letter: F.A. Hayek to Joan Robinson, March 1941

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.

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4 Responses to letter: F.A. Hayek to Joan Robinson, March 1941

  1. Roger McKinney says:

    I’m not very impressed with Konstantinos Repapis’s paper. I seems to me that he misunderstands Hayek in several places, or possibly I misunderstood Hayek. Any one else get that feeling?

  2. Greg Ransom says:

    Roger, I have the same feeling.

    For Austrians like Hayek, the “barter economy” is a construction of pure theory — it’s the same thing as the “dictator economy”. Both are constructed to work out relations of pure logic, they aren’t attempts to account for real people or real market arrangements.

    Konstantinos, like many Cambridge economists working in the Marshall tradition, seems to assume that constructions built in this pure logic are aimed at “modeling” real people and actual market arrangements.

    Hayek makes clear in many, many places that they aren’t. Most of Konstantinos’ criticisms of Hayek assume that they are.

  3. Roger McKinney says:

    Greg, Thanks for the sanity check. I started re-reading Konstantino’s paper and am even more convinced that he doesn’t understand Hayek.

    For example, on page 5 he wrote “In PP we also see an abstraction from the composition of the consumption good. It is assumed that we have one consumption good,…”

    That’s way off base. Hayek makes it plain that the triangle accounts for the dollar value of all kinds of goods, not just one good.

    Also, Konstantino seems to assume that Hayek believed the economy lurches from one state of equilibrium to another, as mainstream economists do. But as you wrote, Hayek really used equilibrium as a theoretical construction. I don’t recall anywhere that Hayek thought the economy ever achieved a state of equilibrium.

    And Konstantino seems to think the PII was a major revision of PP, whereas they always seemed complimentary to me. In PII, Hayek advanced his thinking in PP and looked at it from a different perspective. As he wrote in PII, he wanted to hold interest rates fixed after the central bank lowered it to a below market rate in order to highlight the effects of price and profit changes.

  4. Greg Ransom says:

    Exactly, Roger. And note well that Konstantino is writing under the instruction of Cambridge economists who’ve written on Hayek for decades — Konstantino is simply repeating their same original errors.

    Imagine how impossible Hayek found it to get any understanding in this British environment. The British economists misinterpreted almost everything Hayek said and wrote — based on a completely different paradigm tradition for doing economic science.

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