Abstract
In the 1930s, Friedrich Hayek emerged as one of the leading economists of his generation. Alongside Lionel Robbins, Hayek made LSE a major player in the marketplace of ideas due to his role in a variety of technical and policy debates against such figures as John Maynard Keynes, Frank Knight, Oskar Lange and Abba Lerner. Boettke and Piano argue that one of these debates, the so-called socialist calculation debate, played a major role in determining the trajectory of Hayek’s career in the decades to come, pushing him to explore a wide array of themes often perceived as beyond the scope of economics proper.
This is a preview of subscription content, log in via an institution to check access.
Access this chapter
Tax calculation will be finalised at checkout
Purchases are for personal use only
Notes
- 1.
For an overview of Hayek’s life and intellectual development, see Caldwell (2004).
- 2.
Hayek had also expressed an early interest in analytical psychology after spending the winter of 1920 at the laboratory of brain scientist Constantin von Monakow at the University of Zurich (see Caldwell 2004: 240). His experience in Zurich inspired Hayek to write a short paper in the following summer, which he would later expand in The Sensory Order (Hayek 1952a).
- 3.
- 4.
- 5.
Robbins can thus be seen as belonging to the ‘British Austrian’ tradition as well, as he had attended Mises’ private seminar in Austria in the 1920s and had been strongly influenced by Mises’ methodological teachings plus his writings about socialist economics (see O’Brien 1988).
- 6.
See also Hansen’s review of Hayek’s Prices and Production: ‘The present volume is, it seems to me, the only book of recent years which at all approaches Keynes’s A Treatise on Money in the impetus it has given to renewed interest and discussion of business-cycle theory. This in itself is high praise. Altogether aside from the soundness of its conclusions, the value of the book and its important place in the recent literature of cycle theory is unquestioned’ (Hansen 1933: 332). Moreover, despite Keynes’s perceived ‘victory’ in his battle with Hayek, the latter’s contribution to macroeconomics was not completely ignored during the post-war period. Robert Lucas (1977) explicitly identified Hayek as one of the inspirations for his general equilibrium model of economic fluctuations. Writing around the same time, James Buchanan referred to Hayek’s business cycle theory as follows: ‘As of now, there is really no alternative theory worthy of much respect, and we can predict that more attention will be paid to the seminal Hayekian ideas during the next decades’ (Buchanan 2015: 258).
- 7.
On Knight, see Emmett (2009).
- 8.
See also Boettke et al. (2016).
- 9.
- 10.
Hayek himself had worked closely with Mitchell during his stay in the USA in the mid-1920s (see Caldwell 2004: 154).
- 11.
- 12.
For a detailed overview of Lerner’s private and scholarly life, see Landes (1994).
- 13.
‘[T]hough Marxist theory may have provided the foundations for the analysis of capitalism, it was neoclassical economics that provided the blueprint for a working model of socialism’ (Boettke et al. 2010: 79).
- 14.
- 15.
Although he never endorsed the equation-solving approach during the socialist calculation debate, Oskar Lange revived it almost three decades later (see Lange 1967).
- 16.
For a critical assessment of the Lange model from a standard neoclassical perspective, see Bergson (1967).
- 17.
Indeed, the socialist economy will outperform real-world market economies as it would not suffer from the detrimental effects of the widespread presence of market power and technological externalities and will not produce macroeconomic crises (see Lange 1937).
- 18.
Lerner (1937: 253) argued that the optimal allocation of resources must be the goal of any rational direction of the economy: ‘If we so order economic activity of the alternative that is sacrificed, we shall have completely achieved the ideal that the economic calculus of a socialist state sets before itself’.
- 19.
Hayek believed that his argument was complementary to that of Mises: ‘I found out that the whole Mises argument about calculation really ultimately rested on the same idea [about the dispersed and subjective nature of knowledge], and that drove me to the ‘37 article, which then became the systematic basis of my further development’ (Hayek 1978: 383).
- 20.
- 21.
In a market economy, prices serve three functions: ex-ante guides to exchange and production; ex-post assessments of previous decisions through the profit and loss mechanism; and signals for the existence of discrepancies between ex-ante and ex-post prices, which set in motion the discovery process within the market.
References
Main Works by Friedrich Hayek
Hayek, F.A. (1931a). ‘Reflections on the Pure Theory of Money of Mr. J.M. Keynes’. Economica, 33(August): 270–295.
Hayek, F.A. (1931b). ‘A Rejoinder to Mr. Keynes’. Economica, 34(November): 398–403.
Hayek, F.A. (1931c). Prices and Production. New York: Kelley Publishers.
