seminar: Ransom on Hayek 1

I’m going to start using this space to teach some Hayek — and perhaps generate a conversation. Please feel welcome to add your own thoughts in the comments section below.

Today’s seminar topic is the empirical nature of economics science.

Hayek in many places talks about how science begins with problems in our experience. Hayek is explicit in saying that economic science is not any different — economic science begins with problems raised in our experience. Hayek repeatedly describes these problems of science as question raising patterns in our empirical experience. In the case of economics, the most central problem raising pattern in our experence according to Hayek is the pattern in which prices repeatedly tend toward costs of production. The take away point here is that the empirical and scientific nature of economics starts with the empirical and scientific nature of its problems — questions raised by problem posing patterns observed in our experience. In later seminar postings I will discuss Hayek on the fuller context in which these patterns originally give rise to questions, and the relation of these questions to the formal and mathematical constructions which these patterns inspire.

Here’s Hayek — the comments section is open:

“It should be remembered that nearly the whole of economic science is based on the empirical observation that prices ‘tend’ to correspond to costs of production, and that it was this observation which led to the construction of a hypothetical state in which this ‘tendency’ was fully realized.” (1941, p. 27)

“And expericence shows us that something of this sort does happen, since the empirical observation that prices do tend to correspond to costs was the beginning of our science.” (1937, p. 49)

“..there seems to be no possible doubt that the only justification for this [concern with the admittedly fictitious stae of equilibrium] is the supposed existence of a tendency towards equilibrium.” (1937, pp. 43-44)

“Yet the concept of equilibrium is just as indespensable a tool for the analysis of temporal differences in prices as it is for any other investigation in economic theory. Strictly speaking, its field of application is identical with that of economic theory, since only with its assistance is it possible to give a summary depiction of the very great number of different tendencies of movement which are operative in every economic system at very point in time.” (1928/1984, p. 75)

4 comments to seminar: Ransom on Hayek 1

  • Eric Auld

    I was not familiar with these passages, and I thought I had read almost all of Hayek along these lines. It was interesting to hear Hayek talk about the importance of equilibrium theory, since some of his most important advances were insights into the limitations of “perfect competition.” Thanks for a stimulating post. Now on to the next one.

  • Roger McKinney

    I know this is about Hayek, but would it be possible to contrast/compare equilibrium with Mises’ “evenly rotating” economy?

  • Greg Ransom

    Roger writes:

    “would it be possible to contrast/compare equilibrium with Mises’ “evenly rotating” economy”

    This would be a large project.

    Hayek attempted to go fully “microeconomic” and forward looking in his account of the “evenly rotating economy”, taking into account predictable seasonal variations across time, etc.

    What you find in Mises’ construction are implicit macro throwbacks to the classical economics of Ricardo — categories constructed using the classic categories of land, capital and labor, defined in physical and in cost terms.

    Hayek sought to fully escape from these.

    This turns out to be hard stuff — and difficult stuff to talk about when comparing the classical system to the fully marginalist/micro system.

    See Hayek’s _The Pure Theory of Capital_ for an attempt.

    Some of Lachmann’s essays on Ricardo, macro aggregates, capital theory, and marginalist micro are also very helpfu.

  • Greg Ransom

    Anyone know if there is there a good and detailed comparison of Debreu’s equilibrium construct and Mises’ equilibrium construct?

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