Hayek

[bcox@xxxxxxx (Brad Cox @ GMU/PSOL)]

Jim Devine (I think it was) wrote:

>>  In a nutshell, one can see what's wrong with Hayek's perspective: he
>>  ignored the role of other factors besides prices that play a role of
>>  communication mechanisms.  At a minimal level, economic actors also
>>   respond to quantities.  They also communicate through talking,
>>  newspapers, TV, etc., etc.  Von Hayek and his followers want to force
>>  the world into the model in which only market forces (prices as
>>  signals) do the work, since they view  non-market institutions as alien
>> or unnatural.  They also have a totally idealized (perhaps as idealized
>>  as is possible) vision of markets and prices.

Jerry Ellig, an economist in my department at GMU, responded:

BRAD:  I've MADE A FEW COMMENTS IN THE EARLY PART OF THIS TEXT.  PLEASE FEEL
FREE TO SEND IT BACK FROM WHENCE IT CAME.

I do not think this is an accurate reading of Hayek at all.  A lot of his
other work -- for example, Law, Legilation, and Liberty -- deals with the
role that institutions play in communicating knowledge.  This idea that
"prices are the only thing that matter" is a NEOCLASSICAL MIS-READING of
Hayek.  A lot of people in Chicago might think this was Hayek's only
contribution, but not here at George Mason University.  Hayek's contribution
on pricing was pointing out that prices convey a tremendous amoutn of
information -- not that they convey all the knowledge we'll ever need.
(Incidentally, I believe that Richard Ebeling, the Ludwig von Mises
professor at Hillsdale College, has a paper on interpreting prices --
something you won't find in economics textbooks!)

In any case, I blame this common mis-reading of Hayek on mainstream
economics, which has puttered about creating models in which prices convey
all relevant information.  If the above commentator has only read "The Use
of Knowledge in Society," I recommend The Fatal Conceit; Law, Legislation,
and Liberty, and an essay called "The Meaning of Competition," which should
clarify what Hayek really meant on these issues.


Von Hayek assumes
>>  that externalities are mere "neighborhood effects" and can
>>  effectively ignored.

I don't know if this is true.  In any case, a lot of Austrian economists
would disagree with this.  The issue is not whether externalities exist; the
issue is the most effective way of internalizing them.  Many argue that
private property rights do a superior job of internalizing externalities.
It's not fair discourse to say that people who favor property rights are
simply ignoring externalities.

A lot of the silliness of the  rational
>>  expectations/new classical school derives from von Hayek et al.
>>  Murray Rothbard, for example, argues that one can't blame the
>>  Great Depression on entrepreneurs since it wasn't profitable to them.

THis is an incredibly glib and misleading statement.  Rothbard et. al. also
have an explanation for the Great Depression, rooted in the work Hayek was
doing on business cycles in the 1930s.

>>As Cottrel (sp?) points out, Hayek's critique of the old USSR-type
>>  system was based on the assumption that the market system did the
>>  job well.  I must admit I like old Leon Trotsky's argument (in the
>>  1920s) that central planning only works  with democracy -- because
>>  authoritarian control cuts off the flow of information from the
>>  bottom to the top. And of course von Hayek was strongly opposed to
>>  democracy.

A nice cheap shot!  I don't know that Hayek opposed democracy per se; he
just opposed it as a means of managing the economy, which is a quite
different issue.  How on earth would a democracy generate effective
planning, if knowledge is dispersed and tacit?  Read two books by Don
Lavoie: Rivalry and Central Planning, and National Economic Planning: What
is Left?


--
Brad Cox; George Mason Program on Social and Organizational Learning
Fairfax VA; bcox@xxxxxxx; 703 968 8229 voice 968 8798 fax