Friday, April 28, 2006

On Austrian Economics

Greg Mankiw of Harvard University, and instructor of the famed ec10, recently wrote of his ignorance of Austrian Economics.

Prestopundit responded in the comments section:

...I find it stunning that an economist can be unfamiliar with the economic work of the leading economist of the last 100 years. Here are some of the contributions of Friedrich Hayek which may be unknown to you (explained by some of the leading economists of our age):

Hayek and the Economics of Dispersed and Imperfect Knowledge.

Jan Tinbergen* (Economics, Netherlands School of 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."

*Nobel Prize winner in Economics.

Douglass North* (Economics, Washington U.)

"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)

*Nobel Prize winner in Economics.

Brian Loasby* (Economics, Sterling)

"Many economists have professed to analyse information; relatively few have considered carefully the problems of knowledge. Among those who have, Hayek is pre-eminent." (Brian Loasby, The Mind and Method of the Economist, London: Edward Elgar, p. 38).

*Loasby is a respected authority on real-world business organization and decision making.

Fritz Machlup* (Economics, Princeton)

"One of the most original and most important ideas advanced by Hayek is the role of the 'division of knowledge' in economic society." (F. Machlup, 1976, p. 36)

*Past President, American Economics Association.

Richard Nelson* (Economics, Yale) & Sidney Winter* (Economics, Yale)

"The dilemma of a socialized system is that the information flow overwhelms a centralized system if it is open to new ideas and data, that closing the system and forcing the plan to work forecloses alternatives and risks unhedged mistakes, and that decentralizing without real markets poses the problems discussed by Hayek. These information problems permeate virtually all economic processes." (Richard Nelson & Sidney Winter, An Evolutionary Theory of Economic Change, Cambridge: Harvard U. Press, 1982, p. 365)

*Nelson & Winter are recognized leaders in the emerging field of evolutionary economics.

Hayek and the Problem of Spontaneous Order.

Jon Elster* (Columbia)

"The investigation of this problem -- How is spontaneous order possible? -- is sometimes referred to as the 'Hayek programme'. (Footnote 7 -- See notably Hayek (1978), vol. 1-3. For comments, see Gray (1986) and Vanberg (1986).) The present analysis differs in two ways from most other attempts to implement the programme. (Footnote 8 -- Attempt to implement the Hayek programme include those of Nozick (1974), Ullman-Margalit (1977), Schotter (1981), Hardin (1982), Axelrod (1984), Sugden (1986) and M. Taylor (1987).)." (John Elster, The Cement of Society: A Study of Social Order, 1989, p. 250)

*Elster is a recognized authority on the explanatory limitations of 'rational choice theory'.

Douglass North* (Washington U., Economics)

"Regarding social order, [Francis] Fukuyama writes, "The systematic study of how order, and thus social capital, can emerge in spontaneous and decentralized fashion is one of the most important intellectual developments of the late twentieth century." He correctly attributes the modern origins of this argument to F.A. Hayek, whose pioneering contributions to cognitive science, the study of cultural evolution, and the dynamics of social change put him in the forefront of the most creative scholars of the 20th century."

*Nobel Prize Winner in Economics

Hayek, Path Dependence and Complexity Theory in Economics.

Brian Arthur* (Economics, Santa Fe Institute)

"Right after we published our first findings [on the implications of path dependence and complexity theory for economics], we started getting letters from all over the country saying, 'You know, all you guys have done is rediscover Austrian economics' .. I admit I wasn't familiar with Hayek and von Mises as the time. But now that I've read them, I can see that this is essentially true."

*Leading economist in the field of path dependence and complexity theory.

Hayek & the Origin of the Intertemporal Equilibrium Construction.

Bruna Ingrao* (Economics, U. of Sassari) & Giorgio Israel* (Mathematics, U. of Rome)

"Hayek made a suggestion that was to be of great importance in the theory's [i.e. General Equilibrium Theory or 'GET'] subsequent history, that the same goods available at two different moments of time should be treated as distinct goods whose relations of exchange were to be examined, although they might, 'technically speaking,' be one and the same product." (Bruna Ingrao & Giorgio Israel, The Invisible Hand: Economic Equilibrium in the History of Science, 1990, p. 232)

"[Hayek] did contribute toward an important conceptual development in his reflections on the problems raised by extending the analysis of equilibrium in time. In a key article of 1928 published in the 'Weltwirtschafliches Archiv,' he observed that it was not possible to ignore the element of time in the simultaneous determination of prices if analysis was to be extended to monetary phenomena. {quotes Hayek} Hayek defined the problem concisely as one of an intertemporal system of prices. {quotes Hayek}." (Bruna Ingrao & Giorgio Israel, The Invisible Hand: Economic Equilibrium in the History of Science, 1990, p. 232)

"[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." (Bruna Ingrao & Giorgio Israel, The Invisible Hand: Economic Equilibrium in the History of Science, 1990, p. 233)

*Leading authorities on the history of the development of the equilibrium construction & its explanatory limitations.

