Arnold Kling has a new spin on Hayek’s “Why The Worst Get To The Top”:
The main science of political economy is the science of obtaining and retaining power. As far as expertise goes, the pollster, the fundraiser, and the media expert are all fundamental to the operation. The public policy expert is for decoration. If you want to be an economic policy adviser when you grow up, then my advice is to learn to rationalize the methods used by leading politicians to obtain power.
Is health care reform about health care? No, it is about seizing and retaining power. Was the stimulus about stimulus? No, was about seizing and retaining power. Is cap and trade about global warming? No, it is about seizing and retaining power. Was TARP about saving the financial system? No, it was about seizing and retaining power.
The social scientist’s role in the political process is to say, “X is a problem. Government must solve X. Here are some solutions.” The solutions that rationalize seizing and retaining power will bubble to the top.
Professors often seem dependent on strawmen to supercharge the motivatation of their otherwise undistinguished arguments, and since being a professor means never having to know any history of economic thought, lots of these strawmen are invented and then projected on famous economists from the past. Indeed, fake “Hayek” positions are becoming more popular among academic than even are fake “Adam Smith” positions. The latest bogus “Hayek” position comes from Daron Acemoglu, Davide Cantoni, James A Robinson, and Simon Johnson, academics at Harvard and MIT. You really have to read their article to get a full sense of their strawman, but if you’ve read Hayek’s The Constitution of Liberty or his Law, Legislation and Liberty, an any of his special essays on this topic, you now that Hayek allows for all sorts of “design” within the institutional backdrop of evolved institutional structures like language, or money, or law, or government, etc. Hayek even proposed the implementation of several dramatic institutional designs. In other words — if you’ve actually read Hayek — the following statement of Professors Acemoglu, Cantoni, Robinson, and Johnson is a laughably fraudulent strawman:
“Hayek (1960) .. claimed that the institutions of a society had to evolve organically and could not be designed.”
Note well that left wing economist Mark Thomas — who loves to bash Hayek with no sign that he’s ever read the man’s work — happily spreads the bogus meme.
A letter from Friedrich Hayek to Joan Robinson, dated March 10, 1941, quoted in Konstantinos Repapis’s paper “Hayek’s business cycle theory during the 1930’s: A critical account of its development:
“My present pre-occupation with what may seem altogether different problems [than technical issues of the business cycle] may suggest to you that I am running away from the difficulties which my position creates. The fact is that I have increasingly come to the conclusion that all our differences — or I should probably say my differences with almost all “modern” economists not only in the specific field of monetary theory but quite generally, including in particular the approach to the theory of competition, the use of concepts representing averages or aggregates, and the whole problem of socialism, all trace back to a more fundamental difference which I am gradually trying to clear up. The only published results of these efforts gradually to work out a consistent system of “subjectivism” is the article on “Economics and Knowledge” in Economica 1937 which you may have seen. But I feel that to elaborate these fundamental problems is more important than to go on with the work on particular problems where one comes up all the time against the same difficulties…” (Hayek’s letter, 10 March 1941)
What Hayek was then working on was his “Scientism and the Study of Society” papers. I have long argued that these papers were as much targeted at Keynes and Keynesian/ Cambridge economics as they were at anything else.
The correspondence between Friedrich Hayek and Joan Robinson is archived at Kings College, Cambridge, and has yet to be published.
Here is the 3rd section of the “Friedrich Hayek” entry at Wikipedia. Check it, add to it, correct it, or improve it as you consider appropriate:
Student and economist
At the University of Vienna, he earned doctorates in law and political science in 1921 and 1923 respectively, and he also studied philosophy, psychology and economics with a keen interest. For a short time, when the University of Vienna closed, Hayek studied in Constantin von Monakow’s Institute of Brain Anatomy, where Hayek spent much of his time staining brain cells. Hayek’s time in Monakow’s lab, and his deep interest in the work of Ernst Mach, inspired Hayek’s first intellectual project, eventually published as The Sensory Order (1952). It turned Mach’s contribution on its head, locating connective learning at the physical, neurological levels in a direct rejection of the “sense data” associationism of the naive empiricists and logical positivists. Hayek presented his work to the private seminar he had created with Herbert Furth called the Geistkreis.[6]
Initially sympathetic to socialism, Hayek’s economic thinking began to shift after reading Ludwig von Mises’ book Socialism. He was a student of Friedrich von Wieser. Hayek worked as a research assistant to Prof. Jeremiah Jenks of New York University from 1923 to 1924. He then aided the Austrian government with the legal and economic details of the Treaty of Versailles at the close of the First World War.[citation needed] It was at this time that Hayek began attending Ludwig von Mises’ private seminars along with several friends, including Fritz Machlup, who had been participating in Hayek’s own more general private seminar.
