Abstract
“Economics and Knowledge,” which Hayek published in 1937, signified a break with his past thinking and was a decisive new beginning in his methodological approach. Hayek had always been deeply interested in the methodological and philosophical aspects of social thinking. This article, both in Hayek’s mind and as others read it, marked the start of a transformation in Hayek’s intellectual journey. He came to share the methodological skepticism so typical of the Austrian School, which threw the theoretical possibility of knowing society into doubt. The weaknesses in the economic method of equilibrium that Hayek described concerned the “assumptions about foresight.” Hayek referred to both the absolute need to extend the static equilibrium method to dynamic situations if we wanted a satisfactory description of reality, and to the related need to have knowledge about individuals’ expectations. Moreover, equilibrium theory, described by Hayek as the “system of tautologies,” usually applied to an individual, while the extension of the theory to many individuals and their interactions remained inapplicable.
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Notes
- 1.
Hayek’s methodological views have received much attention over the years. For a comprehensive account, see Caldwell (2004), Chaps. 9–13; see also Hutchison (2009), Caldwell (2009, 2010, 2014), Colonna et al. (1994) and Boettke (2018), Chap. 9.
- 2.
We will return to The Road to Serfdom in Chap. 7.
- 3.
Caldwell (1988) argues that some earlier hints of the new methodological hurdles can already be found in 1933, in the article “Trends in Economic Thinking.”
- 4.
[Hayek’s note] Or rather falsification. Cf. K. Popper, Logik der Forschung, Vienna, 1935, passim.
- 5.
On Hayek’s relation with Popper, see Caldwell (2006).
- 6.
See Hayek (1937a, pp. 34–35).
- 7.
“There seems to be no possible doubt that these two concepts of “data,” on the one hand in the sense of the objective real facts, as the observing economist is supposed to know them, and on the other in the subjective sense, as things known to the persons whose behaviour we try to explain, are really fundamentally different and ought to be kept carefully apart. And, as we shall see, the question why the data in the subjective sense of the term should ever come to correspond to the objective data is one of the main problems we have to answer” (p. 39).
- 8.
“Equilibrium will last so long as the anticipations prove correct, and that they need to be correct only on those points which are relevant for the decisions of the individuals” (p. 42).
- 9.
[Hayek’s note] “Or, since in view of the tautological character of the Pure Logic of Choice, “individual plans” and “subjective data” can be used interchangeably, [between; sic] the agreement between the subjective data of the different individuals.” See Caldwell (2014) seminal “Introduction” to The Market and Other Orders; see also his explanation about the different attitudes to notes in the various republications of this text (p. 3, note 4). I used the original of 1937, which included notes, but changed this note where “between” had been erased, as in the definitive 2014 edition.
- 10.
“All I have tried to do has been to find the way back to the common-sense meaning of our analysis, of which, I am afraid, we are apt to lose sight as our analysis becomes more elaborate. You may even feel that most of what I have said has been commonplace. But from time to time it is probably necessary to detach oneself from the technicalities of the argument and to ask quite naively what it is all about. If I have only shown that in some respects the answer to this question is not only not obvious, but that occasionally we do not even quite know what it is, I have succeeded in my purpose.” (p. 54).
- 11.
For an interesting survey of Hayek’s analysis of Scientism, see Caldwell (2004, Chap. 11), and a short summary can be found in Caldwell (2014). Hayek’s 1945 paper, “The Use of Knowledge in Society,” published in The American Economic Review, is often considered together with “Economics and Knowledge” as marking the beginning of Hayek II. The AER paper is listed among the top 20 articles of the first 100 years of the AER; see Arrow et al. (2011). See also Hayek’s influential Nobel Lecture (1974/1989) entitled “The Pretence of Knowledge.”.
- 12.
Hayek (1952), The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology and Hayek (1960), The Constitution of Liberty.
- 13.
Four lectures delivered by Hayek in 1954 at the National Bank of Cairo, published as “The Political Ideal of the Rule of Law” in 1955; see Hayek (2014), The Collected Works of F. A. Hayek, Vol. 15: The Market and Other Orders, B. Caldwell (Ed.), Chap. 5, pp. 119–194, University of Chicago Press.
- 14.
In society, the fact that an order is created also under such circumstances led Hayek to make the observation that “this is precisely the problem in creating an order in society” (Hayek, 1955/2014, p. 161).
- 15.
Caldwell adds: “The ideas noted above are incorporated into The Constitution of Liberty in Chap. 10, which is titled, appropriately enough, ‘Laws, Commands, and Order’” (p. 14).
- 16.
Weaver sent Hayek his own paper on the subject, written in 1948, “Science and Complexity.” For Weaver’s referee report see the Hayek Collection, Box 137, Folder 10, Hoover Institution Archives. (See Caldwell, 2014, p. 15). A more detailed analysis of the changes in Hayek’s thinking on method can be found in Caldwell’s Hayek’s Challenge, (2004, Chaps. 10–13).
- 17.
The paper had been written already in 1961, for a Festschrift for Popper.
- 18.
See two different views about this influential event in Caldwell (2016) and Mirowski (2020).
- 19.
Hayek (1974/1989, p. 1); all quotes are from the 1989 republication of the lecture in the American Economic Review.
- 20.
Hutchison, T. W. (2009), A Formative Decade: Methodological Controversy in the 1930s, [edited by R. E. Backhouse], Journal of Economic Methodology, vol. 16, pp. 297–314.
- 21.
It appeared first in 1995 in The Collected Works of F. A. Hayek, Vol. 9: Contra Keynes and Cambridge: Essays, Correspondence, B. Caldwell (Ed.), Chap. 1, pp. 49–73.
- 22.
Hutchison referred to Keynes, J. M. (1937), The General Theory of Employment, Quarterly Journal of Economics, vol. 51, 209–223.
- 23.
The quote is from Hayek’s 1933 paper “The Trend of Economic Thinking” as it appeared as Chap. 1 in Vol. 3 of the Collected Works, under the same title.
- 24.
As Hutchison summarized Hayek’s position before 1937: “Hayek was simply following Mises in tacitly postulating the relevance of the fundamental assumption of perfect knowledge that he later described as ‘customary’ and which has, quite recently, been described as ‘standard’. Moreover, in 1935 he was still pretentiously claiming that, thanks to introspection, the social sciences could claim firmer foundations than the natural sciences, an idea he probably owed to Wieser.” (p. 307).
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Arnon, A. (2022). Hayek’s Transformation on Knowledge in Economics. In: Debates in Macroeconomics from the Great Depression to the Long Recession. Springer Studies in the History of Economic Thought. Springer, Cham. https://doi.org/10.1007/978-3-030-97703-0_6
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