Murray Milgate* (Economics, Harvard)

"All of this, of course, establishes Hayek's primacy over Hicks in the origin of the notion of intertemporal equilibrium .. " (Murry Milgate, 1982, p. 22)

*Milgate is widely recognized as a leading member of the Neo-Ricardian school of economics.

Hayek and the Problem of Monetary Economics &The Trade Cycle.

Robert Lucas* (Economics, U. of Chicago)

" .. it is likely that many modern economists would have no difficulty accepting Hayek's statement of the problem [of macroeconomics] as roughly equivalent to their own. Whether or not this is so, I wish .. to argue that it should be so, or that the most rapid progress toward a coherent and useful aggregate economic theory will result from the acceptance of the problem statement as advanced by [Hayek] ..". (Robert Lucas, Jr., "Understanding Business Cycles", in Studies in Business-Cycle Theory, 1981, p. 216. Cambridge: The MIT Press).

*Nobel Prize Winner in Economics.

John Maynard Keynes* (Economics, Cambridge)

"Keynes was shortly to develop his own approach to the general task identified by Hayek [i.e. the task of monetary theory], under the rubric of 'A Monetary Theory of Production' (Keynes, 1973, pp. 381, et seq.)." (A. Cottrell, 1994, p. 199)

"I am in full agreement, also, with Dr. Hayek's rebuttal of John Stuart Mill's well-known dictum that 'there cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money,' [when Hayek writes]: "it means also that the task of monetary theory is a much wider one than is commonly assumed; that its task is nothing less than to cover a second time the whole field which is treated by pure theory under the assumption of barter, and to investigate what changes in the conclusions of pure theory are made necessary by the introduction of indirect exchange. The first step towards a solution of this problem is to release monetary theory from the bonds which a too narrow conception of its task has created.'" (John Maynard Keynes, "The Pure Theory of Money: A Reply to Dr. Hayek", Economica, Nov. 1931, pp. 395-396.)

*Leading 20th Century Economist in the English tradition of Marshall, Marx, Malthus, and Mill.

Hayek and Collectivist Economic Planning.

Abram Bergson* (Economics, Harvard)

"It may not be amiss to seen in my calculations of comparative productivity [between entrepreneurial economics and communist economies] verification of a prescient forecast [made by Hayek in 1935 in his essay "The Present State of the Debate".]." (Abram Bergson, "Communist Economic Efficiency Revisited", AEA Papers and Proceedings, Vol. 82, No. 2, May, 1992, p. 30].

*Bergson is a recognized leader in the economics of comparative economic systems.

J. Bradford De Long* (Economics, UC-Berkeley)

"Hayek's adversaries -- Oskar Lange and company -- argued that a market system had to be inferior to a centrally-planned system: at the very least, a centrally-planned economy could set up internal decision-making procedures that would mimic the market, and the central planners could also adjust things to increase social welfare and account for external effects in a way that a market system could never do. Hayek, in response, argued that the functionaries of a central-planning board could never succeed, because they could never create both the incentives and the flexibility for the people-on-the-spot to exercise what Scott calls metis.

Today all economists -- even those who are very hostile to Hayek's other arguments .. agree that Hayek and company hit this particular nail squarely on the head. Looking back at the seventy-year trajectory of Communism, it seems very clear that Hayek .. [is] right: that its principal flaw is its attempt to concentrate knowledge, authority, and decision-making power at the center rather than pushing the power to act, the freedom to do so, and the incentive to act productively out to the periphery where the people-on-the-spot have the local knowledge to act effectively."

*Specialist in 20th century economic history.

Richard Nelson* (Economics, Yale) & Sidney Winter* (Economics, Yale)

"The dilemma of a socialized system is that the information flow overwhelms a centralized system if it is open to new ideas and data, that closing the system and forcing the plan to work forecloses alternatives and risks unhedged mistakes, and that decentralizing without real markets poses the problems discussed by Hayek. These information problems permeate virtually all economic processes." (Richard Nelson & Sidney Winter, An Evolutionary Theory of Economic Change, Cambridge: Harvard U. Press, 1982, p. 365)

*Nelson & Winter are recognized leaders in the emerging field of evolutionary economics.


Kenneth Minogue* (U of London, Political Science)

"If the central contest of the twentieth century has pitted capitalism against socialism, then F. A. Hayek has been its central figure. He helped us to understand why capitalism won by a knockout. It was Hayek who elaborated the basic argument demonstrating that central planning was nothing else but an impoverishing fantasy." (Kenneth Minogue, "Giants Refreshed II: The Escape from Serfdom: Friedrich von Hayek and the Restoration of Liberty". TLS: Times Literary Supplement. Jan 14, 2000, p. 11)

*Minogue is a respected British political scientist.

Hayek and Leading 20th Century Economists.

