Profit Expectations and Confidence: Some unresolved issues in the Austrian/Post-Keynesian debate

Austrian and Post-Keynesian economists both continue to make important contributions to subjectivism in economics. Yet, as the ongoing debate between members of the two schools demonstrates, Austrians and Post-Keynesians have very different views about the possibility of intertemporal coordination in a market economy. This paper returns to the debate between Hayek and Keynes in order to respond to a contemporary Austrian critique of Keynes's theory of expectations. The paper shows that the fundamental difference between the two schools ultimately boils down to the nature of conventional expectations and the question of confidence. If the conventional expectation holds to assume the future will look enough like the present to give investors confidence in their decisions, Hayek's arguments about the possibility of intertemporal coordination merit attention. If, however, this convention does not hold, as Keynes thought was sometimes likely, the self-regulating potential of a market economy is called into question.     

Monetary Calculation and the Unintended Extended Order: The Misesian Microfoundations of the Hayekian Great Society

In the last decade, a small group of Austrians has attempted to argue that there are crucial distinctions between the Misesian and Hayekian lines of influence, and that the former is the superior. This paper argues that the group has both misread Hayek and underplayed the similarities of Mises and Hayek. More specifically, it sees Mises's emphasis on monetary calculation and goal-driven human action as providing the microfoundations for Hayek's emphasis on spontaneous order and the epistemic properties of the price system. The paper also disputes the claim that Hayek held a “fully-informative,” neoclassical view of prices and explores the disequilibrium foundation for Hayek's understanding of the role of prices as knowledge surrogates. The relationship between monetary calculation and cooperation in anonymity is discussed in the final section.     

Keynesian Dominance in Crisis Therapy

The 1930s’ debate about the short-run Keynesian response to crisis and Hayek's critique of its long-run consequences has significant contemporary parallels. This article examines, from a historical perspective, the Keynes–Hayek debate by considering the development of Keynesian economic theory, its ascension and application during financially sound times, the Hayekian critique, the monetary counter-revolution, and the Keynesian renaissance in the wake of the global financial crisis. It is shown that Keynesian fiscal measures prevail over the Hayekian approach in the midst of a crisis leading to rising inflation and public debt, depressed long-run growth and a new crisis.     

The notion of private information in a modern perspective: a reappraisal of Hayek's contribution

Hayek's critical attitude towards Walrasian modelling was based on informational considerations. In his view, a meaningful notion of equilbrium has to deal with the consistency of agents' plans which information is dispersed throughout the economy. He emphasized that only in this context could the role of market prices as aggregators of information be correctly analysed. Recent developments in general equilbrium theory with rational expectations have taken up the issue formally. In this paper, Haek's main ideas about the competiitive mechanism are compared with these recent results. It is argued that Hayek's notion of private information is different from that used in modern equilibrium theory, not only because of its dynamic content, as many critics observed ex post, as is usually in a general equilibrium framework. This issue of whether modern notions of private information, namel that used in conract theory, are good substitutes for Hayek' notion of personal knowledge is also examined in detail. From this analysis, it is possible to conclude that Hayek's notion of equilibrium neither entails Pareto optimality prperties nor full informational efficiency.     

Friedrich Hayek's fleeting foray into 1940s colonial development

Herein we examine recommendations made in 1944 by Friedrich Hayek for the Government of Gibraltar, regarding Gibraltar's future economic prospects. In keeping with Hayek's ideas in The Road to Serfdom, he proposed reducing state-led economic planning in Gibraltar alongside proposals to lift restrictions upon the operation of a free market in rents and labour. Hayek's proposals were rejected by both governments in Gibraltar and London because they were not compatible with the economic planning of colonial economies, inspired by Keynes, and provision of welfare systems in the empire inspired by Beveridge, both dominant ideas during the mid-1940s in government circles.     

Hayek,Mach, and the re-ordering of mind

This paper argues that Friedrich A. v. Hayek's theory of mind and the relation between mental and physical events, most systematically presented in his 1952 book, The Sensory Order, is indebted to Ernst Mach's theory, and, in particular, to his Analysis of Sensations, above and beyond what Hayek himself along with multiple admirers of his work ever cared to admit. By highlighting a number of important similarities between Mach's and Hayek's theories of the psychical/phenomenal and physical world/order, the paper aims to show that key aspects of Hayek's theory of mind can be traced to Mach's theoretical foundations. The paper further argues that some of the criticisms Hayek levels against Mach concern nonessential points, arise from the uncritical acceptance of common misinterpretations of Mach's theory, or are plainly wrong.     

