Hayek. UNC economist Bruce Caldwell will be hosting a seminar on his highly regarded book Hayek's Challenge: An Intellectual Biography of F. A. Hayek between Monday, March 15 and Friday, March 26 on the Hayek-L email list, hosted by The Hayek Scholars Page and the Hayek Center.
Read Chapter One of Hayek's Challenge.
Order Hayek's Challenge at 30% discount from Barnes & Noble.
Order Hayek's Challenge at discount from Amazon.
Bruce Caldwell is General editor of The Collected Works of F.A. Hayek. He is professor of economics at UNC-Greensboro. Among Caldwell's many publications is Beyond Positivism: Economic Methodology in the Twentieth Century.
I've added a PayPal tip jar. What I'd like to do is upgrade my bandwidth, and then add a team blog with some of the Hayek-L all-stars. This will take a bit more cash and bit more effort. I'm willing to put in the added effort. Any help with the cash would be genuinely appreciated.
The Hayek-L Email Seminar -- next up Roger Koppl on his book
Big Players and the Economic Theory of Expectations.
For details go here. Read chapter one here (pdf).
David Warsh contemplates the significance of "the Market Revolution" and its history for those "of the Left" .. and of a certain age. Some cuts:
the more my friends and I reflected on our own experience, the more the Left/Right distinction lost its capacity to illuminate what had happened to us. We still felt ourselves to be "of the Left" � we were egalitarian, socially liberal, seriously concerned about the environment.Yet we were nearly as enthusiastic about the new reforms � stable money, deregulation, corporate restructuring, tax simplification, auctions, emissions-trading and the rest � as were any of our friends on the Right. So the shorthand we came to employ among ourselves was to speak of "the Market Revolution." It is hard to convey now how surprising it was to those of us who became involved ..
But then and now, it seems to me that one of the most illuminating pieces of work to appear in all those bewildering years was George Nash�s 1976 book The Conservative Intellectual Tradition in America Since 1945 ..
despite the fact that it began with an account of the publication in 1944 Hayek�s passionate defense of markets, The Road to Serfdom, Nash�s book left out for the most part the subsequent rise of market liberalism � and so completely missed the underpinnings of what would happen next. It wasn�t conservatism that conquered the world in the last quarter of the 20th century � it was capitalism.
I think of this because I have begun reading Jerry Z. Muller�s The Mind and the Market: Capitalism and Modern European Thought This is a remarkable book, fifteen years in the making. (Muller is a professor of history at the Catholic University of America in Washington D.C. [and a Hayek-Ler --g.r]) It seems to me to have the same clarifying effect today as did Nash�s book in its time. And like Nash�s book, it works at least partly by omission. It gives the same strong impression that something important has been left out ..
So what is it that has been omitted? In his final chapter, Muller raises the question of the status of non-market institutions � the family, the church, the university, the state, the Volk. Naturally, economic self-interest penetrates and sometimes pervades each sphere. The decision to have children has an economic dimension. So does the decision to go to join the army, to go to school, to give to charity, to make a new finding and communicate it to others, to pay taxes, to grant benefits.
Will these non-market institutions some day cease to exist altogether? Or linger on only in the most attenuated form? Will there be markets for everything and motives for nothing aside from the aggrandizement of the Self?
Somehow, I doubt it. Economists and other social thinkers only recently have turned their attention to these counterinstitutions, wherein preferences are determined and tastes are made. They are probably far more important than we think. I suspect that markets will turn out to be only half the story. For changes within these little understood non-market institutions can produce very powerful shifts in short periods of time between the opposing poles that Muller sees as characteristic of the modern age.
It's worth noting that Hayek was out ahead of the pack in emphasizing the importance of all of these "counter" institutions. It is also worth noting that folks like economist and Hayek-Ler Steve Horwitz are pursuing advance research on these topics within a broadly "Hayekian" framwork. See, for example, Steve's papers found here.
An important recent posting to the Hayek-L email list from economist Roger Garrison (more on Garrison here):
Fiona and Lanny are certainly correct to observe that low interest rates can cause home owners to refinance their mortgages and to spend the lump-sum gain on consumer goods. And they are correct to note that the policy-induced bout of consumer spending has been the only game in town since the 2001 downturn. Greenspan's continued monetary ease has served only to bolstered consumer spending.
They are dead wrong, however, as seeing this phenomenon―-especially in the contest of the post-boom economy--as contrary to the Austrian theory.