Ronald Coase* (Economics, U. of Chicago)

"I will be discussing what happened in economics in England, but these were times when, to a very considerable extent, this was what happened in economics. The first episode I will discuss is local, but the economists involved were among the best in the world. In February 1931, Friedrich Hayek gave a series of public lectures entitled 'Prices and Production' at the London School of Economics . . They were undoubtably the most successful set of public lectures given at LSE during my time there, even surpassing the brilliant lectures Jacob Viner gave on international trade theory. The audience, notwithstanding the difficulties of understanding Hayek, was enthralled. What was said seemed to us of great importance and made us see things of which we had previously been unaware. After hearing these lectures, we knew why there was a depression. Most students of economics at LSE and many members of the staff became Hayekians or, at any rate, incorporated elements of Hayek's approach in their own thinking. With the arrogance of youth, I myself expounded the Hayekian analysis to the faculty and students at Columbia University in the fall of 1931." (Ronald Coase, "How Should Economists Choose?", Essays on Economics and Economists, Chicago: U. of Chicago Press, 1994, p. 19).

"In fact, a large part of what we think of as economic activity is designed to accomplish what high transaction costs would otherwise prevent or to reduce transaction costs so that individuals can negotiate freely and we can take advantage of that diffused knowledge of which Friedrich Hayek has told us." (Ronald Coase, Nobel Memorial Prize Lecture, "The Institutional Structure of Production", Essays on Economics and Economists, Chicago: U. of Chicago Press, 1994, p. 9)

*Nobel Prize Winner in Economics.

Allan Meltzer* (Economics, Carnegie Mellon U.)

"Q. [McCallum] .. are there other economists who have had a really major influence on your thinking? A. [Melzer] Well I mentioned Hayek. There are two ways. One is because of my interest in political economy. The other way is that Hayek was a pioneer in the use of information in economics. One of the papers that Karl and I wrote together that I continue to like was a paper called "The Uses of Money". In that paper we tried to incorporate information and the cost of information to explain why people use money. One of Hayek's most basic ideas is that institutions are a way of reducing uncertainty. Man struggles to find institutional arrangements which on average make life a bit more predictable. Our "Uses of Money" is not so much about money as we conventionally think about it, it's about the idea of a medium of exchange, the function of an institution called the medium of exchange and how the medium of exchange as an institution resolves a part of peoples uncertainty about the future."

*One of the leading "monetarists" in America.

Milton Friedman* (Economics, U. of Chicago)

" .. My interest in public policy and political philosophy was rather casual before I joined the faculty of the University of Chicago. Informal discussions with colleagues and friends stimulated a greater interest, which was reinforced by Friedrich Hayek's powerful book The Road to Serfdom, by my attendance at the first meeting of the Mont Pelerin Society in 1947, and by discussions with Hayek after he joined the university faculty in 1950. In addition, Hayek attracted an exceptionally able group of students who were dedicated to a libertarian ideology. They started a student publication, The New Individualist Review, which was the outstanding libertarian journal of opinion for some years. I served as an adviser to the journal and published a number of articles in it .. ". (Milton & Rose Friedman, Two Lucky People: Memoirs, Chicago: U. of Chicago Press, 1998. p. 333).

*Nobel Prize winner in economics.

Roy Harrod* (Economic, Cambridge)

J. Hicks, "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)

*Leading figure in the development of 'Keynesian Economics' and 'Dynamic Theory'.

John Hicks* (Economics, Oxford)

".. it was from Hayek that I began ["Equilibrium and the Cycle" (1933), the early 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).

"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).

"At the end of the discussions in that seminar [Hayek's L.S.E seminar] .. we were, I believe, on the point of taking what now seems to me to be a decisive step. I was, at least, on the point of taking it myself. There is evidence for that in my Value and Capital, much of the groundwork for which was done before I left London .." (John Hicks, Classics and Moderns, New York: Basil Blackwell, 1983, p. 97).

"I remember Robbins asking me if I could turn the Hayek model into mathematics .. it began to dawn on me that .. the model must be better specified. It was claimed that, if there were no monetary disturbance, the system would remain in 'equilibrium'. What could such an equilibrium mean? This, as it turned out, was a very deep question; I could do no more, in 1932, than make a start at answering it. I began by looking at what had been said by .. Pareto and Wicksell. Their equilibrium was a static equilibrium, in which neither prices nor outputs were changing .. That, clearly, would not do for Hayek. His 'equilibrium' must be progressive equilibrium, in which real wages, in particular, would be rising, so relative prices could not remain unchange .. The next step in my thinking, was .. equilibrium with perfect foresight. Investment of capital, to yield its fruit in the future, must be based on expectations, of opportunities in the future. When I put this to Hayek, he told me that this was indeed the direction in which he had been thinking. Hayek gave me a copy of a paper on 'intertemporal equilibrium', which he had written some years before his arrival in London; the conditions for a perfect foresight equilibrium were there set out in a very sophisticated manner." (John Hicks, Money, Interest and Wages, Cambridge: Harvard U. Press, 1982, pp. 6-7).

"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 whith 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)

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)

*Nobel Prize winner in economics.

Leonid Hurwicz* (Economics, U. of Minnesota)

"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)

*Leading developer of the economics of information and incentive compatibility.

