Archive for December, 2011

The Exemplary F.A. Hayek and the Extraordinary Princeton Delusions and the Madness of the New York Times

December 6, 2011

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.