L. McFadden, James M. Poterba, and Robert M. Solow) named its top 20 articles of the last 100 years. Included therein was:

    Hayek, F. A. 1945. “The Use of Knowledge in Society.” American Economic
    Review, 35(4): 519–30.

    The knowledge problem is at the core of the Austrian Business Cycle Theory. Monetary expansion distorts prices which impairs economic calculation, especially in capital goods industries. Suggesting that the economic calculation debate applies only to central planning is dishonest. It also at the core of the Austrian critique of Keynesian fiscal and monetary policy which remains unanswered by the Keynesians (as this post demonstrates).

  18. Thanks to all for many useful comments.

    Three in particular strengthen my conviction that there is a useful distinction to be made between technical economics and philosophical economics.

    Boettke, Roberts and Tabarrok have little to say about Hayek’s response in 1930-37 to the problems posed by the Great Depression, and even less about the Hayekian response to the crisis after 2007. They have nothing to say about Milton Friedman’s painstaking working-through of some of the policy failures that occurred after 1929, and the debt owed to it by those who responded more successfully to the crisis in 2008.

    On the eve of the panic, Ben Bernanke did not say “You were right, Fritz, there is absolutely nothing we can do.” After forty years of significant improvement in economists’ practical understanding of the world, Hayek’s 1974 Nobel lecture lacked the very virtue it prescribed: humility. Indeed, within a few years, on practical matter, he was shown to be wrong again.

    The fact remains that he made many important contributions to the broadening and deepening of philosophical economics. As a philosophical economist, he truly was a giant. After 1937, he probably was, as Dave Colander says, running a different race, one which has many important heats yet to be run.

    Meanwhile, Bruce Caldwell got so upset that he failed to understand what my weekly was about: the reception of Hayek and his ideas by new generations, not the ideas themselves. It wasn’t Wapshott and Nasar who “invented the ‘Hayek’” we’re going on about here (in Paul Krugman’s tart phrase). It was Caldwell, Roberts, Greg Ransom, and a handful of others.

    I expect to have more to say about this in due course. Thanks again for the many very useful comments.

  19. Hayek’s partial knowledge ties into Bastiat’s opportunity cost which ties into Smith’s invisible hand which ties all the way back to Buddha’s idea that we are all just blind men touching different parts of an elephant.

    What is the elephant? The elephant represents the scope of government. We’re all just blind men arguing over the scope of government…

    The blind men touching the elephant never would have discerned the truth by averaging their unique perspectives (partial knowledge). In order to discern the truth they would have had to add their perspectives together.

    Rothbard drooled over a button that he could push to entirely destroy the state in one fell swoop. If the state is entirely unnecessary though…then each part of the state is also entirely unnecessary. Why not just allow each and every taxpayer to use their own, individual, hard-earned taxes to indicate which parts of the state are entirely unnecessary? If consumers do not purchase unnecessary private goods…then why would they “purchase” unnecessary public goods?

    What is the public goods allocation disparity between A) 538 congresspeople spending other people’s money and B) millions and millions of taxpayers directly allocating their own hard earned taxes?

    Is this tax allocation disparity divine or delusional?

  20. “a useful distinction to be made between technical economics and philosophical economics.”

    There exists no such distinction, this distinction is merely a thinly disguised attempt to salvage what is left of your horribly inaccurate and poorly researched column after the above comments.

    And yes it is poorly researched when you get dates of publication wrong that are material to the story and you repeat anecdotes for which there exists no evidence, then you have done a poor job researching what you’re supposed to write about.

    And it is inaccurate, because in the very post by Alex Tabarrok you dismiss, the Nobel Prize Committee is cited as to the reason for Hayek’s Nobel. Hayek received his Nobel to a large part for his technical economics 1920’s and 30’s.

    “Hayek’s contributions in the fields of economic theory are both deep-probing and original. His scholarly books and articles during the 1920s and 30s sparked off an extremely lively debate. It was in particular his theory of business cycles and his conception of the effects of monetary and credit policy which aroused attention. He attempted to penetrate more deeply into cyclical interrelations than was usual during that period by bringing considerations of capital and structural theory into the analysis. Perhaps in part because of this deepening of business-cycle analysis, Hayek was one of the few economists who were able to foresee the risk of a major economic crisis in the 1920s, his warnings in fact being uttered well before the great collapse occurred in the autumn of 1929.”

    Then again to be fair, to scold you for being inaccurate and a sloppy researcher is faulting you twice for the same thing. If only you had better done your research your story would have been more accurate and you wouldn’t have to come up with distinctions to salvage your column.

  21. “That combination, Hayek, Myrdal and Robinson, might have cast the contributions of each into sharper relief: three pioneers who, after important early contributions, gave up economics for political activism.”

    What’s this nonsense? How can economics be separated from politics? Economics requires an a priori political system to make any sense and also argues for or against certain political propositions. How is “the government should do this” and “the government shouldn’t do that” not political activism?

  22. A bit late to this party, but I had a cute thought late last night: Google ngrams. It searches “lots of books”. This doesn’t tell us anything about journal articles, but it’s a start (but that is likely an anachronistic standard, applying today’s academic practices to an earlier era).

    This is with a lot of smoothing, and it would not surprise me if there are some homonyms for “Friedman”, its being a more common name than either of the other two. But it seems clear that

  23. [I should re-read more carefully before hitting send!]

    … But it seems clear that Hayek’s influence did not begin until after he received the Nobel, and we appear to have achieved peak Hayek in the last decade.

  24. Curiously enough, conservatives who object to the mention of the unsavory details of Hayek’s failed marriage, never seem to object to Keynes’ homosexuality being used as a stick to beat him and his work. Depends on whose ox is being gored, I suppose.