John Maynard Keynes* (Economics, Cambridge)

"I am in full agreement, also, with Dr. Hayek's rebuttal of John Stuart Mill's well-known dictum that 'there cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money,' [when Hayek writes]: "it means also that the task of monetary theory is a much wider one than is commonly assumed; that its task is nothing less than to cover a second time the whole field which is treated by pure theory under the assumption of barter, and to investigate what changes in the conclusions of pure theory are made necessary by the introduction of indirect exchange. The first step towards a solution of this problem is to release monetary theory from the bonds which a too narrow conception of its task has created.'" (John Maynard Keynes, "The Pure Theory of Money: A Reply to Dr. Hayek", Economica, Nov. 1931, pp. 395-396.)

A. Cottrell, "Keynes was shortly to develop his own approach to the general task identified by Hayek [i.e. the task of monetary theory], under the rubric of `A Monetary Theory of Production' (Keynes, 1973, pp. 381, et seq.)." (A. Cottrell, 1994, p. 199)

*Leading 20th Century Economist in the English tradition of Marshall, Marx, and Mill.

Arnold Plant* (Economics, L.S.E.)

"I can testify from personal experience to the immense stimulus and direction which Hayek's migration to this country [Great Britain] gave to economic research in the 1930s, not only in London and economics faculties throughout the United Kingdom, but also in the international world of scholarship." (Arnold Plant, "A Tribute to Hayek -- the Rational Persuader", Economic Age, Jan.-Feb., 1970)

*Influential teacher of Nobel Prize winner Ronald Coase, among others.

Thomas Sowell* (Hoover Institution)

"If one writing contributed more than any other to the framework in which this work [Sowell's Knowledge and Decisions] developed, it would be an essay entitled 'The Use of Knowledge in Society,' published in the American Economic Review of September 1945, and written by F. A. Hayek . . In this plain and apparently simple essay was a deeply penetrating insight into the way societies function and malfunction, and clues as to why they are so often and so profoundly misunderstood." (Thomas Sowell, Knowledge and Decisions, New York: Basic Books, 1980, p. ix)

*Sowell is a leading historian of economic thought, and an internationally recognized authority on the problems of race, politics, and culture.

Herbert Simon* (Economics & Psychology, Stanford)

"No one has characterized market mechanisms better than Friedrich von Hayek". (Herbert Simon, The Sciences of the Artificial, 2nd Edition, Cambridge: The MIT Press, 1981, p. 41)

*Nobel Prize winner in Economics.

Lawrence Summers* (U.S. Treasury)

"What's the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy." (Lawrence Summers, quoted in The Commanding Heights: The Battle Between Government and the Marketplace that Is Remaking the Modern World, by Daniel Yergin and Joseph Stanislaw. New York: Simon & Schuster. 1998, pp. 150-151.)

*Lawrence Summers is President of Harvard U. & former Sec. of the U. S. Treasury & former Chief Economist of the World Bank.

Vernon Smith* (Economics, U. of Arizona)

"Hayek, in my view, is the leading economic thinker of the 20th century." (Vernon Smith, "Reflections on Human Action after 50 years", Cato Journal. Vol. 9, No. 2. Fall, 1999).

*Vernon Smith is the winner of the Nobel Prize in economics and the leading experimental economist in the U.S.

Fritz Machlup* (Economics, Princeton)

"One of the most original and most important ideas advanced by Hayek is the role of the 'division of knowledge' in economic society . . [But if] I had to single out the area in which Hayek's contributions were the most fundamental and pathbreaking, I would cast my vote for the theory of capital. As I said before, when I reviewed Hayek's book on The Pure Theory of Capital, it is 'my sincere conviction that this work contains some of the most penetrating thoughts on the subject that have ever been published.' If two achievements may be named, I would add Hayek's contributions to the the theory of economic planning. Most of what has been written on systems analysis, computerized data processing, simulation of market processes, and other techniques of decision-making without the aid of competitive markets, appears shallow and superficial in the light of Hayek's analysis of the 'division of knowledge', its dispersion among masses of people. Information in the minds of millions of people is not available to any central body or any group of decision-makers who have to determine prices, employment, production, and investment but do not have the signals provided by a competitive market mechanism. Most plans for economic reform in the socialist countries seem to be coming closer to the realization that increasing decentralization of decision-making is needed to solve the problems of rational economic planning." (Fritz Machlup, "Hayek's Contribution to Economics", Swedish Journal of Economics, Vol. 76, Dec. 1974.)

*Past President, American Economics Association.

Tom Peters*

"F. A. Hayek [is] arguably the most influential economist of this century."

*Leading American consultant and author on business management and strategy.

The character of Hayek's contribution to economics.

Jon Elster* (Columbia)

"The investigation of this problem -- How is spontaneous order possible? -- is sometimes referred to as the 'Hayek programme'. (Footnote 7 -- See notably Hayek (1978), vol. 1-3. For comments, see Gray (1986) and Vanberg (1986).) The present analysis differs in two ways from most other attempts to implement the programme. (Footnote 8 -- Attempt to implement the Hayek programme include those of Nozick (1974), Ullman-Margalit (1977), Schotter (1981), Hardin (1982), Axelrod (1984), Sugden (1986) and M. Taylor (1987).)" (John Elster, The Cement of Society: A Study of Social Order, 1989, p. 250)

*Elster is a recognized authority on the conceptual limitations of 'rational choice' theorizing.

