History of Economics

A discussion of the curious history of a notion derived from Adam SMith's polemic against his predecessors in mattters of commercial policies.

A short presentation of Schumpeter's work with spedial attention to its philophical backgroound.

A reconstruction on the evolution in the understanding of wealth in the political literature from the Renaissace to the eighteenth century.

A reconstruction of the genesis and transformations of the idea of 'economic man'.

The paper aims to address the following two questions: what kind of discourse is that which attempt to found or defend the autonomy or the boundaries of a discipline? Why do such discourses tend to turn into normative, dogmatic-excommunicating discourses between disciplines, schools or scholars? I will argue that an adequate answer may be found if we conceive disciplines as dogmatics, where such discourses often take the form of a discourse on the foundation of a discipline, a foundation in the (...) name of which the scholar speaks and with which he/she entertains an identity relationship. To this purpose I will re-examine the methodological discourses of (and debates between) Pareto, Croce and Einaudi on the demarcation issue between philosophy, economics and value-judgments as highly instructive to understand such issues. (shrink)

My objections are: first, we may ask whether the achievement of The Wealth of Nations has been that of creating a new and more encompassing conceptual framework where already existing theoretical elements could be integrated and whether the growth of knowledge could have originated from a growth in the consistency of a theoretical framework which synthesized already existing individual elements; secondly, we may ask whether Smith's "tendentious" presentation of the positions of both predecessors and opponents might be some kind of (...) unavoidable sin and he might have been guilty of that sin because this was a price to be paid to his rhetorical strategy; thirdly, whether the fact that a text has been canonized at a certain moment in history for quite contingent reasons is no decisive proof of the intrinsic worth or lack of worth of the text in itself. (shrink)

I argue that the word mercantilism, born in the beginning from a nasty rhetorical move by Adam Smith, still preserves so much evocative power as to be used emblematically as a name for a whole historical period because of its natural use as a label for aggressive and unfair economic policies but, for analytic purposes we should bring to an end cross-purpose talk between historians of ideas and historians of society.

I suggest that the image of Adam Smith suffers from an emphasis on the role of “utilitarian calculus”, besides on overlooking the role of a “Stoic” point of view from which vanity, selfishness, and even enlightened self-interest are ultimately valueless, and finally a restricted view of prudence.

We reexamine some of the classic problems connected with the use of cardinal utility functions in decision theory, and discuss Patrick Suppes's contributions to this field in light of a reinterpretation we propose for these problems. We analytically decompose the doctrine of ordinalism, which only accepts ordinal utility functions, and dis- tinguish between several doctrines of cardinalism, depending on what components of ordinalism they specifically reject. We identify Suppes's doctrine with the major deviation from ordinalism that conceives of utility functions (...) as representing preference di¤erences, while being non- etheless empirically related to choices. We highlight the originality, promises and limits of this choice-based cardinalism. (shrink)

GILBERT JEAN FACCARELLO (Paris, 1950) is professor of economics at Université Panthéon-Assas, Paris, and a member of the Triangle research centre (École Normale Supérieure de Lyon and CNRS). He is presently chair of the ESHET Council (European Society for the History of Economic Thought). He completed his doctoral research in economics at Université de Paris X Nanterre. He has previously taught at the Université de Paris-Dauphine, Université du Maine and École Normale Supérieure de Fontenay/Saint-Cloud (now École Normale Supérieure de Lyon). (...) He is a co-founder of The European Journal of the History of Economic Thought, which he co-edited for 20 years with J. L. Cardoso, Heinz D. Kurz, and A. Murphy. With Alain Béraud, he edited the Nouvelle histoire de la pensée économique (La Découverte, 3 volumes, 1992-2000) and, together with Heinz D. Kurz, he is presently editing a Handbook of the History of Economic Analysis (3 volumes, forthcoming with Edward Elgar). -/- EJPE interviewed Gilbert Faccarello about his research career in the history of economic thought, where he has focused especially on old and new classical and Marxian political economy, and French political economy during the 18th and 19th centuries. G. Faccarello discusses his interest not only in the logical structure and context of the economic ideas of past thinkers but also the links between economic thought, philosophy, and religion. (shrink)