Hayek, F.A. (1933). ‘The Trend of Economic Thinking’. Economica, 40(May): 121–137.
Hayek, F.A. (ed.) (1935). Collectivist Economic Planning. Abingdon: Routledge.
Hayek, F.A. (1937). ‘Economics and Knowledge’. Economica, New Series, 4(13): 33–54.
Hayek, F.A. (1941). ‘The Counter-Revolution of Science’. Economica, New Series, 8(31): 281–320.
Hayek, F.A. (1942). ‘Scientism and the Study of Society. Part I’. Economica, New Series, 9(35): 267–291.
Hayek, F.A. (1943). ‘Scientism and the Study of Society. Part II’. Economica, New Series, 10(37): 34–63.
Hayek, F.A. (1944a). The Road to Serfdom. Abingdon: Routledge.
Hayek, F.A. (1944b). ‘Scientism and the Study of Society. Part III’. Economica, New Series, 11(41): 27–39.
Hayek, F.A. (1945). ‘The Use of Knowledge in Society’. American Economic Review, 35(4): 519–530.
Hayek, F.A. (1948). Individualism and Economic Order. Chicago: Chicago University Press.
Hayek, F.A. (1952a). The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology. Chicago: University of Chicago Press.
Hayek, F.A. (1952b). The Counter-Revolution of Science: Studies on the Abuse of Reason. Glencoe, IL: The Free Press.
Hayek, F.A. (1960) [2011]. The Constitution of Liberty: The Definitive Edition. Volume 17 of the Collected Works of F.A. Hayek. Edited by Ronald Hamowy. Abingdon: Routledge.
Hayek, F.A. (1973–1979) [2013]. Law, Legislation and Liberty: A New Statement of the Liberal Principles of Justice and Political Economy. Abingdon: Routledge.
Hayek, F.A. (1978). UCLA Oral History Interview. University of California, Los Angeles: Oral History Program.
Hayek, F.A. (1988). The Fatal Conceit: The Errors of Socialism. Volume 1 of the Collected Works of F.A. Hayek. Edited by W.W. Bartley III. Chicago: University of Chicago.
Other Works Referred To
Barone, E. (1935). ‘The Ministry of Production in the Collectivist State’. Appendix in F.A. Hayek (ed.) Collectivist Economic Planning. Abingdon: Routledge: 245–290.
Bergson, A. (1967). ‘Market Socialism Revisited’. Journal of Political Economy, 75(5): 655–673.
Boettke, P.J. (1989). ‘Evolution and Economics: Austrians as Institutionalists’. In Research in the History of Economic Thought and Methodology. Volume 6. Greenwich, CT: JAI Press: 73–89.
Boettke, P.J. (1990). ‘The Theory of Spontaneous Order and Cultural Evolution in the Social Theory of F.A. Hayek’. Cultural Dynamics, 3(1): 61–83.
Boettke, P.J. (1997). ‘Where did Economics go Wrong? Modern Economics as a Flight from Reality’. Critical Review, 11(1): 11–64.
Boettke, P.J. (ed.) (2000). Socialism and the Market: The Socialist Calculation Debate Revisited. Nine volumes. Abingdon: Routledge.
Boettke, P.J. (2001). Calculation and Coordination: Essays on Socialism and Transitional Political Economy. London and New York: Routledge.
Boettke, P.J. (2006). ‘Hayek and Market Socialism’. Chapter 3 in E. Feser (ed.) The Cambridge Companion to Hayek. Cambridge: Cambridge University Press: 54–60.
Boettke, P.J. and K.W. O’Donnell (2013). ‘The Failed Appropriation of F.A. Hayek by Formalist Economics’. Critical Review, 25(3–4): 305–341.
Boettke, P.J., E.C. Shaeffer and N.A. Snow (2010). ‘The Context of Context: The Evolution of Hayek’s Epistemic Turn in Economics and Politics’. Chapter 3 in R. Koppl, S. Horwitz and P. Desrochers (eds) What Is So Austrian About Austrian Economics? Advances in Austrian Economics, Volume 14. Bingley: Emerald Group: 69–86.
Boettke, P.J., V. Tarko and P. Aligica (2016). ‘Why Hayek Matters: The Epistemic Dimension of Comparative Institutional Analysis’. Chapter 7 in Revisiting Hayek’s Political Economy. Advances in Austrian Economics, Volume 21. Bingley: Emerald Group: 163–185.
Boettke, P.J. and K.I. Vaughn (2002). ‘Knight and the Austrians on Capital, and the Problem of Socialism’. History of Political Economy, 34(1): 155–176.
Bowles, S., A. Kirman and R. Sethi (2017). ‘Friedrich Hayek and the Market Algorithm’. Journal of Economic Perspectives, 31(3): 215–230.