  25. @ paul wolfson
    > we appear to have achieved peak Hayek in the last decade.

    Huh??? IF -big, big IF here- Hayek’s long term rising trend channel in your Google NGram qualifies as ‘peak Hayek’, well, in that case and by that same token Keynes’ and Friedman’s graphs have gone through what can then only be accurately described as their total, complete and utter parabolic collapses – a decade before ‘peak Hayek’.

    Let’s be serious here. Purely from a mathematical point of view there’s only one clear and undeniable peak in your graph – and that is peak Keynes. Furthermore, the jury is probably still out on Friedman (his graph, that is). But Hayek (graph, again), far from having peaked, is the only one of the three on a steady, sustainable and long, loooong term rise.

  26. Re comment 14: only economic cranks speak of “unfettered free markets”. No such thing exists. Markets which are free of government intervention are fettered by customers. Markets in which there are no fetters by customers cannot be free, because customers need to be fettered in order to swallow markets where they have no choice.

    The only possible argument to be made here is whether customer fetters work out better for customers or if government fetters work out better for customers, or if government fetters work out well for politicians. I’m not going to engage in that argument here.

  27. I wish I had noted the exchange that took place in Challenge magazine, last year and early this, after Andrew Farrant and Edward McPhail, both of Dickinson College, asked in the July-August issue, “Does F.A. Hayek’s Road to Serfdom Deserve to Make a Comeback?” No, they concluded: popular claims that he was right, by Glenn Beck and others, were false. Hayek scholar Caldwell replied that the book, though very much a product of its times, still repaid reading. These four pieces, part of an ongoing examination of Hayek’s place in the firmament, supplied an unusually thorough and good-tempered ventilation of the question as the sixty-year-old cri-de-couer soared on the best-seller lists.

  28. WalterW @ 27 responded to my remark about “peak Hayek”.

    My comment about “peak Hayek” is much more clearly seen if we drop Friedman from the mix and use less smoothing. I used smoothing of 10.

    With anything > 31 (you need to put the number into the URL, the drop down menu does not include it), both trends are still rising at the end.

    At 31, Keynes is flattening out at the end, and Hayek is still rising.

    At 24, Keynes is in decline starting around 2007.

    At 13, Hayek apparently starts to decline around 2007, and Keynes around 1989, although the number of mentions of Keynes is still more than twice those of Hayek.

    At 5, Keynes has been in decline since 1993 and Hayek since about 1999. At the end, Keynes still has about 2.5 times as many mentions as Hayek.

    At 2, both peak about 1995, with Keynes about 3 times as many as Hayek, and about 2.5 times as many at the end.

    So, play with the smoothing and find a graph that suits your pleasure. Or, figure out how to get the actual annual values, create your own equation and project as far into the future as necessary to get an answer that suits your pleasure.

  29. FWIW: There is a parallel between the rise of Hayek and the rise of information technology, and the predominance of libertarianism among tech sector males.

    Prices as information, and credit that causes inter-temporal distortion, misallocation of human capital, and exaggerates booms and busts, and a more useful argument for defeating the desire for the central planning in socialism, is certainly enough of a contribution for one human being.

    Hayek is only perceived as less important because he was so successful in having his ideas implemented.

    Demand is a short term problem. Hayek was looking at the other end of the temporal spectrum.

    And if current events play out as they appear to, he will have been prescient.

  30. “But the fact remains that Hayek just didn’t contribute very much to the development of technical economics.” Technical macroeconomics, directly, perhaps.

    Then again my colleague who teaches principles of economics makes far more references to Hayek in the microeconomics segment. Did Hayek have an intuition that evolutionary economics ideas undermined the Keynesian case? Perhaps it is macroeconomics that needs to catch up with Hayek, not the other way round.

    Hayek had an enormous influence on Friedman, who did contribute to technical macroeconomics, so does that count? Economics is a team sport, and it doesn’t make sense to disregard Hayek’s influence on the next generation of macroeconomists. Friedman on nHayek and the Road to Serfdom:

  31. I’m later than late to this post, and took the curious route of reading the comments first. That made the post itself quite a revelation. Having no dog in this fight, it’s pretty easy for me to see that it is far from the hatchet job that several other commenters imagine it to be.

    It’s not clear whether the point is to damn Hayek with faint praise or to praise him with faint damnation. But there is some attempt at baance, and it is clear that accusations of ad hominem are rising from fevered imaginations. An unbiased reader will note that mention of Hayek’s divorce was in the context of “Thereafter he labored under five distinct handicaps,” which is actually giving him a bit of cover for decades of relative obscurity.

    Re: the ngram chart, it’s easy for an objective observer to note that Hayek had gone absolutely nowhere for 30 years before his Nobel reception tickled a modicum of interest. Then Reagan/Thatcher supply-side-ism – however irrelevant – gave him a boost, for about a decade. Since then, even with Beck’s hucksterism, it been flat-line, at best, for well over a decade.

    The decline of Keynes and Friedman over that same span may well reflect the general dumbing-down of practically everything in a sound-bite age dominated by professional liars like Gingrich, Limbaugh and Murdoch’s entire stable, and dim-wits like Paul Ryan, Michelle Bachman and Rick Perry.

    Even in his grave, poor Keynes has been ad-hominem-ed to death. More so that any other currently dead economist. Well, except for Marx.

    So – are we screwed, or what?

  32. Paul Wolfson—I googled you and found this controversy about Hayek. I’m not sure whether or not to take you seriously. I know you too well to be sure. I love your “peak Hayek” coinage. It reminds me of the notion of “peak oil” which seems no longer to be in use.
    But life is too short for me to be digging through all this.
    You know who

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