Can a Dictator Turn a Constitution into a Can-opener? F.A. Hayek and the Alchemy of Transitional Dictatorship in Chile

Commenting on the Pinochet regime, Friedrich Hayek famously claimed in 1981 that he would prefer a ‘liberal’ dictator to ‘democratic government lacking liberalism.’ Hayek's defense of a transitional dictatorship in Chile was not an impromptu response. In late 1960, in a little known BBC radio broadcast, Hayek suggested that a dictatorial regime may be able to facilitate a transition to stable limited democracy. While Hayek's comments about Pinochet have generated much controversy, this paper neither provides a blanket condemnation of his views (he did not advocate dictatorship as a first-best ‘state of the world’) nor tries to excuse his failure to condemn the Pinochet junta's human rights abuses, but instead provides a critical assessment of Hayek's implicit model of transitional dictatorship.     

Cantillon and Ricardo effects: Hayek's contributions to business cycle theory

The distinctive line of argument in Hayek' business cycle theory can be characterized as a combination of the Cantillon effect monetary expansion on the price structure and the Ricardo effect of a shortage of consumption goods on the production of investment goods. This paper compares the original ideas of Cantillon and Ricardo with their adaptation and combination by Hayek. The differences help to expose fundamental problems in Hayek' theory and, more generally, in projects of integrating money and the business-cycle phenomenon with Walrasian general equilibrium theory.     

Cognition,competition, and catallaxy in memory of Friedrich August von Hayek

The paper focuses on central elements of the scientific work of Friedrich A. v. Hayek since the 1930s. In a first part, his epistemological position and its implications for his understanding of the tasks of the social sciences are presented as he set them out particularly in theSensory Order (1952). Then, it is shown how his findings in economic theory as well as in the analysis of economic and societal systems are formed by these foundations. His emphasis on the subjectivity and the constitutional limitations of human knowledge is identified as a precondition for the outstanding analytical insights which he gained with regard to the functioning of a market order and the role of institutions in societal development. Furthermore, it is argued that Hayek's enduring campaign for freedom and against the socialist tendencies in welfare states was not simply a matter of personal conviction. It was also the result of his analysis in constitutional political economy which revealed to him that freedom as a normative basis of economic and societal institutions is the key to the explanation of European cultural evolution.     

Hayek,Friedman, and Buchanan: On Public Life,Chile, and the Relationship between Liberty and Democracy

This article places recent evidence of Hayek's public defense of the Pinochet regime in the context of the work of the other great twentieth-century classical liberal economists, Milton Friedman and James M. Buchanan. Hayek's view that liberty was only instrumentally valuable is contrasted with Buchanan's account of liberty situated in the notion of the inviolable individual. It is argued that Hayek's theory left him with no basis on which to demarcate the legitimate actions of the state, so that conceivably any government action could be justified on consequentialist grounds. Furthermore, Friedman's account of freedom and discretionary power undermines Hayek's proposal that a transitional dictatorship could pave the way for a genuinely free society. It is contended that Hayek's defense of Pinochet follows from pathologies of his theories of liberty and democracy.     

Spontaneous Catallaxis in Urban & Rural Development Under Planning by Contract in a Small Open Economy: The Ideas of Hayek and Mises at Work in Town & Country Planning in Hong Kong

This paper discusses the espoused and actual achievements of government urban planning in Hong Kong in terms of the ideas of Hayek and Mises. With reference to observed facts, it is argued that it is indeed the spontaneous forces of the land market predicated on a leasehold system, a system of “planning by contract” or “planning by consent,” that have attained what the government planner in Hong Kong has not been able to deliver.     

Book reviews

Abstract

This article contributes to the literature on the Hayek–Keynes controversy on two points. The first contribution is to show that the question of the micro-foundations of macroeconomics is crucial to understand the Hayek–Keynes controversy. The second contribution is to reveal that Hayek's attack on the micro-foundations issue had a methodological impact on the making of the General Theory especially via the concept of marginal efficiency of capital. The paper concludes that what finally contrasts Hayek and Keynes is the kind of micro-foundations that economists should adopt to explain business cycles.     

Labor theory of value and the uncertainty in capitalist economy

This article aims to offer a reply to Steedman’s critique of Marx’s labor theory of value. Although this critique having been there for about three decades, the anti-critiques from Marxists are up to date flawed with fatal limitation, losing sight of an important dimension of labor theory of value, i.e., without taking it as a theoretical tool of understanding the uncertainty rooted in capitalist mode of production. The first part of this article reviews the controversy initiated by Steedman. Part 2 discusses Marx’s dual theory of market value and Rubin’s interpretation. Our view is that, if Rubin’s interpretation is accepted, a refutation of Steedman’s critique towards Marx will be impossible. Part 3 of this article explores the possible reconstruction of market value in the perspective of the dynamics in the pivoting of market value. We concludes that, the relationship between the standard condition of production and value is not, as argued by Steedman, of deterministic and one-directional character. For Marx, labor theory of value is applied to analyze the uncertain relation between the means and the end, the condition and the result of capitalist production. Meanwhile, another reply is attempted towards the negative comment on labor theory of value made by contemporary evolutionary economist such as Hodgson. In our view, Marx’s labor theory of value is not irrelevant as claimed by Hodgson to the main topics of evolutionary economics such as variety and “natural selection.” It is through labor theory of value that Marx explains the co-evolution of technology and economy.     

