Hayek Would Be 117 Years Young (Yesterday)
My article in the American Thinker. An excerpt:
This emphasis on dispersed knowledge was one of Hayek’s key contributions to the debate over socialism during the 1930s. Specifically, Hayek argued that one of the key functions of private property and market prices was to allow individuals to communicate information to each other in an economical manner. For example, if a tin mine collapses, then everyone around the world needs to cut back on their usage of tin. Some speculators will hear about the collapse and will push up the price of tin, hoping to profit from their knowledge. It is the rise in price that induces all consumers of tin to consider alternatives; they don’t need to know why tin is scarcer, they just need to know that it is.
Yet without the communication network provided by free market prices, socialist planners could not effectively mobilize the dispersed knowledge held by millions of citizens in their country. There would be no practical way to transmit the localized “knowledge of time and place” from various farmers, factory operators, truck drivers, retail outlet managers, and so on, up through the chain of command, so that the central planners could draw up an efficient use of resources. The socialist economists who thought otherwise were relying on unrealistic mathematical models of the economy which completely ignored the true economic problem, because they assumed all of the relevant information was “given” to the central planner.
Hayek never properly understood the nature of most real world prices in capitalism, but Lachmann did:
http://socialdemocracy21stcentury.blogspot.com/2013/10/do-modern-austrians-ever-read-lachmann.html
And how is Hayek’s political legacy going in America today?? What with the Republican party today about to crown a protectionist and a man spouting MMT:
http://socialdemocracy21stcentury.blogspot.com/2016/05/trump-mmt-covert.html
lol.
If you’re referring to mark-up pricing from the theory of oligopolies, then Rothbard has already addressed this by showing that it is government intervention that creates these types of government granted benefits.
If you are referring to the typical mark-up in prices, then I will leave you with Dr Murphy’s most precious words:
“In addition to illustrating the long-run equilibrium relationships among time preference (the higher valuation of present goods versus comparable future goods), factor pricing, and the stages of production, Rothbard’s diagrammatic exposition also makes it easy to show the impact of a decrease in time preference. In this case, consumers restrict their spending on final consumption goods, the “spread” or mark-up narrows between the prices of capital goods in each successive stage of production, and the entire structure becomes taller, so that the original land and labor inputs are invested for a longer average period. These processes were described by Böhm-Bawerk and Hayek, of course, but Rothbard’s exposition makes the whole affair much more comprehensible to a beginner.” – Robert P Murphy
I assume you’re talking about the government granted scenario of the former since your article is describing Europe. Indeed any good Capitalist need only notice all the welfare programs and welfare statism in place over in Europe to see how Rothbard gently but logically disspells any worry toward drawing nash equilibriums to describe a circumstance rendered through government intervention.
I am not referring to oligopoly pricing. This comment is worthless.
“I imagine there will be a fire-storm of conservative and libertarian outrage in the coming days”
Good luck getting conservatives to understand what you realize about Trump.
Conservatives know they want free markets, but they don’t understand it well enough to realize that protectionism is anti free market.
I find it odd that you’re willing to write about that, since Lefties usually like to hide this kind of thing.
“But none of the modern Austrians – not even Lachmann – bothered to properly think through the implications of administered prices.”
It’s sufficient to say that businesses need sales / income (?) in order to survive.
“If they had, they would have seen that the central plank of the Misesian theory of economic coordination – that the market, even an “unhampered” market, has a strong tendency to market clearing and full use of resources – must be abandoned.”
“Full use of resources”? When did Austrians make that claim?
Austrians don’t believe in the concept of “full use of resources”, because use-value is subjective to the consumer.
😀
If a seller can’t sell something, *he* is the one who misallocated its use for the purpose of profit.
And if he was mislead into borrowing for materials based on artificially low interest rates, then government intervention is what lead him to do so.
And, yeah, as Adrian Gabriel says, if companies are so immune to changing consumer preferences that they can maintain prices at lower demand, maybe their money isn’t coming from consumers.
“Real world pricing”
You mean pricing in a government hampered economy.
This is not inevitable. To call it “real world” implies humans do not shape the world according to their ideas.
In the real world there is government intervention. Pricing in a government hampered economy is not pricing in a laissez faire economy.
No, mark-up pricing done voluntarily by private sector companies. If you had bothered to read the Lachmann post, you’d know that, Major_Freedomtard.
No, the “real world” contains government intervention and hampering of pricing. Free market pricing does not exist.