After his work for the government, Hayek founded and served as director of the Austrian Institute for Business Cycle Research before joining the faculty of the London School of Economics (LSE) in 1931 at the behest of Lionel Robbins. In the 1930s, Hayek enjoyed a considerable reputation as a leading economic theorist, but his models were not received well by the followers of John Maynard Keynes. Debate between the two schools of thought continues to this day. While at LSE in the 1930s, Hayek tutored David Rockefeller.[7] Others who studied with Hayek at the LSE include Arthur Lewis, Ronald Coase, John Kenneth Galbraith, Abba Lerner, Nicholas Kaldor, George Shackle, Thomas Balogh, Vera Smith, L. K. Jah, Arthur Seldon, Paul Rosenstein-Rodan, and Oskar Lange. [8][9][10]
Unwilling to return to Austria after the Anschluss brought it under the control of Nazi Germany in 1938, Hayek remained in Britain and became a British subject in 1938. He held this status for the remainder of his life, although he did not live in Great Britain after 1950. He lived in the United States from 1950 to 1962 and then mostly in Germany, although briefly in Austria as well.[11]
by Hansjörg Klausinger. From the Abstract:
This note points to the problems arising from the translations of Hayek’s early German-language writings on monetary theory before 1931. Two issues are emphasised. First, some examples of misleading translations of outdated terminology are provided. Second, it is shown that contemporary as well as more recent translations exhibit the tendency of ‘smoothing’ Hayek’s intellectual development, that is, of interpreting (or translating) the early Hayek in the light of knowledge of his later writings. As an example, Hayek’s evolving views on the effects of forced saving and the trade-off between progress and cyclical stability are examined more closely.
Read the whole thing.
We know that much of Hick’s work was inspired by Hayek:
“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).
“I did not begin from Keynes: I began from Pareto, and Hayek (footnote 10: There is evidence for this, in the paper ‘Equilibrium and the Cycle’) ..”. (John Hicks, Classics and Moderns, New York: Basil Blackwell, 1983, p. 359).
Much of Hicks can be understood as an attempt to cram the insights of the Menger-Bohm-Bawerk-Weiser-Hayek research program in capital production/equilibrium theory into a British/Marshallian reconception of Walras/Pareto. It didn’t really work. But it was enormously influential. Kenneth Arrow was among those inspired by Hicks (note well that, contra Arrow, Hicks is not an adequate lens for reading Hayek — it’s easy to guess that Arrow as a grad student wasn’t competent to understand Hayek because Arrow really had no background in the work of Menger, Bohm-Bawerk or Wieser.):
When I enrolled as a student in the Economics Department at Columbia (1941), I was assigned a desk in the library stacks near the economics book collection. As is my wont when placed in the neighborhood of books, I immediately started browsing and ran across a work by an economist whose name I had never heard mentioned, J.R. Hicks’s Value and Capital (1939). As apparently happened to other like-minded economics students (e.g., my good friend, Frank H. Hahn) at that time, it gave me a powerful orientation to economic analysis. It showed how the techniques of static analysis (already familiar to me from Hotelling’s course but expressed with more verve and style) could be applied to events unfolding in time. Savings and investment could be analyzed using the same tools. If the reader thinks this is obvious, I recommend that he read the controversies over capital theory, as exemplified by the papers of Frank Knight (1936) and Friedrich von Hayek’s book (1941) and try to find out, as I tried then, what in the world were the questions being debated. Hicks had a simple approach: Decisions on commodity consumption and production today are made jointly with consumption and production in the future. Therefore, simply put a time subscript on commodities; use the static formalism with the enlarged commodity space. (To be fair, after reading Hicks, one can understand that Hayek was saying much the same, but I defy anyone to learn that from reading Hayek alone.)