Adam Smith is respected as the father of contemporary economics for his work on systemizing classical economics as an independent field of study in The Wealth of Nations. But he was also a significant moral philosopher of the Scottish Enlightenment, with its characteristic concern for integrating sentiments and rationality. This article considers Adam Smith as a key moral philosopher of commercial society whose critical reflection upon the particular ethical challenges posed by the new pressures and possibilities of commercial society remains (...) relevant today. The discussion has three parts. First I address the artificial separation between self-interest and morality often attributed to Smith, in which his work on economics is stripped of its ethical context. Second I outline Smith’s ethical approach to economics, focusing on his vigorous but qualified defence of commercial society for its contributions to prosperity, justice, and freedom. Third I outline Smith’s moral philosophy proper as combining a naturalistic account of moral psychology with a virtue ethics based on propriety in commercial society. (shrink)

Although the controversy between Malthus and Ricardo has long been considered to be an important source for the history of economic thought, it has hardly been the object of a careful study qua controversy, i.e. as a polemical dialogical exchange. We have undertaken to fill this gap, within the framework of a more ambitious project that places controversies at the center of an account of the history of ideas, in science and elsewhere. It is our contention that the dialogical co-text (...) is essential for reconstructing the meaning and the evolution of science. In the present paper we try to substantiate this contention by means of a pragma-rhetorical study of this particular controversy. First, we reconstruct, through an analysis of a chunk of the correspondence, a micro-level of specific moves and countermoves which constitute a sequential structure within which also meta-scientific and meta-controversial considerations play a role. We then move to a macro-level of analysis, looking for recurrent patterns of argumentation. Finally, we draw epistemological conclusions on the nature of rationality and progress as manifested in actual scientific controversies. (shrink)

100 years after creating the Federal Reserve System (FED), whose legality and modus operandi remains questionable, there is time to rethink the national and also international payment system as a whole. The key element of existing economic relationships is the money that makes barter-free exchange possible. But monetary economics is only one aspect of more common political framework designed and established for retention of power. Such egoistic political interest proves its own relevancy and exerts ideological pressure on economic thought that (...) consequently forms economic and political institutions. In an effort to breake a rule, and to end the circuit of capitalistic self-fullfilling prophecy, a different economic model based on joint ownership (userization) is taken into consideration. This manuscript gives explanatory statements on userization and substantiates its advantageous social and environmental appropriateness. (shrink)

A discussion of the correspondence between Malthus and Ricardo and its bearing on their published works.

In this paper I argue that differences between the ‘new moral science’ of the seventeenth century and scholastic natural law theory originated primarily from the skeptical challenge the former had to face. Pufendorf’s project of a scientia practica universalis is the paramount expression of an anti-skeptical moral science, a ‘science’ that is both explanatory and normative, but also anti-dogmatic insofar as it tries to base its laws on those basic phenomena of human life which, supposedly, are immune to skeptical doubt. (...) The main scholastic legacy to the new moral science is the dichotomy between an ‘intellectualist’ and a ‘voluntarist’ view of natural law (or between lex immanens and lex imposita). Voluntarism lies at the basis of both theological views, such as Calvinism, and political views, such as those of Hobbes and Locke. The need to counterbalance the undesirable implications of extreme voluntarism may account for much of the developments in ethics and politics during the seventeenth and eighteenth centuries.Scottish natural jurisprudence, which tried to find a middle way between skepticism and extreme voluntarism, is less secular and more empirical than received wisdom admits. There emerged, as one of its ‘accidental’ outcomes, a systematic, self-contained and empirical economic theory from the search for an empirically based normative theory of social life. The basic assumption of such a theory, namely, the notion of societal laws as embedded in trans-individual mechanisms, derives from the voluntarist view of natural law as ‘imposed’ law.Later discussions of social issues in terms of ‘economic’ and ‘ethical’ reasons originated partly from a misreading ofthe Scottish natural jurisprudential framework of economic theory. Starting with this reconstruction, I try to shed some light on recent discussions about the role of ethics in economics. (shrink)

