All of the popular press that the Austrian school of economics, the Mises Institute, the Austrian business cycle theory, and the Physiocrats like Frederic Bastiat have garnered lately has led Paul Krugman to try to rewrite Hayek out of the history of macroeconomics contra all facts against him.
Krugman begins:
“Friedrich Hayek is not an important figure in the history of macroeconomics.”
Yet, he was only willing to do so under the cover of a David Warsh article where Warsh states: “With the publication of ‘The Use of Knowledge in Society’ in the American Economic Review in 1945, [Hayek] essentially won on the ‘calculation debate,’ conducted with Ludwig von Mises and Oscar Lange, concerning the possibility of central planning.”
Krugman neglects to mention that Warsh goes on to discuss the contributions of Dr. Robert Nozick, Rep. Ron Paul, and George Mason Economics professor Russ Roberts and filmmaker John Papola’s two widely-viewed videos, “Fear the Boom and Bust” and “The Fight of the Century.” Or, his citing approvingly of Bruce Caldwell of Duke University‘s summation that [Hayek's] “‘twin ideas of evolution and spontaneous order’ become prominent, especially the idea of cultural evolution, with its emphasis on rules, norms, and decentralization.”
Krugman may also want to reread Warsh’s final paragraph where he states:
“These are today lively concepts in laboratories and universities around the world.”
And, then we can read the words of the Nobel committee that awarded Professor Friedrich von Hayek the Nobel:
“Hayek’s contributions in the fields of economic theory are both deep-probing and original. His scholarly books and articles during the 1920s and 30s sparked off an extremely lively debate. It was in particular his theory of business cycles and his conception of the effects of monetary and credit policy which aroused attention. He attempted to penetrate more deeply into cyclical interrelations than was usual during that period by bringing considerations of capital and structural theory into the analysis. Perhaps in part because of this deepening of business-cycle analysis, Hayek was one of the few economists who were able to foresee the risk of a major economic crisis in the 1920s, his warnings in fact being uttered well before the great collapse occurred in the autumn of 1929…
“His conclusion is that it is only through a far-reaching decentralization in a market system with competition and free price formation that it is possible to achieve an efficient use of all this knowledge and information. Hayek shows how prices as such are the carriers of essential information on cost and demand conditions, how the price system is a mechanism for communication of knowledge and information, and how this system can mean an efficient use of highly decentralized resources of knowledge.
“Hayek’s ideas and analyses of the viability of economic systems, presented in a number of writings, have provided important and stimulating impulses to the great and growing area of research which is named comparative economic systems.”
Krugman can try to dismiss the “Hayek thing” all he wants as he attempts to whitewash history but it clearly is not going away.
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Come to think of it, when was the last time that Krugman used any kind of economic or logical analysis whatsoever other than swiping at his favorite strawmen and pulling stuff out of his ass?
I’d find a better economic case presented at a malware infested chinese website that spambots often link to than on his New York Times page.
I’m not reading Warsh’s article as a net positive or even a tad positive towards Hayek:
“But the fact remains that Hayek just didn’t contribute very much to the development of technical economics. With the publication of “The Use of Knowledge in Society” in the American Economic Review in 1945, he essentially won on the “calculation debate,” conducted with Ludwig von Mises and Oscar Lange, concerning the possibility of central planning. But it was Leo Hurwicz who carried the lessons to the next stage, where they began to have practical effect.”
“Paul Samuelson later said, “I can bear witness that, for twentieth century professional economists, Milton Friedman was infinitely more important for turning economists toward conservatism than was Hayek.” His implication was that the Swedes had made the right choices in the mid-1970s. On another occasion he slyly suggested that the award might have been better still if the prize-givers had cited Cambridge economist Joan Robinson, a partisan of Chinese and North Korean communism, as well.”
Oh and here’s a not so subtle jab against Ron Paul:
“Certainly Hayek made a big impression on me and my friends, when, as young men, we read him in the 1970s. We felt the same way about the Harvard philosopher Robert Nozick. With the passage of time, though, nineteenth century liberalism has seemed, by itself, a less and less adequate framework with which to deal with the problems of the twenty-first century. What was fresh the, because it had been forgotten, seems today to be nostalgia — or, worse, nonsense, when incorporated in the platform of Republicn presidential candidate Ron Paul.”
Krugman is jealous that a dead Austrian is more popular than a charlatan, hack economist writing for the NYTImes.
You have to read carefully and between the lines. Warsh is unable to battle Hayek on any substantive ground and concedes every intellectual issue. All he is left with is invective, conclusions without fact, and indulgence into highly private and personal matters that reside far from any pertinent discussion.