Even during the boom, consumption spending gets a boost. Mises repeatedly characterizes the credit-driven boom as a period of "malinvestment and overconsumption." The two effects follow straightforwardly from the familiar loanable-funds theory. When the interest rate is depressed below its natural level, investors invest more (moving down along the demand for loanable funds); and at the same time, savers save less―and hence consume more (moving down along the supply of loanable funds. This is what is meant when we say that credit expansion drives a wedge between saving and investment.
Richard Strigl, in his 1934 _Capital and Production_, recognizes the dual effect of artificially low interest rates in terms of the intertemporal structure of capital. The capital structure, he points out, is pulled at both ends against the middle (my phrasing, but very close to Strigl's). At the same time that longer-term projects are being undertaken, the resources needed for their completion are being depleted by increased consumption. This constellation of effects is what makes the subsequent downturn inevitable. Mises expressed these matters in his 1912 book in terms of the subsistence fund.
Only after my _Time and Money_ was in print did I realize―-with the help of Richard Ebeling-―that the notion of the Hayekian triangle being "pulled at both ends against the middle" was recognized in the interwar literature. Fritz Machlup, in a 1933 lecture, noted the salient difference between Hayek's rendition and Strigl's rendition in this regard. It is true that Hayek was not sensitised to the overconsumption aspect of the boom. At points, he even denied it-―in his attempt to make the concept of "forced saving" more acceptable to his critics. (In retrospect, we see that Hayek's "forced saving" really didn't refer to "saving" at all, but rather to a pattern of investment at odds with people's saving preferences. His "forced saving" was Mises's "malinvestment.")
In the post-boom period, a lot of the malinvested capital is being liquidated. In this environment, low interest rates will not inspire investors to undertake still more investment projects. This is an important part of the Austrian theory, and Greenspan's post-2001 experiments with successive interest-rate reductions have provided much evidence for it. The demand for investment funds has fallen precipitously―-not because of a Keynesian waning of the "animal spirits" but because of disruption of the production process caused by the prior credit expansion. The only component of spending left to be stimulated, then, is consumer spending.
The current circumstances also dramatize the dilemma that Hayek wrestled with over the years. In the post-boom period, the Federal Reserve is in a Catch-22 situation. If the Fed continues its cheap-credit policy, then the liquidation process is slowed and the resources needed to complete projects and to make the capital structure whole again are increasingly devoted to current consumption. If the Fed ends its cheap-credit policy, then the economy may well spiral down in a "secondary deflation." (This downward spiralling of income and expenditure was the only aspect of the whole episode that was on Keynes's radar screen. He thought it was triggered by an "autonomous" decrease in investment demand.)
I am continually puzzled as to why critics of the Austrian theory are so quick to accept some potted version of that theory and to see virtually every aspect of the current macroeconomic environment as evidence against it.
Roger W. Garrison
Hayek Visiting Fellow
London School of Economics
Garrison is responding to economist Fiona Maclachlan and Hayek biographer Lanny Ebenstein, who's earlier postings can be found here.
Jason Soon is blogging the work of Hayek-Ler Rafe Champion on Popper and Austrian economics. Rafe and I are working on setting up a date for a Hayek-L seminar on his Popper & economics paper. Soon has the links.
A new feature. I'd like to introduce some of the very talented folks who make up the Hayek-L email list. In these times of economic turbulence, let me begin with Roger Garrison, perhaps the best macroeconomist in the world. To get a sense of the flavor of the man and his work, two interviews here and here will take you gently into his macroeconomic world. More meaty stuff can be found in these articles and in the online chapters of Garrison's recent book Time and Money: The Macroeconomics of Capital Structure, which I've called the most significance book in macroeconomics published in the past 30 years. Garrison does a remarkable job in this book explaining Keynesian, monetarist and Hayekian economics -- with little riffs on many of the most recent variations on these. He uses metaphor with the best of them, the surest way to transmit understanding when skillfully executed. And because Garrison looks at macroeconomics from multiple angles, you get a better understanding of what the possibilities are in this difficult field -- and where the booby-traps are hidden. An added pleasure of Garrison's work is his abibing humor -- usually understated. Often this humor is used with telling effect against strategic targets -- if you miss the joke there's a chance you'll miss the argument against a position. Anyway, this is great stuff and Garrison is a pleasure. Oh, and don't miss his page of miscellany.