Bruna Ingrao* (Economics, U. of Sassari) & Giorgio Israel* (Mathematics, U. of Rome)

"[Hayek's] equilibrium theory offered a wealth of suggestions that were to be taken up in the literature of the 1940s and 1950s. The ideas 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." (B. Ingrao & G. Israel, 1990, p. 233)

*Leading authorities on the history and limitatations of general equilibrium constructions.

Douglass North* (Economics, Washington U.)

"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)

*Nobel Prize winner in Economics.

Brian Loasby* (Economics, Sterling)

"Many economists have professed to analyse information; relatively few have considered carefully the problems of knowledge. Among those who have, Hayek is pre-eminent." (Brian Loasby, The Mind and Method of the Economist, London: Edward Elgar, p. 38).

*Loasby is a respected authority on real-world business organization and decision making.

Fritz Machlup* (Economics, Princeton)

"One of the most original and most important ideas advanced by Hayek is the role of the 'division of knowledge' in economic society . . [But if] I had to single out the area in which Hayek's contributions were the most fundamental and pathbreaking, I would cast my vote for the theory of capital. As I said before, when I reviewed Hayek's book on The Pure Theory of Capital, it is 'my sincere conviction that this work contains some of the most penetrating thoughts on the subject that have ever been published.' If two achievements may be named, I would add Hayek's contributions to the the theory of economic planning. Most of what has been written on systems analysis, computerized data processing, simulation of market processes, and other techniques of decision-making without the aid of competitive markets, appears shallow and superficial in the light of Hayek's analysis of the 'division of knowledge', its dispersion among masses of people. Information in the minds of millions of people is not available to any central body or any group of decision-makers who have to determine prices, employment, production, and investment but do not have the signals provided by a competitive market mechanism. Most plans for economic reform in the socialist countries seem to be coming closer to the realization that increasing decentralization of decision-making is needed to solve the problems of rational economic planning." (Fritz Machlup, "Hayek's Contribution to Economics", Swedish Journal of Economics, Vol. 76, Dec. 1974.)

*Past President, American Economics Association.

Friedrich Hayek & the Twentieth Century

Robert Skidelsky*

"[Hayek] became [in his later years] the dominant intellectual influence of the last quarter of the twentieth century".

*Skidelsky is the highly regarded biographer of John Maynard Keynes.

Peter Drucker*

"[Hayek's The Fatal Conceit] fully supports the recent characterization of Hayek by the Economist that he is our time's preeminent social philosopher."

*World-recognized analyst of business management practices and socio-economic institutions.

Julian Simon* (Economics, U. of Maryland)

"Friedrich Hayek, who died on March 23, 1992 at age 92, was arguably the greatest social scientist of the twentieth century. By the time of his death, his fundamental way of thought had supplanted the system of John Maynard Keynes -- his chief intellectual rival of the century -- in the battle since the 1930s for the minds of economists and the policies of governments." (Julian Simon, Hayek's Road Comes to an End, April 3, 1992)

*Well known authority on resource & population economics.

Douglass North* (Washington U., Economics)

"Regarding social order, [Francis] Fukuyama writes, "The systematic study of how order, and thus social capital, can emerge in spontaneous and decentralized fashion is one of the most important intellectual developments of the late twentieth century." He correctly attributes the modern origins of this argument to F. A. Hayek, whose pioneering contributions to cognitive science, the study of cultural evolution, and the dynamics of social change put him in the forefront of the most creative scholars of the 20th century."

*Nobel Prize Winner in Economics

Michael Lessnoff* (U. of Glasgow, Politics)

"Friedrich Hayek is the twentieth-century social theorist who, probably more than any other, found himself vindicated by events -- if not wholly, then at least in his central contention. He is also the one who, more than any other, himself exercised a significant political influence." (Michael Lessnoff, Political Philosophers of the Twentieth Century. New York: Blackwell. 1999. p. 146)

*Lessnoff is a specialist in the philosophy of social science & the political philosophy of the 20th century.

Kenneth Minogue* (U of London, Political Science)

"If the central contest of the twentieth century has pitted capitalism against socialism, then F. A. Hayek has been its central figure. He helped us to understand why capitalism won by a knockout. It was Hayek who elaborated the basic argument demonstrating that central planning was nothing else but an impoverishing fantasy." (Kenneth Minogue, "Giants Refreshed II: The Escape from Serfdom: Friedrich von Hayek and the Restoration of Liberty". TLS: Times Literary Supplement. Jan 14, 2000, p. 11)

*Minogue is a respected British political scientist.

Hayek and the International Triumph of the Liberal Order & Idea.

