ARNOLD KLING — HAYEKIAN OF THE DAY

Recalculation thinking vs AS-AD thinking.

Sort of like the difference between adaptation thinking at the margin in Darwinian biology versus Platonic / Aristotelian thinking about biological kinds. Kling misses the fact that one kind of thinking provides a satisfying naturalistic/non-magical causal mechanism, while the other appeals to “And Then A Miracle Occurs” (see the work of Ernst Mayr and F. A. Hayek on these issue in biology and economics, respectively).

UPDATE: This is worth thinking about. In the comments Nick Rowe stakes out a macroeconomic position which would appear to be diametrically opposed the economic approach of F. A. Hayek:

If I were caricature my own position, it’s this: there is no important difference between inputs and outputs (for monetary AD/AS questions). The whole economy is just one big barbershop where all of us cut each others’ hair. The demand for output *is* the demand for labour (and other inputs), because input and output are the same thing. Y=L. MPL=1. W=P. W/P=1 always. M/P and M/W are the same thing. The notional labour demand curve is horizontal. There is not diminishing marginal product that could make it slope down. Kapital and Land are just as likely to be unemployed in a recession. So there’s no real point in distinguishing between the different inputs, and assuming the employment of one varies holding the employment of the others constant.

Hayek was found of quoting Mill, saying something very different:

“John Stuart Mill’s profound insight that demand for commodities is not demand for labour, which Leslie Stephen could in 1878 still describe as the doctrine whose “complete apprehension is, perhaps, the best test of a sound economist”, remained for Keynes an incomprehensible absurdity.” (Collected Works, vol. 9., p. 249).

For more on this topic, see F. A. Hayek, The Pure Theory of Capital, Appendix III, “”DEMAND FOR COMMODITIES IS NOT DEMAND FOR
LABOUR” VERSUS THE DOCTRINE OF “DERIVED DEMAND”", pp. 433-439.

UPDATE II: Nick Rowe has more on the topic here.

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I discredited myself with most of my fellow economists by writing The Road to Serfdom, which is disliked so much .. most of the [economics] departments came to dislike me, so much so that I can feel it to the present day. — F. A. Hayek

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