Austrian Economics,Socialism and Impure Forms of Economic Organisation

Modern supporters of the Austrian school of economics maintain that their critical stance towards impure forms of economic organisation - such as the mixed economy - grew out of the arguments of Mises and Hayek during the socialist calculation debate of the 1930s. The paper assesses the two theorists, contributions in the debate and argues that their ideas cannot provide the basis for a general rejection of impure forms of economic organisation. First of all, and contrary to most modern Austrians, who consider the contributions of Mises and Hayek as essentially consistent, it is argued that Hayek's critique of socialism is much more effective than Mises' as it rests on his concept of tacit knowldge and on an evolutionary account of the emergence of capitalist institutions. However, the paper goes on to argue that, if Hayek's critique of state intervention is to have any relevance for contemporary capitalist economies, it must be in a position to show the non-viability not only of a fully centrally planned economy of the Soviet type but also of the mixed economy. It is argued that it is precisely in this that Hayek's evolutionism fails, for his teleological approach is not persuasive in ruling out the possibility of impure forms of capitalism in a manner that is consistent with truly evolutionary - i.e. non-teleological - ideas.     

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.     

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.     

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.     

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.     

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.     

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.     

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.     

Hayek and the Great Depression of 1929: Did he really change his mind?

The aim of this research is to establish whether, and if so in what way, Hayek changed his mind about the Great Depression of 1929.The work is divided into two parts. In the first part, I present the ‘early’ Hayek of the 1930s. Hayek was the great rival of Keynes. Both explained the Great Depression, applying opposing business cycle theories. For Keynes, the crisis was caused by an excess of saving over investment; for Hayek, on the contrary, by an excess of investment over saving. In the early 1930s, Röpke attempted a synthesis, positing that a recession due to overinvestment can degenerate, as in 1929, into a depression caused by oversaving. Hayek examined and rejected Röpke's theory. In the second part, I present the ‘later’ Hayek of the 1970s. After years of silence and solitude, Hayek was unexpectedly awarded the Nobel Memorial Prize in Economics, precisely for the contribution he made in the 1930s to the theory of the business cycle. Hayek returned to his pursuit of the ghost of Keynes, debated with his friend and rival Friedman, re-examined Röpke's special case and, according to Haberler, changed his mind. In my conclusion, I attempt to resolve the dilemma.     

The Use and Abuse of Environmental Knowledge: A Bloomington School Interpretation of the Canadian Fisheries Act of 1868

This paper will focus on the ambitious plan for regulation embodied in the Dominion Fisheries Act of 1868, a law passed by the Canadian federal parliament in its very first year of existence. The 1868 law was intended to bring the nation's fisheries firmly under the control of officials employed by the new federal government. The paper argues that 1868 law, which was designed to address what would today be called Tragedy of the Commons problems, was a product of the hubris identified by Hayek as "the fatal conceit." The centralized and bureaucratic approach to governing fisheries represented by the 1868 Fisheries Act did not work well because the knowledge that would have been required for successful management of fisheries was highly dispersed. Drawing on Hayek and the Bloomington School, this paper argues that the experience of Canada's fisheries sector in the generation after 1868 illustrates the problems with centralized management Common-Pool Resources. In the 1890s, the centralized approach represented by the Fisheries Act of 1868 was replaced by a more flexible and decentralized system Hayek's theory of knowledge would suggest the reversal of centralization over environmental policy in the 1890s was a positive development that helped Canadians to reconcile the goals of economic development and the protection of the environment. The Hayekian paradigm suggests that control over environmental policy should be devolved downwards to the levels of government closest to resource users.     

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.     

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.     

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.     