Milton Friedman* (Economics, U. of Chicago)

" . . I think the Adam Smith role was played in this cycle [i.e. the late twentieth century collapse of socialism in which the idea of free-markets succeeded first, and then special events catalyzed a complete change of socio-political policy in countries around the world] by Friedrich Hayek's The Road to Serfdom."

"Over the years, I have again and again asked fellow believers in a free society how they managed to escape the contagion of their collectivist intellectual environment. No name has been mentioned more often as the source of enlightenment and understanding than Friedrich Hayek's . . I, like the others, owe him a great debt . . his powerful mind . . his lucid and always principled exposition have helped to broaden and deepen my understanding of the meaning and the requisites of a free society."

*Nobel Prize winner in Economics.

Daniel Yergin* & Joseph Stanislaw*

".. Underlying all this has been a fundamental shift in ideas .. The dramatic redefinition of state and marketplace over the last two decades demonstrates anew the truth of Keynes' axiom about the overwhelming power of ideas. For concepts and notions that were decidedly outside the mainstream have now moved, with some rapidity, to center stage and are reshaping economies in every corner of the world. Even Keynes himself has been done in by his own dictum. During the bombing of London in World War II, he arranged for a transplanted Austrian economist, Friedrich von Hayek, to be temporarily housed in a college at Cambridge University. It was a generous gesture; after all, Keynes was the leading economist of his time, and Hayek, his rather obscure critic. In the postwar years, Keynes' theories of government management of the economy appeared unassailable. But a half century later, it is Keynes who has been toppled and Hayek, the fierce advocate of free markets, who is preeminent ..". (Daniel Yergin & Joseph Stanislaw, The Commanding Heights: The Battle Between Government and the Marketplace that Is Remaking the Modern World. New York: Simon & Schuster. 1998. pp. 14-15)

*President & Managing Director of Cambridge Energy Research Associates.

Irving Kristol* (editor, The Public Interest)

".. the most intelligent defender of capitalism [in the modern period has been Friedrich Hayek] .. Hayek .. has as fine and as powerful a mind as is to be found anywhere."

"It is in good part because of Professor Hayek's work [on 'social engineering' and 'scientism'], and also because of his profound insights -- most notably in The Constitution of Liberty -- into the connection between a free market, the rule of law, and individual liberty, that you don't hear professors saying today, as they used so glibly to say, that 'we are all socialists now'."

"As a result of the efforts of Hayek .. and the many others who share [his] general outlook, the idea of a centrally planned and centrally administered economy, so popular in the 1930s and early 1940s, has been discredited."

*Kristol is well-known as the intellectual leader of the 'neo-conservatives' in America.

Thomas Sowell* (Hoover Institute)

"The 20th Century looked for many decades as if it were going to be the century of collectivism .. Anyone who would have predicted the reversal of this trend .. would have been considered mad just a dozen years ago. Innumerable factors led to [the reversal of the rise of collectivism], not the least of which was the bitter experience of seeing 'rational planning' degenerate into economic chaos and Utopian dreams turn into police-state nightmares. Still, it takes a vision to beat a vision .. An alternative vision had to become viable before the reversal of the collectivist tide could begin with Margaret Thatcher in Britain and Ronald Reagan in the United States. That vision came from many sources, but if one point in time could mark the beginning of the intellectual turning of the tide which made later political changes possible, it was the publication of The Road to Serfdom by Friedrich A. Hayek ..".

*Sowell is a leading historian of economic thought, and an internationally recognized authority on the problems of race, politics, and culture.

Margaret Thatcher (British Prime Minister, 1979-1990)

".. the most powerful critique of socialist planning and the socialist state which I read at this time [the late 1940's], and to which I have returned so often since [is] F. A. Hayek's The Road to Serfdom." (Margaret Thatcher, The Path to Power, New York: Harper Collins, 1995, p. 50).

"Our inspiration was less Rab Butler's Industrial Charter than books like Colm Brogan's anti-socialist satire, Our New Masters . . and Hayek's powerful Road to Serfdom, dedicated to 'the socialists of all parties'. Such books not only provided crisp, clear analytical arguments against socialism, demonstrating how its economic theories were connected to the then depressing shortages of our daily lives; but by their wonderful mockery of socialist follies, they also gave us the feeling that the other side simply could not win in the end. That is a vital feeling in politics; it eradicates past defeats and builds future victories. It left a permanent mark on my own political character, making me a long-term optimist for free enterprise and liberty ..". (Margaret Thatcher, The Downing Street Years, New York: Harper Collins, 1993, pp. 12-13.)

John Ranelagh writes of Margaret Thatcher's remark at a key Conservative Party meeting in the late 1970's, "Another colleague had also prepared a paper arguing that the middle way was the pragmatic path for the Conservative party to take .. Before he had finished speaking to his paper, the new Party Leader [Margaret Thatcher] reached into her briefcase and took out a book. It was Friedrich von Hayek's The Constitution of Liberty. Interrupting [the speaker], she held the book up for all of us to see. 'This', she said sternly, 'is what we believe', and banged Hayek down on the table." (John Ranelagh, Thatcher's People: An Insider's Account of the Politics, the Power, and the Personalities. London: HarperCollins, 1991.)