In the course of the eighteenth and nineteenth centuries the paradigm of a new science, political economy, was established. It was a science distinct from the Aristotelian sub-disciplines of practical philosophy named oikonomía and politiké, and emphasis on its character of science not unlike the natural sciences – still called ‘natural philosophy’ – mirrored precisely a willingness to stress its autonomy from two other sub-disciplines of practical philosophy, that is, ethics and politics. However, the new science resulted from a transformation (...) of part of traditional practical philosophy, allowing the inclusion of bodies of knowledge accumulated by experts of commerce and public finance. Such bodies of knowledge were unified by the (true or alleged) discovery of regularities, mechanisms, causal connections making for a new partial order within the overall social order. How far this paved the way to a science similar to mathematics rather left a normative discipline as alive as ever was a recurrent question for at least a century, until the marginalist revolution opened the way for a sharp division, leaving ‘economics’ as a science of causes and effects facing ‘economic policy’ as a discourse on ends. (shrink)

Élie HALÉVY (1870-1937), philosophe et historien des idées, fut professeur à l'École libre des sciences politiques, l'ancêtre de l'actuel Sciences Po. Comme son autre grand ouvrage, l'Histoire du peuple anglais au XIXe siècle, paru en six tomes de 1913 à 1932, les trois tomes de La formation du radicalisme philosophique, parus en 1901 pour les deux premiers et en 1904 pour le troisième, reflètent pour partie ses enseignements de l'Ecole libre consacrés à l'histoire britannique. Le premier tome, La jeunesse de (...) Bentham 1776-1789, étudie la doctrine utilitariste non seulement chez celui qu'on regarde comme son fondateur principal, Jeremy Bentham, mais aussi chez les nombreux auteurs qui, en Grande-Bretagne et sur le continent, en dessinèrent avant lui les contours. Le deuxième tome, L’évolution de la doctrine utilitaire de 1789 à 1815, montre comment l'utilitarisme revêtit la forme non seulement d'une école de pensée, mais aussi d'un mouvement pour la réforme économique, sociale et politique. Le rôle coordonnateur nouveau de James Mill, ainsi qu'une convergence de vues avec les économistes, qui poussaient dans le sens des réformes, marquèrent notamment cette évolution. Le troisième tome, Le radicalisme philosophique, continue d'étudier la transformation de l'école en mouvement après la fin des guerres napoléoniennes, lorsque celle-ci commence à engranger ses premiers grands succès réformistes. Bentham, James Mill et les autres penseurs utilitaires sont alors réunis sous l'appellation de philosophic radicals. Le terme temporel de l'ouvrage est le Reform Act de 1832, première étape vers la modernisation du système électoral, que la propagande de ce groupe ne contribua pas peu à faire aboutir. Quoique l'ouvrage d'Halévy vaille en premier lieu par l'immense savoir qu'il déploie, et le nombre et l'excellence des citations qu'il propose, il comporte aussi des thèses historiques et philosophiques originales. On peut citer parmi les premières la thèse, qui relie les trois tomes, voulant que l'utilitarisme britannique trouve sa forme achevée dans l'intervention sur la société, lorsqu'il se mue en radicalisme philosophique, et parmi les secondes, la thèse, énoncée au début du premier tome, voulant qu'il existe trois modèles dominants de jonction des intérêts individuels (la fusion sympathique, l'identification naturelle et l'identification artificielle). Une autre grande thèse, à la fois historique et philosophique, affirme en substance que l'économie politique classique serait un département spécialisé de la pensée utilitaire. La question de savoir jusqu'à quel point Smith, Ricardo et Malthus ont pu adhérer au "principe d'utilité" de Bentham est toujours débattue. En même temps que les élucidations apportées à ce principe, elle contribue à expliquer l'intérêt que les historiens de la pensée économique continuent de porter à l'ouvrage. L'auteur a participé à la réédition de La formation du radicalisme philosophique en 1995 par les Presses Universitaires de France (P.U.F.), suivant un projet collectif lancé par Monique Canto-Sperber. Dans le présent article, antérieur à cette réédition, l'auteur tentait de résumer brièvement un livre qui demeure irremplaçable en dépit d'une conception et d'un style quelque peu datés. (shrink)