Of course, Hicks’s s reformulation did not end the difficulties in theories of savings and investment; rather, it enabled one to understand what they were. In brief, as Hicks explained, the problem was the nonexistence of a full set of futures markets. There were a few commodity futures markets, and, more importantly, there were markets for credit. As Hicks emphasized, the nonexistent futures markets were replaced in the calculations of firms and households by expectations, and the resulting supply and demand behavior determined “temporary” equilibrium prices and allocations on the current and existing futures markets. As Hicks showed, one consistent set of expectations was the equilibrium set that would have been obtained if all markets existed (what later became known as “rational expectations”) …
Read the whole thing (pdf).
The Atlas Foundation is sponsoring a “Sound Money” essay contest. Entries are due in November. Top prize is $5,000.
A contemporary update from Mark Steyn:
The real [psycho-social] bubble [of the politicians] is a consequence of big government. The more the citizenry expect from the state, the more our political class will depend on ever more swollen Gulf Emir-size retinues of staffers hovering at the elbow to steer you from one corner of the fishbowl to another 24/7. “Why are politicians so weird?” a reader asked me after the Sanford news conference. But the majority of people willing to live like this will be, almost by definition, deeply weird. So big government more or less guarantees rule by creeps and misfits. It’s just a question of how well they disguise it. Writing about Michael Jackson a few years ago, I suggested that today’s A-list celebs were the equivalent of Mad King Ludwig of Bavaria or the loopier Ottoman sultans, the ones it wasn’t safe to leave alone with sharp implements. But, as Christopher Hitchens says, politics is show business for ugly people. And a celebrified political culture will inevitably throw up its share of tatty karaoke versions of Britney and Jacko.
Barack Obama and some on his economic team claim to be students of Hayek. But as Université du Québec economist Pierre Lemieux points out, Obama’s new plan to “regulate” the macroeconomy is premised on purely magical thinking where government bureaucrats have an impossible God-like knowledge of market relations, and where bureaucrats and politicians have a complete personality transplant making them into not-of-this-world angels who no longer care about themselves, their friends and the sources of power, and who care only about the overall performance of the economy. In other words, Obama and his economic team get an “F” in Hayekian Econ 101:
Why is government intervention so expectedly inefficient in promoting economic growth and stability? The short answer is two-pronged. First, politicians and bureaucrats don’t have the incentives to fix, or not to break, the economy. Second, there is an insuperable information problem, which Nobel laureate Friedrich Hayek’s work put in clear focus: the state (the whole apparatus of government) simply does not have the information necessary to intervene efficiently. The business cycle is a complex phenomenon on which generations of brilliant economists still don’t agree. How could we expect that campaigning politicians and bureaucrats in committees will resolve the problem? How could they, as the 89-page Financial Regulatory Reform document states, get “a focus on identifying whether new trends might be creating risks that would otherwise go unseen”?
Can someone direct me to a good Hayekian explanation of the inverted yield curve phenomena:
Click to enlarge. ht Mish.
It’s impossible for a market economy to function non-pathologically when the backbone of the system — the communication transmission mechanism of money prices — is constantly short-circuited by an unworkable attempt at central planning. John Cochran explains. Quotable:
A major significant failure of the resurgence of market-oriented policies [since the 1980s] was a failure to reform the monetary system. This failure left significant control and direction of all aspects of money, credit, and financial flows under central-bank planning and control. The resulting monetary and financial crisis is not a market failure, but a central-planning failure — an artificial boom is a centrally controlled misdirection of production.
The resulting crisis is a “mini” [socialist] calculation failure. This failure to build economic success and freedom on a solid foundation — a market determined money, a sound money — has resulted in two Fed-originated boom-bust cycles in the last ten years. The most recent and most severe was a direct result of the Fed’s overstimulating the economy in 2002–2004 in an attempt to postpone a necessary correction. By keeping the federal-funds rate too low policy successfully masked the misdirections of production from the previous boom, prevented or postponed the needed corrections, and, predictably, misdirected production in other channels — housing and commercial real estate relative to the earlier dot-com boom — making the necessary redirections more severe.
Got to love this:
Obama proposes to entrust the critical job of “systemic risk regulator” to the Federal Reserve, the very organization that has proven most adept at creating systemic risk. This is like making Keith Richards the head of the DEA.
The whole thing is worth a read.