I was going to point that out; I completely agree that the cheap shots at Hayek’s personal life were uncalled for and don’t really prove or disprove anything toward his contributions to economic thought.
I took away from this Warsh recognizing Hayek and some of the things he’s done but not necessarily praising him. There is a lot of snark in this piece.
Agreed, and that it what makes it all the more risible and remarkable that Krugman relies on it for the basis of his nonsensical attack.
Wenzel’s got a good take on this:
http://www.economicpolicyjournal.com/2011/12/paul-krugman-stoops-to-new-low.html
“Yet, he was only willing to do so under the cover of a David Warsh article…”
haha. Part of the editorial “restraints” imposed upon Krugman subsequent to the myriad revelations of the Krugman Truth Squad and insistent urging of Donald Luskin, perhaps?
There’s one thing to being right, there’s another to being influential. As wrong (and much worse) as Keynes was, he’s the towering influence over economic thought the last 70 years. The standard issue macro text was Samuelson’s, a disciple of Lord Keynes. Most econ departments were filled with Keynes’ followers. Most texts were written from that perspective (including my intro texts from Gwartney and Stroup). It was pretty much accepted that in 2008 some form of “stimulus” was necessary, the only debate was amount and how to proceed. Conservatives like Mankiw to leftists like Krugman and DeLong argued pretty much the same thing. Mankiw I think was the one arguing for 6% targeted inflation.
The reason for the attention given to the Austrian school today is that all others schools have abjectly failed. Their analysis was wrong and their prescription was wrong. And now everyone knows it. We’re mired in another depression with unemployment hovering around 18-20%, and no end in sight. The fiat money charade is over, the welfare/warfare state is bust, and now people are turning to the one school that nailed it. That’s why the resurgence of Hayek, Mises, et al.
The only option left for them now is to discredit the Austrian school. We should take it as a compliment.
I agree that just as with the resurgence in the 1970s the Austrian school is gaining support because evidence of its theories are becoming very apparent. While America has gone through a textbook credit/cheap money boom, a very good example of the capitol aspect of the business cycle theory can be seen in China. When the boom was occurring China was hailed as the great success stories. But now it is becoming apparent that all they are left with is an over leveraged banking system and heaps of excess capital.
Unfortunately it seems we must suffer a while longer with these broken economic policies, as if more quantitative easing and government spending will bring us prosperity.
As Elime alluded to in his post, i fear that during our credit crash we might resort to authoritarian comforts.
The thing I found particularly interesting about that Warsh article is that while Warsh took cheap shot after cheap shot at Hayek’s private life, he assiduously failed to mention Keynes’ pederasty and sex-tourism. I wonder why that is?
Funny is that even Austrians like Hoppe and Solerno attack Hayekian theory of knowledge preferring the Misesian explanation of the economic calculation problem as a property rights issue instead of a knowledge issue. I also don’t see much love for Hayek in Hoppe’s writing. lol
They attack his later methodological contributions (professor Long has gone some way to show that Hayek and Mises simply talked past each other to a degree and that many of Hayek’s concerns with Mises’s method were unfounded) and rendition of the calculation problem, not necessarily his theory of knowledge wholesale, if you mean that to include stuff like the sensory order.
Excuse me but who is Krugman compared to Hayek?
Krugman is compared to Hayek is the same as Jeanne Dixon compared to Galileo.
I guess that for Krugman, the most inconvenient aspect of Hayek is his Nobel Memorial prize, which goes curiously unmentioned. I suppose explicitly pointing that out amid his hatchet job would question the award process, and thereby open his own to question .
Did Warsh mention the fact that Keynes, in the preface of the GT German edition, claimed that his theory “of output and aggregate demand is perfectly suited for totalitarian states,” and did he forget to mention the fact that Mussolini claimed that the “End of Laissez-Faire” was a “perfect introduction to fascist economics?”
Just curious.
Actually, I agree with Krugman that Hayek is not important to the history of macroeconomics:
http://zatavu.blogspot.com/2011/12/things-that-never-happened-in-history.html
Cafe Hayek liked it so much, they even linked my posting:
http://cafehayek.com/2011/12/more-on-hayek-as-macroeconomist.html
Indeed, good comments, Troy. I think Hayek, et al., should not be given any credit for their contributions to “macroeconomics.” If they were they could also bear the blame when the whole thing comes crashing down.
Warsh lost all credibility when referencing Samuelson’s statement that implied Friedman and Hayek both being conservatives. Also, why does he leave out nearly all of his academic journals/articles and only focus on his books to conclude his insignificance?
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