There are three slogans in the history of Socialism that are very close in wording, viz. the famous Cabet-Blanc-Marx slogan: "From each according to his ability; To each according to his needs"; the earlier Saint-Simon-Pecqueur slogan: "To each according to his ability; To each according to his works"; and the later slogan in Stalin’s Soviet Constitution: "From each according to his ability; To each according to his work." We will consider the following questions regarding these slogans: a) What are the (...) earliest occurrences of each of these slogans? b) Where does the inspiration for each half of each slogan come from? c) What do the Saint-Simonians mean by “To each according to his ability”? d) What do they mean by “To each according to his works”? e) What motivates the shift from “To each according to his ability” to “From each according to his ability”? f) How should we envisage the progression toward “To each according to his needs”? g) What is the distinction between from “To each according to his works” and “To each according to his work”? (shrink)

Although Minsky’s interpretation of Keynes’s macroeconomics and essential message clashes with authoritative alternative interpretations, it has become increasingly influential during the years following the Global Financial Crisis, even in mainstream circles. This paper offers a critical evaluation of Minsky’s Financial Instability Hypothesis from the perspective of the alternative Austro-Wicksellian paradigm. Although some of the similarities and/or analogies between Minsky’s approach and that of the Austrian School suggest a more than merely superficial affinity between the two theoretical frameworks and although some (...) scope for cross-fertilization between both approaches can be found, both theoretically and empirically, at a fundamental conceptual level both theories remain incompatible and difficult if not impossible to reconcile, in particular in terms of fundamental causality and in terms of policy conclusions and prescriptions. Despite the fact that Minsky’s policy conclusions are multifaceted and somewhat eclectic, they manifest a lack of familiarity with the conclusions of the Austrian analysis of the problems of central planning by Big Players such as Big Bank and Big Government. Both approaches also offer contrasting interpretations of the historical experience of the Global Financial Crisis. (shrink)

Review of The Philosophical Origins of Austrian Economics, by David Gordon. Auburn, Alabama: Ludwig von Mises Institute, 1993.

From the comparison of the Grundrisse (1857-58) manuscripts with Marx's subsequent writings, it is clear that the so-called « deduction » of fundamental economic categories follows two distinctive patterns, one of which is close to ordinary logical analysis, the other being inspired by Hegel's dialectics of essence. This duality is reflected in the double meaning of the concept of « presupposition » (Voraussetzung) and, finally, in the simultaneous endorsement by the Grundrisse of two labour-value theories, one of which is Smithian-like, (...) the other is Ricardian. Marx's reinterpretation of economic value as an « immanent measure », i.e., his claim that commodities are measured by each other when exchange takes place, should help to bridge the gap between the two theories. However, such reinterpretation is shown to be inadequate ; as a result, Marx's account of value should be seen as internally inconsistent. (shrink)

Austrian economics starts out from the thesis that the objects of economic science differ from those of the natural sciences because of the centrality of the economic agent. This allows a certain a priori or essentialistic aspect to economic science of a sort which parallels the a priori dimension of psychology defended by Brentano and his student Edmund Husserl. We outline these parallels, and show how the theory of a priori dependence relations outlined in Husserl’s Logical Investigations can throw light (...) on the Austrian account of entrepreneurship. (shrink)