"For Dicey, writing in 1885, and for me reading him some seventy years later, the rule of law still had a very English, or at least Anglo-Saxon, feel to it. It was later, through Hayek's masterpieces The Constitution of Liberty and Law, Legislation and Liberty that I really came to think this principle as having wider application." (Margaret Thatcher, The Path to Power, New York: Harper Collins, 1995, pp. 84-85.)

".. all the general propositions favouring freedom I had .. imbibed at my father's knee or acquired by candle-end reading of Burke and Hayek ..". (Margaret Thatcher, The Path to Power, New York: Harper Collins, 1995, p. 604).

".. Adam Smith, the greatest exponent of free enterprise economics till Hayek and Friedman." (Margaret Thatcher, The Downing Street Years, New York: Harper Collins, 1993, p. 618)

Ronald Reagan (U.S President, 1981-1989)

"Rowland Evans: "What philosophical thinkers or writers most influenced your conduct as a leader, as a person?" Ronald Reagan: "Well .. I've always been a voracious reader -- I have read the economic views of von Mises and Hayek, and .. Bastiat .. I know about Cobden and Bright in England -- and the elimination of the corn laws and so forth, the great burst of economy or prosperity for England that followed." (Rowland Evans & Robert Novak, The Reagan Revolution, New York: E. P. Dutton, 1981, p. 229).

"The most important player on Ronald Reagan's economic team is Ronald Reagan. The person most responsible for creating the economic program that came to be known as Reaganomics is Reagan himself. For over twenty years he observed the American economy, read and studied the writings of some of the best economists in the world, including the giants of the free market economy -- Ludwig von Mises, Friedrich Hayek and Milton Friedman -- and he spoke and wrote on the economy, going through the rigorous mental discipline of explaining his thoughts to others. Over the years he made all the key decisions on the economic strategies he finally embraced. He always felt comfortable with his knowledge of the field and he was in command all the way." (Martin Anderson, Revolution, New York: Harcourt Brace Jovanovich, 1988, p. 164.)

George Bush (U.S. President, 1989-1993)

"[Hayek is] one of the great thinkers of our age .. [he] revolutionized the world's intellectual and political life." (Presidential statement, 1991).

Milton Friedman* (Economics, U. of Chicago)

" .. My interest in public policy and political philosophy was rather casual before I joined the faculty of the University of Chicago. Informal discussions with colleagues and friends stimulated a greater interest, which was reinforced by Friedrich Hayek's powerful book The Road to Serfdom, by my attendance at the first meeting of the Mont Pelerin Society in 1947, and by discussions with Hayek after he joined the university faculty in 1950. In addition, Hayek attracted an exceptionally able group of students who were dedicated to a libertarian ideology. They started a student publication, The New Individualist Review, which was the outstanding libertarian journal of opinion for some years. I served as an adviser to the journal and published a number of articles in it .. ". (Milton & Rose Friedman, Two Lucky People: Memoirs, Chicago: U. of Chicago Press, 1998. p. 333).

*Nobel Prize winner in economics.

Hayek and the Revolution in Europe.

Andrzej Walicki* (History, Notre Dame)

"The most interesting among the courageous dissenters of the 1980s were the classical liberals, disciples of F. A. Hayek, from whom they had learned about the crucial importance of economic freedom and about the often-ignored conceptual difference between liberalism and democracy." (Andrzy Walicki, "Liberalism in Poland", Critical Review, Winter, 1988, p. 9.)

*Walicki is formerly of the Institute of Philosophy and Sociology at the Polish Academy of Sciences.

Mart Laar (Prime Minister -- Estonia)

U.S. Representative Dick Armey, "[Estonian Prime Minister] Mart Laar came to my office the other day to recount his country's remarkable transformation. He described a nation of people wh are harder-working, more virtuous -- yes, more virtuous, because the market punishes immorality -- and more hopeful about the future than they've ever been in their history. I asked Mr. Laar where his government got the idea for these reforms. Do you know what he replied? He said, 'We read Milton Friedman and F. A. Hayek'." (Dick Armey, "Address at the Dedication of the Hayek Auditorium", Cato Institution, Washington, D.C., May, 9, 1995.)

Vaclav Klaus (Prime Minister - Czech Republic)

"I was 25 years old and pursuing my doctorate in economics when I was allowed to spend six months of post-graduate studies in Naples, Italy. I read the Western economic textbooks and also the more general work of people like Hayek. By the time I returned to Czechoslovakia, I had an understanding of the principles of the market. In 1968, I was glad at the political liberalism of the Dubcek Prague Spring, but was very critical of the Third Way they pursued in economics." (Vaclav Klaus, "No Third Way Out: Creating a Capitalist Czechoslovakia", Reason, 1990, (June): 28-31).

Milton Friedman* (Hoover Institution)

"There is no figure who had more of an influence, no person had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market editions, read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union."

*Nobel Prize Winner in Economics.

Hayek's Influence on 20th Century Political Economy.