Can microeconomics explain the current crisis? Steven Horwitz explains how it does in an outstanding explication of microeconomic explanation and its application to our current macroeconomic problems (pdf):
The Austrian approach to macroeconomics can already be seen as being fundamentally microeconomic. What matters for growth is the degree to which microeconomic intertemporal coordination is achieved by producers using price signals, especially the interest rate, to coordinate their production plans with the preferences of consumers. However, this coordination process can be undermined through economy-wide events that might well be called “macroeconomic.” In particular, the very universality of money that makes possible the coordination that characterizes the market process can also be the source of severe discoordination. If there is something wrong with money, the fact that it touches everything in the economy will ensure that systemic “macroeconomic” problems will result. When money is in excess or deficient supply, interest rates lose their connection to people’s underlying time preferences and individual prices become less accurate reflectors of the underlying variables of tastes, technology, and resources. Monetary disequilibria undermine the communicative functions of prices and interest rates and hamper the learning processes that comprise the market.
More:
The Austrian theory predicts that excess credit will flow to long-term production processes. In this case, that was housing, as the lower interest rates from the Fed’s expansion artificially reduce the price of housing and led to the sequence of events we have outlined. As noted in the prior section, the Austrian theory does not attempt to predict the specific path inflation will take, only that it will generally conform to the pattern whereby it ends up in long-term investments as a result of lower interest rates. That in this case it went into housing is a particular feature of this cycle that is completely consistent with the more typical features the theory identifies. Inflation by the government central bank, along with other government interventions and policies, account for both the typical and unique features of this cycle and are the direct causes of the current recession.
As I said, just outstanding. Read the whole thing.
Scott Sumner thinks we are, but Bob Murphy gently explains that this bus won’t arrive until the Keynesians and Chicago economists acknowledge the signal fact that interest rates are prices and capital production has a price sensitive time structure:
the interest rate is a price that allocates investment among projects of different length. It’s not merely a lever for “more investment or less?” To lower interest rates, in the hope of spurring total spending while ignoring the distortions among choice of investment projects, would be akin to raising taxes on labor and not realizing this would affect hair salons more than oil rigs.
From Robert Samuelson:
In theory, expanding public welfare could offset eroding private welfare. President Obama’s health-care proposal reflects that logic. The trouble is that the public sector also faces enormous cost pressures, driven by an aging population and rising health costs. The Congressional Budget Office projects the federal debt will double as a share of the economy (gross domestic product) to 82 percent of GDP by 2019.
Any sober examination of figures like these suggests that the system has promised more than it can realistically deliver. We are borrowing not to finance investment in the future but to pay for today’s welfare — present consumption. Sooner or later, the huge debt will weaken the economy. Nor would paying for all promised benefits with higher taxes be desirable. Big increases in either debt or taxes risk depressing economic growth, making it harder yet to pay promised benefits.
The U.S. welfare state is weakening; insecurity is rising. The sensible thing would be to decide which forms of public welfare are needed to protect the vulnerable and to begin paring others. Our inaction poses another dreary parallel with GM. It was obvious a quarter-century ago that GM the auto company could not support GM the welfare state. But the union wouldn’t surrender benefits, and the company acquiesced. Inertia prevailed, and the reckoning came.
The same cycle, repeated on a national scale with sums many multiples higher, would be correspondingly more fearsome.
A lot of Friedrich Hayek’s work is really about whether or not a society consumes or misallocates or squanders its capital and suffers a consequent lose of general welfare, or whether a society instead invests and innovates and coordinates it capital utilizing relative prices, sound money, and a competitive system and thereby enjoys the consequent bounty of an ever expanding general welfare.
Hayek fought the Keynesians, the socialists, and the unions because each of these groups represented in effect a conspiracy against the expansion and coordination of capital production — both though a complex of false scientific ideas, and through their massive influence on legislation and the administrative state. The Keynesians were the enemy of sound thinking about increasing output through the lengthening of capital production, and also the enemies of sound thinking about the effect of monetary expansion on the capital structure across time. The socialist were the enemy of sound thinking about the role of relative prices in the coordination of production and the role of competition in the advance of innovation and productivity and consumer satisfaction. The unions were the enemy of sound thinking about the rule of law and the effects of price controls and government mandates on income, output, productivity and personal choice , and they used their muscle to legally priviledge themselves in the political process and in the economy, to the detriment of everyone else — most especially the next generation.