Post-Hayekian socialism a la Burczak: Observations

Burczak (Socialism after Hayek, Ann Arbor: University of Michigan Press, 2006) presents a proposed form of stakeholder socialism to overcome the critique by Hayek of Marxist socialist systems. This involves financing the beginning of worker-owned and managed cooperatives through a wealth tax, with a generous social safety net, within a market economy in a democratic political system with civil liberties. While such a system may overcome worker alienation, avoid many of the informational and incentive-based inefficiencies identified by Hayek, and have some special efficiencies of its own, it will likely suffer from the financing problems most cooperatives face within predominantly market capitalist economies as they try to grow larger. The most likely location for an effort at such a system might be in a smaller country that has had some experience with workers’ management, such as the former Yugoslav republic of Slovenia.      

1985: A defining year in the history of modern Austrian economics

Mises and Hayek in the 1920s and 1940s thought of their work as within the orthodoxy of economic science. But after WWII it became increasingly obvious that the contributions of Mises and Hayek were out of step with the way the economics profession was evolving. But starting in 1974, due to the organizational efforts of Murray Rothbard and Israel Kirzner, and bolstered by the awarding of the Nobel Prize in Economic Science to FA Hayek, a resurgence of interest in Austrian economics by young scholars was initiated. Starting in 1984, but significantly in 1985, the work of the new generation of Austrian economics started to have an impact in the mainstream outlets in terms of journals and university presses. We argue that this is a defining year in the modern history of the Austrian school and that it reflected both the quality of work being done by the new generation as well as a methodological crisis within the mainstream of economic scholarship. Don Lavoie’s work in comparative economics, as well as his work in methodology, reflected this shift within the economic conversation.     

‘Nil Repente!’: Galiani and Necker on economic reforms

The problem of the transition to a market economy provoked a lasting and important debate in eighteenth-century Ferance. The climax was reached during the 1760s and the 1770s with the two important pre-revoluntionary attempts, in 1763–64 and 1774a–76, to liberalize the French economy and, initially, the grain market. During these controversies, the reformers’ camp clearly split into two groups - the so-called ‘moderates’ and the alleged enthousiastes - which were apparently in deep disagreement as to the strategy to adopt in such circumstances. Among the ‘moderates’, two authors especially are of great interest: Ferdinando Galiani and Jacques Necker, who crystallized and developed the ideas of their camp to promote a strategy of prudence.

This paper analyes their arguments on the issue at stake: the objectives and methods of a transition to a market economy. The historical and intellectual context of the debate is first briefly restated and the basic theoretical tenets of Galiani's and Necker's critique are then outlined. The various obstacles which, in our author's opinion, were likely to come from the opponents to a transition to a market economy or from its proponents are analysed, and Galiani's and Necker's main ideas on the best way to achieve successful reforms are stressed. Some provisional conclusions are dawn at the end.     

“Hayekian Socialism,Post Critics”

An economic system with labor cooperatives, private ownership, and a basic capital grant or universal basic income is a form of market socialism that can withstand Hayek's critique.     

The Role of Nonattenuated Rights in Positive Economics: A Critical Appraisal

This article assesses the institutionalist elements of Friedrich Hayek's neoliberal political economy by presenting his views on the entangled relations between the state and markets in capitalism. Through the analysis of Hayek's work, the article contributes to further consolidating the view that neoliberalism is an ideological project of institutional transformation which, despite some enduring myths, has an irreplaceable role for a state with many important functions in a more limited democracy. Markets, for their part, are politically contested social constructions that depend on previous non-market institutions for their existence and legitimation. This paper argues that Hayek's work corroborates this institutionalist claim.     

A Behavioral Analysis of Technological Change in the Computer Industry, 1930–1950

This article presents a binary economic critique of Milton Friedman's thesis that a competitive, free market, private enterprise, capitalist system is an essential condition for freedom. After identifying deficiencies in Friedman's understanding of private property and economics, this article explains how a market economy based on Friedman's flawed understanding concentrates economic power in a plutocracy, perpetuates chronic underemployment of labor and capital, and suppresses the freedom of most people. It advances a "binary economic approach" to create a more productive and democratic market system characterized by greater, more sustainable, and more widely-distributed prosperity, economic power, and individual freedom than prevails in any existing capitalist economy.