Economists do not understand Hayek.
They simply don’t.
I want here to explain in simple terms what economists don’t get, and what they would grasp if they were to ever understood what Hayek is doing.
Thomas Kuhn explains how roadblocks to explanatory success, and conceptual novelties inspired by explanatory failure, providing new avenues to understanding, open the way to new explanatory strategies and success.
Here is what Hayek does. Hayek identifies roadblocks to explanatory success in economic science, and then he recasts the explanatory problem and explanatory strategy of economics to overcome these roadblocks. He achieves a new understanding of the science of economics which solves old problems and puts is on a secure logical foundation.
If we think about how economist have locked themselves into a titanium box inherited from an old tradition of what “knowledge” demands and what “science” must look like, then we can grasp why economists haven’t yet begun to see what Hayek has achieved.
To get from the current state of non-understanding to a position of understanding, we need to sketch out a few things, and then show how they are related to one another. We need to sketch out the old picture of what “knowledge” and “science” must be, and how that formed into a powerful central dogma. We need to identify the roadblocks to explanatory coherence and success which economics faced over the last century, and how those problems came to a head in the work of Friedrich Hayek on prices, production goods, trade cycle dis-coordination, and in the economics of socialism. We need to talk about how the false dogma of what “knowledge” and “science” demand has shaped economics, and how that dogma contributed roadblocks to explanatory coherence and success in economics. Finally, we need to show how Hayek overcame these roadblocks to explanatory success my recasting the explanatory problem and explanatory solution set in economic science, braking away from old fallacies and dogmas once set in concrete among economists and philosophers.
Here is what we are going to learn.
We are going to learn that Hayek’s research project was dominated by a closely related set of conceptual problems, all of which had been running into conceptual roadblocks. Among other thinks, Hayek was working on extending the pure logic of choice, also known as the pure calculus of marginalist valuation, from the case of multiple consumption goods to the case go multiple production goods. Hayek was also working on the problem of using the pure logic of choice to understand what is happening when the economy cycles from boom phases to bust phases. Closely related to both problems, Hayek was working on the problem of using the calculus of marginalize valuation to rethink what classical economists had said about the distribution of income and the nature of money and interest, problems which were interrelated through pre-marginalist theories of profit, interest, and capital.
We are going to learn that the a false image of “knowledge” and “science” dominates the imagination of economists, a false image derived from 19th century German economists and philosophers, ultimately grounded in false ideas derived from the Greeks. Hayek challenges and smashes this false image, combining his revolutionary work in neuroscience and epistemology with insights derived from David Hume, Carl Menger, Karl Popper, and Ludwig Wittgenstein, among others. Hayek marshals his new thinking in a process of re-casting the explanatory problem and explanatory mechanisms of economics, making use of a constellation of new ideas and forgotten explanatory achievements from the past.