Armen Alchian* (Economics, UCLA)

"ALCHIAN: Two things you [Hayek] wrote that had a personal influence on me, after your Prices and Production, were 'Individualism and Economic Order' [sic -- Alchian certainly has in mind Hayek's 'Economics and Knowledge'] and 'The Use of Knowledge in Society.' These I would regard as your two best articles, best in terms of their influence on me.
HAYEK: 'Economics and Knowledge' -- the '37 one -- which is reprinted in the volume, is the one which marks the new look at things in my way.
ALCHIAN: It was new to you, too, then? Was it a change in your own thinking?
HAYEK: Yes, it was really the beginning of my looking at things in a new light . .. I was aware that I was putting down things which were fairly well known in a new form, and perhaps it was the most exciting moment in my career when I saw it [i.e. 'Economics and Knowledge'] in print. ALCHIAN: Well, I'm delighted to hear you say that, because I had that copy typed up to mimeograph for my students in the first course I gave here [i.e. UCLA]. And Allan Wallace . . came through town one day, and I said, 'Allan, I've got a great article!" He looked at it, started to laugh, and said, "I've seen it too; it's just phenomenal!' I'm just delighted to hear you say that it was exciting, because it was to me, too . . that was a very influential article, I must say .. ".

*Alchian is the author of the influential article "Uncertainty, Evolution and Economic Theory", and co-author of the bestselling textbook University Economics.

Ronald Coase* (Economics, U. of Chicago)

"In fact, a large part of what we think of as economic activity is designed to accomplish what high transaction costs would otherwise prevent or to reduce transaction costs so that individuals can negotiate freely and we can take advantage of that diffused knowledge of which Friedrich Hayek has told us." (Ronald Coase, Nobel Memorial Prize Lecture, "The Institutional Structure of Production", Essays on Economics and Economists, Chicago: U. of Chicago Press, 1994, p. 9)

*Nobel Prize Winner in Economics.

Roy Harrod* (Economic, Cambridge)

John Hicks, "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)

*Leading figure in the development of 'Keynesian Economics' and 'Dynamic Theory'.

John Hicks* (Economics, Oxford)

"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).

*Nobel Prize Winner in Economics.

Leonid Hurwicz* (Economics, U. of Minnesota)

"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)

*Leading developer of the economics of information and incentive compatibility.

John Maynard Keynes* (Economics, Cambridge)

"Keynes was shortly to develop his own approach to the general task identified by Hayek [.e.g the task of monetary theory], under the rubric of 'A Monetary Theory of Production' (Keynes, 1973, pp. 381, et seq.)." (A. Cottrell, 1994, p. 199)

"I am in full agreement, also, with Dr. Hayek's rebuttal of John Stuart Mill's well-known dictum that 'there cannot, in short, be intrinsically a more insignificant thing, in the economy of society, than money,' [when Hayek writes]: "it means also that the task of monetary theory is a much wider one than is commonly assumed; that its task is nothing less than to cover a second time the whole field which is treated by pure theory under the assumption of barter, and to investigate what changes in the conclusions of pure theory are made necessary by the introduction of indirect exchange. The first step towards a solution of this problem is to release monetary theory from the bonds which a too narrow conception of its task has created.'" (John Maynard Keynes, "The Pure Theory of Money: A Reply to Dr. Hayek", Economica, Nov. 1931, pp. 395-396.)

*Leading 20th Century Economist in the English tradition of Marshall, Marx, Malthus, and Mill.

Thomas Sowell* (Hoover Institution)

"If one writing contributed more than any other to the framework in which this work [Sowell's Knowledge and Decisions] developed, it would be an essay entitled 'The Use of Knowledge in Society,' published in the American Economic Review of September 1945, and written by F. A. Hayek . . In this plain and apparently simple essay was a deeply penetrating insight into the way societies function and malfunction, and clues as to why they are so often and so profoundly misunderstood." (Thomas Sowell, Knowledge and Decisions, New York: Basic Books, 1980, p. ix)

*Sowell is a leading historian of economic thought, and an internationally recognized authority on the problems of race, politics, and culture.

Miles Taylor

"During the following decade [of the 1950's] modern economic history took a dramatic swing away from the liberal-left consensus established by the Hammonds, Tawney and the Webbs. The seminal text for this change of direction was the 1954 collection of essays compiled by F. A. Hayek, Capitalism and the Historians . . . ". (Miles Taylor, "The Beginnings of Modern British Social History?" History Workshop Journal. 1997. Vol. 43. Spring: 163)

Arnold Plant* (Economics, L.S.E.)

"I can testify from personal experience to the immense stimulus and direction which Hayek's migration to this country [Great Britain] gave to economic research in the 1930s, not only in London and economics faculties throughout the United Kingdom, but also in the international world of scholarship." (Arnold Plant, "A Tribute to Hayek -- the Rational Persuader", Economic Age, Jan.-Feb., 1970)

*Influential teacher of Nobel Prize winner Ronald Coase, among others.

Links to this post:

Create a Link

<< Home