Hayek and Keynes: From a common critique of economic method to different theories of expectations

The methodological positions of Hayek and Keynes contain striking similarities. Both authors opposed empiricist approaches to economics that assign priority to mere observation as the source of knowledge. Both emphasised intentionality, motivation and human agency. Notwithstanding this common ground, they had different conceptions of how beliefs are formed and had different explanations of thought and action in economics. Hayek grounded his explanation on an evolutionary theory of the mind, i.e. on psychological premises, whereas Keynes based his view of belief formation on probable reasoning, where probability is a logical concept. Starting from psychological premises Hayek maintained that individuals act rationally only by following rules. As a consequence, he considered conventional expectations to be the primary guide for agents in economic life. Keynes agreed that conventional expectations actually guide economic behaviour, but he maintained that they are justified only in situations of total ignorance. In conditions of limited knowledge, agents can base their action on reasonable expectations, independently of conventions. Moreover, agents?particularly those institutions responsible for economic policy?ought to shun conventional behaviour in order to counteract its negative social consequences. We argue that Keynes's theory of expectations is well grounded upon his theory of logical probability. Hence his advocacy of discretionary policy is rationally justified.     

Vernon Smith's Explanation of Moral Sentiments

This paper is a comment on Vernon Smith's paper, Adam Smith: from propriety and sentiments to property and wealth. This paper argues that while Vernon Smith is correct in his analysis that Adam Smith's theory of human nature, as expressed in The Theory of Moral Sentiments, provides a much more accurate model of behavior than does that of utility maximization, Vernon Smith's analysis can be much enriched by including a more complete explanation of Adam Smith's model of human behavior to include an analysis of prudence, justice, beneficence, and self-command.     

An overview of probability,expectations, uncertainty and rationality in Keynes's conceptual framework 1

Keynes's writings on the cognate topics of probability, expectations, uncertainty and rationality exhibit considerable complexity. This paper seeks to provide a clarifying overview of his position on these topics, both in his main philosophical workThe treatise on probability, and his main economic workThe general theory. It is argued that the most useful approach for understanding the deeper structure of Keynes's thought in each work is by means of a two-dimensional, two-domain analysis.Such an analysis helps demonstrate some of the ways in which the conceptual framework of The treatise on probability provides an essential part of the philosophical foundations of The general theory, while at the same time recognizing some of the key differences between the two works. It also illuminates Keynes's non-neoclassical theorization of rationality, and his path-breaking attempt to develop a theory of rationality under irreducible uncertainty.     

Culture and Economics: On Values,Economics and International Business

In his Idea of Justice, Amartya Sen compares the two basic approaches to evaluating institutions, transcendental institutionalism and realization-focused comparisons. Referring to Adam Smith's Impartial Spectator, he argues in favor of the latter and proposes the principle of open impartiality. However, this cannot solve the tension between universalism and contextualization of values that Sen has inherited from Smith. Based on recent Hegel scholarship, we argue that some of the difficulties can be resolved, considering the role Smith played in the development of Hegel's thinking. Hegel's concept of recognition plays an essential role in establishing the possibility of impartiality both on the level of consciousness and on the level of institutional intersubjectivity. Hegel's critique of Kant's formalist ethics (also considered as transcendental institutionalism by Sen) and his analysis of the civil society in the Philosophy of Right, especially his focus on associations and Estates, can serve as a model for making Sen's focus on public discourse theoretically more concise and pragmatically feasible. Hegel shows that universalistic attitudes can only emerge in specific institutional contexts.     

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.     

A Methodological Reflection on the “Thick Socialism” of Socialism after Hayek

This article discusses the valuable contribution that Ted Burczak's Socialism After Hayek makes to the Marxist theory of socialism by drawing on the Hayekian appreciation of markets as processes of discovery. But the article also critiques the book's acceptance of Hayek's exclusive reliance on markets as a mode of economic organisation. The article reflects on the methodological conditions that might have led the book down a path of market essentialism.     

Why rationality is not a consequence of Hume's theory of choice

This paper argues that the theory of action proposed by Hume in the Treatise does not imply that individuals are rational in the sense of modern choice theory. An individual's behaviour is non-rational if his/her choices systematically contravene the consistency axioms of the theory, and if the causal explanation of those choices cannot credibly be offered as a reason for making them. Hume proposes a theory of causal relationships between mental states, based on associations of ideas. The relationships he postulates are liable to induce various forms of non-rational behaviour, some of which have since been observed in controlled experiments.