Hayek warned about all this and more — and now Obama and the American government seem dead set on putting the pedal to the metal as America goes blasting off headed straight for a brick wall.
Economist Art Carden explains why he’s reading Hayek, not Marx, in this time of economic crisis:
Marx’s status as an important figure in the history of ideas is unassailable, but the decisive and multi-faceted refutations of his system suggests that we won’t learn much by perusing his work for insight into the roots of the global economic crisis. For real insight we have to look elsewhere. I’m starting with Ludwig von Mises and Friedrich Hayek. Like Marx, both offered complete social systems, internally consistent monetary theories, and explanations of economic crises. The difference is that Mises and Hayek got the economics right ..
The current crisis is not a crisis of capitalism. It is a crisis of interventionism spawned by the hubris of political leaders who, to borrow from F.A. Hayek, were arrogant enough to think that they could design what they could not possibly understand. Governments regulate, which means two things. First, the regulators are insulated from competition. Removing the determination of standards from the cash nexus of the market process means that they are circumventing the information-generating process that would tell providers of rules and regulations whether they are choosing wisely or choosing poorly. Second, turning market decisions into political decisions means creating political incentives. We should not be surprised that financial market regulations are being bent to the benefit of those who are in the best position to influence policy and to the detriment of everyone else.
In my first two Hayek Seminar postings I highlighted the fact that for Hayek the empirical character of economics science begins with empirical problems in our experience. We witness a constantly repeated pattern in which prices “tend” toward costs. Alternatively, we attempt to impose a system of “just prices” and our attempts to empirical control the world continually end in empirical failures, producing repeated typical patterns of unintended empirical consequences. We begin to ask why, and our efforts to understand inspire us to created logical constructions whose parts a single mind can manipulate and observe as if from a God like perch, constructions which mimic aspects of the prices -> cost pattern, first for an isolated part of the system and then for the whole global system.
Ultimately, in the 20th century, with the work of Wieser or Lerner or Debreu, we reach the point were a pure apriori, logical system of perfect economic order — or “equilibrium” — is created, a system knowable by a single mind, and hypothetically manipulated by a single mind.
We are focusing here on the empirical character of economic science, and Hayek’s point here is that this tautological logical system gives us a window on global economic order — it gives us a “frame” or “lens” that enables us to “see” or imagine global economic order as we never before were able to “picture” it. But Hayek’s more significant point is that this apriori “God’s eye” or “Dictator’s plaything” construction, which it gives us a window into a similar but imperfect global empirical pattern before us; this tautological construction does not provide us with an explanation of what produced this now more fully perceptible order. And most certainly it does not provide us with a causal empirical explanation of that order.
Here’s Hayek:
“In distilling from our reasoning about the facts of economic life those parts which are truly a priori, we not only isolate one element of our reasoning as a sort of Pure Logic of Choice, but we also isolate, and emphasize the importance of, another element which has been too much neglected.” (1937, p. 35)
“. . the tautological propositions of pure equilibrium analysis as such are not directly applicable to the explanation of social relations . . ” (1937, p. 35)
“The fundamental problem of all economic theory, that is to the question of the significance of the concept of equilibrium and its relevance to the explanation of a process which takes place in time.” (1935, p. 138)
“It was only the modern development of equilibrium analysis together with the increasing awareness of the conditions and limitations of the applicability of the equilibrium concept which has taught us to recognize the nature of the problems existing in this field [i.e. industrial fluctuations] and which has indicated the paths towards their solution.” (1935, p. 137)
” . . though the discussion of moral and social problems based on the assumption of perfect knowledge may occasionally be useful as a preliminary exercise in logic, they are of little use in an attempt to explain the real world.” (1960, pp. 22-23)
I’ll pick up the topic of what does provide a causal explanation of that order in an upcoming Hayek Seminar posting — and I’ll explain the role of the tautological construct of equilibrium in the discovery and perception of that causal explanatory element.
Do you like section 2 of the “Friedrich Hayek” entry at Wikipedia? Is it good enough or do you have an idea to make it better? (Part of a continuing series):
Hayek was born in Vienna, then capital of the Austro-Hungarian Empire, the son of a doctor in the municipal health service. Hayek’s grandfathers were prominent academics working in the fields of statistics and biology. The paternal line had been raised to the ranks of the Austrian nobility, for its services to the state, a generation before his maternal forebears, also raised to the lower noble rank. Hayek’s father turned his work on regional botany into a highly esteemed botanical treatise, continuing the family’s scholarly traditions.