Uncertainty plays an important role in The General Theory, particularly in the theory of interest rates. Keynes did not provide a theory of uncertainty, but he did make some enlightening remarks about the direction he thought such a theory should take. I argue that some modern innovations in the theory of probability allow us to build a theory which captures these Keynesian insights. If this is the right theory, however, uncertainty cannot carry its weight in Keynes’s arguments. This does not (...) mean that the conclusions of these arguments are necessarily mistaken; in their best formulation they may succeed with merely an appeal to risk. (shrink)

A review of A. Hisch and N. de Marchi's thorough historical study on Milton Friedman's life-long work as an economist (and more specifically as a monetary economist) and as an economic methodologist (in his famous essay "The Methodology of Positive Economics".

We defend a view according to which Austrian economics rests on what can most properly be called an Aristotelian methodology. This implies a realist perspective, according to which the world exists independently of our thinking and reasoning activities; an essentialist perspective, according to which the world contains certain simple essences or natures which may come together in law-like ways to form more complex static and dynamic wholes, and an apriorist perspective, according to which given essences and essential structures are intelligible, (...) in the sense that they ca be grasped non-inductively in our thinking. We show the consequences of this view for an analysis of the thinking of Mises and Hoppe, both of which – we claim – incorporate what we believe to be foreign mixtures of Kantianism in their account of the foundations of Austrian economics. (shrink)

Three recent books have argued that Keynes’s philosophy, like Wittgenstein’s, underwent a radical foundational shift. It is argued that Keynes, like Wittgenstein, moved from an atomic Cartesian individualism to a more conventionalist, intersubjective philosophy. It is sometimes argued this was caused by Wittgenstein’s concurrent conversion. Further, it is argued that recognising this shift is important for understanding Keynes’s later economics. In this paper I argue that the evidence adduced for these theses is insubstantial, and other available evidence contradicts their claims.

In a world of partially overlapping and partially conflicting interests there is good reason to doubt that self-seeking behaviour at the micro-level will spontaneously lead to desirable social outcomes at the macro-level. Nevertheless, some sophisticated economic writers advocating a laissez-faire policy prescription have proposed various 'invisible hand' mechanisms which can supposedly be relied upon to 'educe good from ill'. Smith defended the 'simple system of natural liberty' as giving the greatest scope to the unfolding of God's will and the working (...) out of 'natural' providential processes free of interference by 'artificial' state intervention - the expression not of divine order but of fallible human reason. Hayek, adopting a similar policy stance, based it in an evolutionary process in which those institutional forms best adapted to reconciling individual interests would, he believed, spontaneously be selected for in the inter-group struggle for survival. Keynes shares the holistic approach of Smith and Hayek, but without their reliance on invisible hand mechanisms. If spontaneous processes cannot be relied upon to generate desirable social outcomes then we have to take responsibility for achieving this ourselves by establishing the appropriate institutional framework. Keynes takes a historical view of the role of capitalism and analyses its pathology as rooted in what we would now refer to as a multi-player prisoners' dilemma. The paper draws out the significance of his methodological standpoint here. Keynes's policy standpoint assigns a critical role to his own class, the 'educated bourgeoisie' in the reform process he maps out. A distinction, but also an intimate connection, is highlighted between, on the one hand, micro-level individualism (the 'Manchester System, and, on the other, the macro-level collective action ('planning') required to preserve it. Finally Keynes is considered in relation to the themes of laissez-faire, holism, reductionism, providentialism and the invisible hand. (shrink)