Buchanan, J.M. (2015). ‘NOTES ON HAYEK—Miami, 15 February 1979’. Review of Austrian Economics, 28(3): 257–260.
Caldwell, B. (2004). Hayek’s Challenge: An Intellectual Biography of F.A. Hayek. Chicago: University of Chicago Press.
Coase, R.H. (1937). ‘The Nature of the Firm’. Economica, New Series, 4(16): 386–405.
Coase, R.H. (1988). ‘The Nature of the Firm: Origin’. Journal of Law, Economics, & Organization, 4(1): 3–17.
Dickinson, H.D. (1933). ‘Price Formation in a Socialist Community’. Economic Journal, 43(170): 237–250.
Dickinson, H.D. (1939). Economics of Socialism. London and New York: Oxford University Press.
Durbin, E.F.M. (1936). ‘Economic Calculus in a Planned Economy’. Economic Journal, 46(184): 676–690.
Emmett, R.B. (2009). Frank Knight and the Chicago School in American Economics. Abingdon: Routledge.
Goldman, M.I. (1971). Comparative Economic Systems: A Reader. New York: Random House.
Hansen, A.H. (1933). ‘Review of Prices and Production, by F.A. Hayek’. American Economic Review, 23(2): 332–335.
Hicks, J.R. (1967). ‘The Hayek Story’. Chapter 12 in Critical Essays in Monetary Theory. Oxford: Clarendon Press: 203–215.
Hirshleifer, J. (1970). Investment, Interest and Capital. Englewood Cliffs, NJ: Prentice-Hall.
Hurwicz, L. (1973). ‘The Design of Mechanisms for Resource Allocation’. American Economic Review, Papers and Proceedings, 63(2): 1–30.
Keynes, J.M. (1930) [1971]. A Treatise on Money: The Applied Theory of Money. Volume VI of The Collected Writings of John Maynard Keynes. London: Macmillan.
Keynes, J.M. (1931). ‘The Pure Theory of Money. A Reply to Dr. Hayek’. Economica, 34(November): 387–397.
Kirzner, I.M. (1973). Competition and Entrepreneurship. Chicago and London: University of Chicago Press.
Kirzner, I.M. (1988). ‘The Economic Calculation Debate: Lessons for Austrians’. Review of Austrian Economics, 2(1): 1–18.
Kirzner, I.M. (1999). ‘Philip Wicksteed: The British Austrian’. Chapter 7 in R.G. Holcombe (ed.) 15 Great Austrian Economists. Auburn, Alabama: Ludwig von Mises Institute: 101–112.
Knight, F.H. (1921). Risk, Uncertainty and Profit. Boston: Houghton Mifflin Company.
Knight, F.H. (1937). ‘Unemployment: And Mr. Keynes’s Revolution in Economic Theory’. Canadian Journal of Economics and Political Science, 3(1): 100–123.
Lachmann, L.M. (1977). Capital, Expectations, and the Market Process. Kansas City: Sheed Andrews and McMeel, Inc.
Lachmann, L.M. (1986). The Market as an Economic Process. New York: Wiley-Blackwell.
Landes, D.S. (1994). ‘Abba Ptachya Lerner’. Biographical Memoirs. Volume 64. Washington, D.C.: National Academy Press: 209–230.
Lange, O. (1936). ‘On the Economic Theory of Socialism: Part One’. Review of Economic Studies, 4(1): 53–71.
Lange, O. (1937). ‘On the Economic Theory of Socialism: Part Two’. Review of Economic Studies, 4(2): 123–142.
Lange, O. (1967). ‘The Computer and the Market’. In C.H. Feinstein (ed.) Socialism, Capitalism and Economic Growth: Essays Presented to Maurice Dobb. Cambridge: Cambridge University Press: 158–161.
Lavoie, D. (1985). Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered. Cambridge: Cambridge University Press.
Lerner, A. (1932). ‘The Diagrammatical Representation of Cost Conditions in International Trade’. Economica, 37(August): 346–356.
Lerner, A.P. (1934a). ‘The Diagrammatical Representation of Demand Conditions in International Trade’. Economica, New Series, 1(3): 319–334.
Lerner, A.P. (1934b). ‘The Concept of Monopoly and the Measurement of Monopoly Power’. Review of Economic Studies, 1(3): 157–175.
Lerner, A.P. (1934c). ‘Economic Theory and Socialist Economy’. Review of Economic Studies, 2(1): 51–61.
Lerner, A.P. (1936a). ‘The Symmetry between Import and Export Taxes’. Economica, New Series, 3(11): 306–313.