His mother’s family belonged to the wealthier bourgeoisie. Also on his mother’s side, Hayek was second cousin to the philosopher Ludwig Wittgenstein. His mother often played with Ludwig’s sisters. Inspired by the accident of this family connection, Hayek became one of the first to read Wittgenstein’s Tractatus Logico-Philosophicus when the book was published in its original German edition in 1921.
Already as a teenager, and at his father’s suggestion, Hayek read the genetic and evolutionary works of Hugo de Vries and the philosophical works of Ludwig Feuerbach.[4] In school Hayek was much taken by one instructor’s lectures on Aristotle’s ethics.
In 1917 he joined an artillery regiment in the Austro-Hungarian Army and fought on the Italian front. Much of Hayek’s combat experience was spent as a spotter in an aeroplane. He survived the war without serious injury and was decorated for bravery.
Hayek then decided to pursue an academic career, determined to help avoid the mistakes that had led to World War I. Hayek said about his experience: “The decisive influence was really World War I. It’s bound to draw your attention to the problems of political organization.” He vowed to work for a better world. [5]
What I’m probing right now is Hayek on the spurs to inquiry in economics. One insight I’d like to suggest is the fact that over time the human race loses track of the problems which originally provoked inquiry — and the loss of this original sprur to inquiry can have detrimental and even pathological effects on the evolution of a discipline. I’d point to some of the pathologies of mathematical Darwianian biology highlighted by Alex Roseberg, Ernst Mayr and others, where the mathematicians have seemed to have forgotten the original gross teleological adaptations which originally provided part of the patterns in our experience which demand explanation.
In economics many mathematical economists seem to have become so focused on their math constructions that they have completely lost sight of the empirical patterns and spurs to inquiry which gave rise and justification to their mathematical endevours.
“Explanation by elimination” is typically a fallacy in both science and philosophy, and one of the mistakes characteristic of this fallacy is the error of presuming that the phenomena and the questions generating the problems to be explain are done away with by the constructs developed to explain them.
To recover the empirical and conceptual richness of the science of economics, it is necessary to bring the tacit and unspoken elements of both the explanadum and the explanans in economics out into the open — the full empirical and conceptual nature of the science of economics is hidden by the fact that much of what needs to be explained is unspoken and hidden in the shadows.
Hayek implicitly suggests that to get our grips on the empirical problem that the science of economics provides explanations for it helps to dig back to a time when human ignorance of the economic sphere was much more extensive, an effort that can help us re-imagine our ignorance, and thereby articulate explanatory problems we no longer even recognize or think about due to hard won achievements of understanding.
In the last seminar posting I quoted Hayek on the empirical pattern in which prices tend toward costs of production, a pattern which Hayek suggests both justifies and helped inspire the equilibrium construct in economics.
But what provoked men to take notice of this pattern and most especially what provoked people to worry about it enough to bother transforming patterns of this kind into theoretical constructs and eventually equilibrium constucts?
In part, Hayek suggests, people were inspired to worry about such things and grapple with such problems because of their desire to empirically control the world as a means of making the world better fit to their moral convictions and desires. In particular, the effort to intervene in the world in order to make the world fit an image of a just order — and the continual failure to succeed in that effort, gave rise to theoretical efforts to achieve what had yet to be achieved, and ultimately to theoretical efforts to explain why what hadn’t been achieved perhaps couldn’t be achieved.
Here’s Hayek:
“.. a thousand years of vain efforts to discover substantively just prices or wages ..” (1976, p. 73)
“The futile medieval search for the just price and just wage .. was not the end of the search for that philosopher’s stone. It was revived in modern times, not only by the general demand for ‘social justice’, but also by the long and equally abortive efforts to discover criteria of justice in connection with the the procedures for reconciliation of arbitration in wage disputes. Nearly a century of endeavors by public spirited men and women in many parts of the world to discover principles by which just wage rates could be determined .. ” ” (1976, p. 75)
“.. the general problem of remuneration according to merit .. “ (1976, p. 179)
“.. the late schoolmen recognized [just prices and wages] to be empty formulae ..” (1976, p. 73)
“.. man’s inability to determine beforehand what a just price would be .. “ (1976, p. 178)