Le but de ce recueil est d’offrir des commentaires accessibles et introductifs aux textes classiques qu’ils accompagnent, en ouvrant des perspectives de discussion sur le thème du capitalisme. C’est en ce sens qu’Emmanuel Chaput lance le débat en commentant le texte de Pierre-Joseph Proudhon, « Qu’est-ce que la propriété ? ». Les textes de Karl Marx ne sont bien sûr pas laissés pour compte : Samuel-Élie Lesage s’engage fermement dans cette voie en discutant L’idéologie allemande de Karl Marx, Christiane Bailey (...) nous offre d’approcher différemment l’œuvre marxienne en abordant son traitement de la question animale dans des extraits du Manifeste du parti communiste et du Travail salarié et capital, et Mathieu Joffre-Lainé nous présente une analyse fine des questions proprement économiques du Capital. Abordant les alternatives au capitalisme dans la pensée de Léon Bourgeois, Éliot Litalien commente La Solidarité et Simon-Pierre Chevarie-Cossette s’attaque à l’analyse de l’Essai d’une philosophie de la solidarité. Enfin, en liant capitalisme, patriarcat et pouvoir politique, Tara Chanady propose une lecture du texte Du mariage et de l’amour de Emma Goldman. La conclusion de Marie-Eve Jalbert se situe dans une perspective contemporaine et critique en décortiquant la critique du socialisme avancée par Friedrich A. Hayek. (shrink)

Abstract: Don Ross’ Economic Theory and Cognitive Science (2005) provides an elaborate philosophical defense of neoclassical economics. He argues that the central features of neoclassical theory are associated with what he calls the Robbins-Samuelson argument pattern and that it can be reconciled with recent developments in experimental and behavioral economics, as well as contemporary cognitive science. This paper argues that Ross’ Robbins-Samuelson argument pattern is not in the work of either Robbins or Samuelson and in many ways is in conflict (...) with their own versions, and defenses, of neoclassical theory. (shrink)

Abstract: The paper argues that mainstream economics and mainstream philosophy of natural science had much in common during the period 1945-1965. It examines seven common features of the two fields and suggests a number of historical developments that might help explain these similarities. The historical developments include: the Vienna Circle connection, the Samuelson-Harvard-Foundations connection, and the Cold War operations research connection.

The paper aims to establish that Terence Hutchison’s argument in The Politics and Philosophy of Economics (1981) to the effect that the young F.A. Hayek maintained a methodological position markedly similar to that of Ludwig von Mises fails to establish the relevant conclusion. The first problem with Hutchison’s argument is that it is not clear exactly what conclusion he meant to establish with regard to the methodological views of the two paragons of 20th century Austrian economics. Mises (in)famously maintained a (...) rather extreme methodological apriorism. However, Hutchison’s argument does not support the claim that Hayek was ever an apriorist of the Misesian variety. The concept of a priori knowledge that emerges from Hayek’s epistemology – specifically the epistemology implied by Hayek’s work in theoretical psychology – is the direct opposite of Mises’ treatment of a priori knowledge. Simply stated, Hayek conceived of a priori knowledge as fallible and relative, while Mises considered a priori knowledge to be infallible and absolute. Thus, it cannot be maintained – if, indeed, Hutchison meant to establish – that Hayek was a Misesian apriorist during the years in question. What’s more, the paper shows that Hutchison’s argument does not support a weaker interpretation of the relevant conclusion. There are alternative interpretations of the evidence adduced by Hutchison that are both more charitable and more in line with Hayek’s epistemology that undermine Hutchison’s conclusion. (shrink)

On a few occasions F.A. Hayek made reference to the famous Gödel theorems in mathematical logic in the context of expounding his cognitive and social theory. The exact meaning of the supposed relationship between Gödel's theorems and the essential proposition of Hayek's theory of mind remains subject to interpretation, however. The author of this article argues that the relationship between Hayek's thesis that the human brain can never fully explain itself and the essential insight provided by Gödel's theorems in mathematical (...) logic has the character of an analogy, or a metaphor. Furthermore the anti-mechanistic interpretation of Hayek's theory of mind is revealed as highly questionable. Implications for the Socialist Calculation Debate are highlighted. It is in particular concluded that Hayek's arguments for methodological dualism, when compared with those of Ludwig von Mises, actually amount to a strengthening of the case for methodological dualism. (shrink)