Lerner, A.P. (1936b). ‘A Note on Socialist Economics’. Review of Economic Studies, 4(1): 72–76.
Lerner, A.P. (1937). ‘Statics and Dynamics in Socialist Economics’. Economic Journal, 47(186): 253–270.
Lerner, A.P. (1938). ‘Theory and Practice in Socialist Economics’. Review of Economic Studies, 6(1): 71–75.
Lucas, R.E., Jr. (1977). ‘Understanding Business Cycles’. In Carnegie-Rochester Conference Series on Public Policy, 5: 7–29.
Medema, S. (2011). ‘Chicago Price Theory and Chicago Law and Economics: A Tale of Two Transitions’. Chapter 6 in R. van Horn, P. Mirowski and T.A. Stapleford (eds) Building Chicago Economics: New Perspectives on the History of America’s Most Powerful Economics Program. Cambridge: Cambridge University Press: 151–179.
Mises, L. (1920) [1935]. ‘Economic Calculation in the Socialist Commonwealth’. Chapter III in F.A. Hayek (ed.) Collectivist Economic Planning. Abingdon: Routledge: 87–130.
Mises, L. (1933) [1976]. Epistemological Problems of Economics. New York: New York University Press.
Mises, L. (1949). Human Action: A Treatise on Economics. New Haven, CT: Yale University Press.
Munger, M.C. (2016). ‘Hayek’s Political Insights: Emergent Orders and Laid On Laws’. Chapter 6 in P.J. Boettke and V.H. Storr (eds) Revisiting Hayek’s Political Economy. Advances in Austrian Economics, Volume 21. Bingley: Emerald: 145–161.
O’Brien, D.P. (1988). Lionel Robbins. New York: St. Martin’s Press.
O’Driscoll, G.P., Jr. and M. Rizzo (2014). Austrian Economics Re-Examined: The Economics of Time and Ignorance. Abingdon: Routledge.
Pareto, V. (1971). Manual of Political Economy. Translated by A.S. Schwier and edited by A.S. Schwier and A. Page. New York: Augustus M. Kelly.
Piano, E.E. and P.J. Boettke (forthcoming). ‘Rationality of the Individual and Rationality of the System’. In D. Iorio (ed.) The Mystery of Rationality: Mind Beliefs and Social Science. New York: Springer.
Powell, B. (2010). ‘Some Implications of Capital Heterogeneity’. Chapter 9 in P.J. Boettke (ed.) Handbook on Contemporary Austrian Economics. Cheltenham: Edward Elgar: 124–135.
Rutherford, M. (2008). ‘Institutionalism, Old’. In S.N. Durlauf and L.E. Blume (eds) The New Palgrave Dictionary of Economics. Online edition. Available at: https://link.springer.com/referenceworkentry/10.1057%2F978-1-349-95121-5_2747-1.
Schumpeter, J.A. (1936). ‘Review of The General Theory of Employment, Interest and Money, by J.M. Keynes’. Journal of the American Statistical Association, 31(196): 791–795.
Schumpeter, J.A. (2013). Capitalism, Socialism and Democracy. Abingdon: Routledge.
Sugden, R. (1989). ‘Spontaneous Order’. Journal of Economic Perspectives, 3(4): 85–97.
Viner, J. (1936). ‘Mr. Keynes on the Causes of Unemployment’. Quarterly Journal of Economics, 51(1): 147–167.
Viner, J. (2013). Jacob Viner: Lectures in Economics 301. Edited by D.A. Irwin and S.G. Medema. New Brunswick, NJ and London: Transaction.
White, L.H. (2012). The Clash of Economic Ideas: The Great Policy Debates and Experiments of the Last Hundred Years. New York: Cambridge University Press.
Zywicki, T.J. and A.B. Sanders (2008). ‘Posner, Hayek, and the Economic Analysis of Law’. Iowa Law Review, 93(2): 559–603.
Author information
Authors and Affiliations
Corresponding author
Editor information
Editors and Affiliations
Copyright information
© 2019 The Author(s)
About this chapter
Cite this chapter
Boettke, P.J., Piano, E.E. (2019). Friedrich Hayek (1899–1992). In: Cord, R.A. (eds) The Palgrave Companion to LSE Economics. Palgrave Macmillan, London. https://doi.org/10.1057/978-1-137-58274-4_15
Download citation
DOI: https://doi.org/10.1057/978-1-137-58274-4_15
Published:
Publisher Name: Palgrave Macmillan, London
Print ISBN: 978-1-137-58273-7
Online ISBN: 978-1-137-58274-4
eBook Packages: Economics and FinanceEconomics and Finance (R0)