Markup pricing is otherwise a normal method of pricing manufactured goods, and is an outcome of subjective, supply and demand driven pricing of the factors of production.
” Free market pricing does not exist.”
lol.. so mark-up prices do not have an effective and flexible enough tendency to market clearing in product markets?
Glad you agree Austrian theories on this are largely irrelevant to the real world.
LK if you read my post you would understand what Rothbard meant by markup pricing. Major Freedom is right in regards to how Austrians describe price formation. Rothbard had a very different perspective on how economics works in general, this indeed also includes Mises and Hayek. I suggest reading more about those three aforementioned greats.
Markup pricing by the way is an instance of the law of marginal utility and subjective valuations in pricing (supply and demand). See Reisman.
It’s also important to remember how Mises saved Hayek from Socialism too:
https://youtu.be/Pf4pmBcPWLU
Keynesianism was an ad hoc attempt to repair prior interventions – it was not an attempt to repair a prior “market failure”. In other words, it was and is a hoax. In 1977, Hayek explained to Bill Buckley that Keynes’ “General Theory” was an ad hoc policy designed to reduce wage rates that were artificially too high as the result of prior government intervention regarding the value of the British pound and non-market privileges granted to labor unions:
Mr. Buckley: Well, how would you account for the almost unanimous opinion of liberal Democrats that in order to reduce unemployment it is necessary for the government to pursue vast spending projects? Since you speak of this as being almost manifestly ill-advised, the question arises why such superstitions should survive?
Mr. Hayek: Well, it’s almost entirely the work of one man – in a way a genius, Lord Keynes – who is much more concerned about influencing current policies than about advancing the right sort of theories and he was operating then in a very peculiar situation. Now in Great Britain, a successful attempt was made after World War I – which brought a good deal of inflation – to bring prices down to the pre-war level. Prices came down but wages did not, so you had in the 1920s a position in Great Britain where wages were internationally too high and Britain had become noncompetitive on the world market. The problem in Great Britain was to make Britain competitive again and it was clear that this required a reduction of real wages. Notice these real wages had been artificially increased by increasing the value of the pound. So because the pound was par to its former level, people receiving the same wartime salary and wages, or inflated wages, could buy much more. Wages had not come down.
Now, his first argument was wages must come down. Then he found that was politically impossible, so he must find another way. Instead of getting money wages down, we must depreciate the pound so that given money wages should correspond to a lower level of real wages and then by a curious intellectual somersault I would almost say he led himself to believe that even bringing down money wages was not of any use. It involves a complex economic argument and all he concluded was that – well, we must inflate, in short.
Now notice several things. Keynes was a genius, but a genius who spent only a fraction of his time on economics – one of the busiest men I ever knew. But he knew very little economics except particularly the Cambridge tradition, and he was much more concerned to influence policy at a particular moment than develop a true theory. In fact, the last time I talked to him was after the war. I knew him very well. When I asked him wasn’t he getting alarmed about what his pupils who swallowed all this theory were doing after the war when the danger was clearly inflation, his answer was:
“Oh, don’t mind. My theory was frightfully important in the 1930s. Then, we needed an expansion to correct a situation. Do trust me. If this theory becomes dangerous, I’m going to turn public opinion around like this”.
Six month later, he was dead. And as usual, what happened is that the very doctrine – pupils of this man did apply to completely different situation a theory which was designed to influence policy in a particular situation. The only thing I blamed Keynes for is to making his theory more attractive and effective, he called it THE general theory. In fact, he knew precisely that it was not a general theory, but it was an argument to persuade government in the 1930s to do particular things.
Mr. Buckley: It was an ad hoc…….?
Mr. Hayek: It was entirely ad hoc. He was one of the most fascinating men I knew, but the personal magnetism of this man not only persuaded the younger generation of economists. And if I had been a much younger man and a student, I probably would have been swept off my feet as were most of the people.
Mr. Buckley: Like Nixon.
Mr. Hayek: No, no. (laughter).
https://www.youtube.com/watch?v=gaQcbGoW2C0
Hayek was an inconsistent fool.