When modern economists use the notions of sympathy or empathy, they often claim that their ideas have their roots in Adam Smith's Theory of Moral Sentiments, while sometimes complaining that Smith fails to distinguish clearly enough between the two concepts. Recently, Philippe Fontaine has described various forms of sympathy and empathy, and has explored their respective roles in Smith's work. My objective in this paper is to argue that Smith's analysis of how people's sentiments impinge on one another involves a (...) concept of fellow-feeling that is distinct from both sympathy and empathy. Unlike sympathy and empathy, fellow-feeling does not fit into the ontological framework of rational choice theory – which may explain why it tends to be overlooked by modern readers of Smith. (shrink)

Roemer's attempt to undermine the normative reasons that Marxists have thought exploitation important (domination, alienation, and inequality) is vitiated by several crucial errors. First, Roemer ignores the dimension of freedom which is Marx's main concern and replaces it with an interest in justice, which Marx rejected. This leads him to misconstrue the nature of exploitation as Marx understands it. Second, his procedure for disconnecting these evils from exploitation, or denying their importance, involves the methodological assumption that exploitation must strictly imply (...) these evils. He thus fails to see that exploitation may 'cause' domination, alienation, and inequality; this assumption and the focus on justice also lead him to overlook the sort of alienation that is most important to Marx and the way exploitation, as Marx understands it, does imply coercion. Roemer's alternative conception of exploitation thus fails to capture basic Marxist normative and explanatory concerns. But Roemer's insistence on the importance of justice and the need for an articulated alternative to capitalism are a necessary supplement to a Marxist account. (shrink)

The present essay aims to account for F.A. Hayek's oft-noted 'turn' away from technical economics to concerns of a more philosophical nature. In particular, the paper seeks an explanatory principle that reconciles various elements of both continuity and discontinuity in Hayek's intellectual development, especially with respect to the evolution of his arguments concerning economic fluctuations. The essay uncovers such an explanatory principle in Hayek's own methodology of sciences of complex phenomena. According to this principle, an inquirer who confronts phenomena too (...) complex for adequate explanation on the basis of current knowledge must move to a more general, albeit less testable, explanation. This is precisely what occurred in the evolution of Hayek's thought concerning trade cycles. The concluding section considers the implications of the argument for the extensive secondary literature on Hayek's 'transformation'. (shrink)

F.A. Hayek essentially quit economic theory and gave up the phenomena of industrial fluctuations as an explicit object of theoretical investigation following the publication of his last work in technical economics, 1941’s The Pure Theory of Capital. Nonetheless, several of Hayek’s more methodologically-oriented writings bear important implications for economic phenomena, especially those of industrial fluctuations. Decisions (usually, for Hayek, of a political nature) taken on the basis of a “pretence” of knowledge impede the operation of the price system’s belief-coordinating function (...) and thereby contribute to episodes of economic disequilibrium. Moreover, this later account – which I call Hayek’s epistemic theory of industrial fluctuations – implies certain aspects of his earlier theory. The two accounts are connected in virtue of the role that ignorance and the limits of human knowledge play in each. Indeed, it turns out that – substantively, if not methodologically – Hayek’s early theory of the cycle is a special case of the more general epistemic account. (shrink)

The present essay addresses the epistemic difficulties involved in achieving consensus with respect to the Hayek–Keynes debate. It is argued that the empirical implications of the relevant theories are such that, regardless of what is observed, both theories can be interpreted as true, or at least, as not falsified. The essay explicates the respects in which the empirical evidence underdetermines the choice between the relevant theories. In particular, it is argued both that there are convenient responses that protect each theory (...) from what appears to be threatening evidence and that, for particular kinds of evidence, the two theories are empirically equivalent. Larry Laudan's suggestion that ampliative methodological criteria can resolve an underdetermined choice between multiple scientific theories is considered and rejected as a possible means to rational consensus. (shrink)