In 1931 Hayek took British economists on a landmark trip through the history of economic thought as an introduction to Hayek new account of intertemporal equilibrium and disequilibrium through the domains of money, credit and production across time. As Hicks and many other tell us, Hayek’s Prices and Production journal effectively transformed the art of economic science (see the quotes of Hicks found here, and check out this Google NGRAM for neutral money,forced savings for hint at the significance of Hayek’s lectures).
So, the question is, why did Hayek think it useful to take his British audience on this trip through the history of economic thought? Here’s my answer: Hayek went through this chapter in the history of economic for a specific purpose, to open access to perceiving a more profound relative prices shifting effect even that the Cantillon Effect, the Bohm-Bawerk Effect in production, where production processes are lengthened in the promise of superior output, and the Hayek Effect in money and credit expansion, where money and credit snowball upon one another in tandem with Bohm-Bawerkian investment expansion, a path perhaps accelerated by central banking and national government policies.
And Hayek’s account of this bit of the history of economic thought served a broader purpose, to open the door for them to a different picture of the operation of price signals — a stream or flow picture of the interaction of prices rather than a static, repetitive Paretoian general equilibrium or a static, repetitive Marshallian partial equilibrium analysis or a static, repetitive Fisherian circular flow quantity theory equilibrium.
With Cantillonian price adjustment you get path dependence effects, something impossible in Pareto and Marshal and Fisher, that is unique & bumpy and easily imperfect historical streams and *not* ahistorical equilibrium perfections.
This is exactly the causal factor with explanatory oomph when you combine Bohm-Bawerk Effects with Hayekian Effects and you take seriously the factors of time, divided understanding, dispersed knowledge, imperfect relative price signal networks, genuine uncertainty, etc.
Free for download — Hayek’s famous 1931 “Prices and Production”.