David Colander and the AEA’s 1991 Committee on Graduate Education have exposed the fact that we have produced generations of economists essentially with no understanding of the history of the development of their science. Evidently Justin Wolfers is one of those economists, and I’d like to give Mr. Wolfers a little remedial course in the history of the development of his science.
It’s always hard to know where ignorance begins and understanding ends, but I’ll assume that even a specialist on economics of sports betting has some understanding of what the Intertemporal Equilibrium construction is and its role in economic science over the last 100 years.
So how did economics ever get itself moving toward such a construction? Perhaps historians of economic thought specializing in the topic might be a good source for an answer. So what do Bruna Ingrao and Giorgio Israel say in their study The Invisible Hand: Economic Equilibrium in the History of Science? On p. 233 we find this:
“[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.”
Let’s move next to the work of John Hicks. Is Wolfers familiar with role of John Hicks in the development of his science? If not, perhaps he can read this. Anyway, Hicks testifies to the central catalytic role of Hayek’s work in the “Hicksian” revolution in economics:
“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).
Even Hicks’ landmark development of indifference curve analysis seems to have got its start with a suggestion from Hayek, as Hayek explains:
I had a curious influence on Hicks .. I told him about indifference curves. He was a pure Marshallian before. And I remember a conversation after a seminar, when he had been talking in Marshallian terms, when I drew his attention to [Vilfredo] Pareto.
Is Mr. Wolfers familiar with Growth Theory? Is Mr. Wolfers familiar with the seminal Hayek background in the origin of that effort? Here again, John Hicks provides the unknown history:
“It is not so well known that it [Keynes’s and my own move from thinking in terms of price-levels and the rate of interest to thinking in terms of inputs and outputs] is matched by a movement from Hayek to Harrod. I once asked Harrod what had put him on to the construction of his so-call ‘dynamic’ theory; he said, to my surprise, that it was thinking about Hayek.” (J. Hicks, 1982, pp. 340-341)
How about the economics of information and coordination problem of dispersed knowledge — does Mr. Wolfers judge that to be a significant part of economic science? Well, were does that literature originate? Let’s ask some Nobel Prize winners in economics.
“The key importance of the amount of information available and the frequent lack of relevant information have been dealt with only in the last decades. L. von Mises and F. A. von Hayek can rightly be regarded as pioneers in this connection.”
“I am in complete sympathy with [Kirzner’s] point of departure, namely, the emphasis on the dispersion of information among economic decision-making units (called by him, ‘Hayek’s knowledge problem’) and the consequent problem of transmission of information among those units. Much of my own research work since the 1950s has been focused on issued in welfare economics viewed from an informational perspective. The ideas of Hayek (whose classes at the London School of Economics I attended during the academic year 1938-39) have played a major role in influencing my thinking and have been so acknowledged.” (L. Hurwicz, 1984, p. 419)
“Information costs are reduced by the existence of large numbers of buyers and sellers. Under these conditions, prices embody the same information that would require large search costs by individual buyers and sellers in the absence of an organized market. (footnote 4: The original contributions were those of Hayek (1937 and 1945)).” (Douglass North, Structure and Change in Economic History, New York: Norton, 1981, p. 36)
I’ll add more later.