In other places, he is in favour of stimulus to prevent secondary deflation:
“Even though there are many concerns about organizing public works ad hoc during a depression, everything speaks in favour of having public agencies perform during a depression whatever investment activities need to be carried out in any case and can possibly be postposed until then. It is the timing of these expenses that presents a problem, since funds are often extremely hard to raise in the midst of a severe depression and the accumulation of reserves in good times generally faces the objections mentioned above. There is little question that in times of general unemployment the state must intervene to mitigate genuine hardship either by disbursing unemployment compensation or, as in earlier times, by legislation to help the poor.“ (Hayek, F. A. von. 1999. “The Gold Problem” (trans. G. Heinz), in S. Kresge (ed.), The Collected Works of F. A. Hayek. Volume 5. Good Money, Part 1. The New World, Routledge, London. 169–185 at p. 184).
He gave the same endorsement in Hayek, F. A. von. 1978. New Studies in Philosophy, Politics, Economics, and the History of Ideas, Routledge & Kegan Paul, London, pp. 210–212.
The fact that Hayek favored a minimal welfare state does not change his analysis of Keynesianism.
On page 8, 4th paragraph, Hayek is quite clear in stating that there would be no problem to solve if the banking system had not caused the problem in the first place. This is not a problem caused by market failure but a problem caused by prior doses of Keynesian or near-Keynesian policies. The fact that Austrians may disagree about what to do in the short run to solve this considering the political realities of a) the total ignorance of the voters and b) the endless lies of the Keynesians and statists, does not change the cause of the problem. Hayek also said:
“What we should absolutely avoid is any attempt to recreate employment, or diminish unemployment by a further dose of inflation.”
https://www.flickr.com/photos/bob_roddis/7534880036/in/album-72157630494776170/
You are endlessly unable to comprehend how Keynesian policy distorts honest pricing and economic calculation or how those concepts are fundamental to Austrian analysis regarding the cause of the problem. Further, I will continue to emphasize that no anti-Austrian has the slightest understanding of this analysis primarily because it is so true and profound that it must be ignored and distorted.
In his heart, I think LK sees “resources” as belonging to everyone, so that if the worker is doing worse than rich consumers or producers, that some injustice has been done.
But since nothing is a resource until someone uses it, his philosophy amounts merely to “if someone else has a lot more of what poor people want, then the poor are entitled to it”.
He completely ignores the fact that those resources did *not* become productive due to poor people extracting raw materials and building capital for themselves, but because someone had the means to pay someone else to extract those resources for his own end.
The poor would have become even more poor if they tried to build capital from scratch, so the raw materials are largely useless to them.
So then someone comes along and knows of a use for the resource and has a low enough overhead that he can make a profit selling the resources he extracts.
How is that, in any way, theft from the poor?
LK, wealth is subjective. It can be created merely through the transfer of existing goods. So, it’s not that great wealth disparities must necessarily have arisen through theft.
What is the logic behind your view that if two people create wealth through voluntary exchanges, that a third party gets to claim some of that wealth if he has vastly less of it?
That is ad hominem tu quoque fallacy LK.
You cannot refute Hayek’s argument about Keynesianism by pointing to two inconsistent arguments he made.
You have to critique what Hayek said about Keynesianism on its own grounds, which you have never done.
If consistency was a requirement in a person before anything they say is true, then that implies you have not said anything true.
“You have to critique what Hayek said about Keynesianism on its own grounds, which you have never done.”
B.S. from a loud-mouth ignoramus:
http://socialdemocracy21stcentury.blogspot.com/p/blog-page.html
The point still stands. Nowhere have you presented any counter-argument about Hayek’s specific argument about Keynesianism which Roddis quoted above.
Mr. Hayek: You’re perfectly right, but I’d like to add one thing. You see, another political element was that, of course, politicians just lapped the argument and Keynes taught them if you outspend your income and run a deficit, you’re doing good to the people in general. The politicians didn’t want to hear anything more than that – to be told that irresponsible spending was a beneficial thing and that’s how the thing became so influential.
https://www.youtube.com/watch?v=N364sN5E0hQ
Yeah, yeah, because no politician saw that austerity in the 1930s — e.g., Weimar or Austrian austerity — was a catastrophe and didn’t work, and that people were sincerely convinced by Keynes’ argument.
Keep living in your looney tunes world, Bob.
The Austrian concept of austerity is that the government is austere – taking *less* from its citizens and spending less.
Is that the definition of austerity you’re using to respong to Bob Roddis?
“because no politician saw that austerity in the 1930s — e.g., Weimar or Austrian austerity — was a catastrophe and didn’t work”
They didn’t have the intellectual wherewithal to understand how a reduction in violence, their own, does indeed work. They were not in a position to be skeptical of what they were wanting at the time, namely more spending and more influence.