Hayek’s Nobel Prize at 50 – Econlib

Tomorrow is the Nobel Prize for Economic Sciences announced.

Probably no single event is more responsible for the initial success of Israel Kirzner and Murray Rothbard’s attempts to generate a revival of interest in the Austrian School of Economics. in the academic practice of economics and science then FA Hayek who won the Nobel Prize in 1974, after that the South Royalton Conference just that last summer.

I use italics above to emphasize the academic side of that argument. There has always been a small but deeply committed base of popular support for the Austrian economy among free market types in business and government policy. My own bachelor teacher, Hans Senholzto whom I owe so much, focused his energies in this direction, giving public lectures and focusing on popular and policy-relevant writing. It is important to emphasize that the Keynesian revolution, and more importantly the Samuelsonian hegemony in scientific economics, had reduced the impact of the Austrian School of Economics virtually to zero by the early 1970s. The older Austrian economists, such as Fritz Machlup of Princeton, had long stopped identifying themselves as “Austrian,” although they were very proud of their scientific origin story. They simply believed that the good and long-lasting contributions of the Austrian School had now been largely absorbed into the general knowledge of neoclassical economics.

Among the only professionally prominent opponents of this trend were Israel Kirzner, Ludwig Lachmann and Murray Rothbard. They would receive the sympathetic ear of leading economists such as Armen Alchian, Kenneth Boulding, James Buchanan, Ronald Coase, Harold Demsetz, Axel Leijonhufvud, Henry Manne, GLS Shackle, Gordon Tullock and Leland Yeager. These individuals were instrumental in supporting Kirzner’s efforts, especially on various margins, especially in the 1970s and 1980s.

In the early 1970s, Rothbard had shifted his focus primarily to libertarianism and building an architectural system in economics, ethics, and political theory. It is an impressive oeuvre, ambitious in size and scope inspiring. But Rothbard shifted his focus from technical economics to this broader project, and his work was aimed at a broader interdisciplinary audience, rather than at narrow specialists.

Lachmann spent most of the 1950s and 1960s in academic administration, and only in the early 1970s did he return to tackle topics he had begun working on in the 1950s after his work on capital theory – namely Max Weber and the study of institutions. . The Austrian revival brought him back to work on issues of subjectivism, expectations, market processes and the methodology of the social sciences. This can be seen in his 1976 JEL article “From Mises to Shackle“.

But most of the hard work of trying to get a hearing for the contributions of the Austrian school inside the scientific establishment fell to Israel Kirzner. Kirzner was the self-proclaimed Austrian lecturer in a top PhD program (NYU) and able to supervise dissertations and help launch careers. But such efforts were enormous compared to the hegemonic Samuelsonian paradigm.

The challenge of scientific progress remained the same throughout Kirzner’s career, but the possibilities for progress changed from insurmountable odds to simply very long odds as a result of Hayek’s 1974 Nobel Prize win and subsequent developments in the world of ideas – the collapse of science. the Keynesian consensus and the world of practical affairs (stagflation of the 1970s, collapse of communism in the 1980s). Hayek’s Nobel opened the intellectual space for ideas in economics that bordered on each other, such as the economics of property rights (Alchian), law and economics (Coase), the economics of public choice (Buchanan and Tullock), and the process economics of entrepreneurial markets ( Baumol and Kirzner).

We must recognize that the experience surrounding Hayek’s Nobel is unique. First, he shared the prize with Gunnar Myrdal, an economist who was ideologically the opposite of Hayek, and neither man liked the other. Secondly, there is Hayek’s toast the banquet. Hayek informed his audience that if he had been asked whether a Nobel Prize in Economics should be established, he would have said NO. As he put it, “the Nobel Prize gives an individual an authority that no human being should possess in the economic field.” Third, in being Nobel lectureHayek begins by stating clearly that economists have made a mess of the policy world and have nothing to be proud of. He then argued that economists messed up because they followed a wrong theoretical framework (namely Keynesianism and the corresponding theory and practice of aggregate demand management), and that they followed this wrong framework because they adopted the wrong philosophy of science (what he said). called scientism).

Economics is a science of complex phenomena, not a science of simple phenomena. The methods that are suitable for one are completely unsuitable for the other. In fact, Hayek argued, the methods that appear are the most scientifically, in fact, the leastand those that seem least scientific may be the most. Moreover, Hayek went on to say that unless economists correct their mistake, economics will not only border on charlatanism, but the practitioners of economics will become tyrants over their fellow citizens and destroyers of civilization.

I think it might be safe to say that Hayek’s Nobel lecture is the most aggressively critical lecture of the scientific establishment given in the history of those lectures. Charlatanism, tyrants, destroyers – it is difficult to imagine a more severe condemnation. Other award winners would no doubt be critical – Buchanan, Coase, North, Ostrom for example. But Hayek’s criticism was harsh and represented, both in theory and in application, an indictment of the entire post-World War II enterprise. Hayek was not there to win friends and influence people, but with a ‘take no prisoners’ mentality, a radical departure from contemporary practice.

Properly understood, economics was a tool for social understanding; conceiving of discipline as an instrument of social control was a pathological perversion. He had to get that message across to his scientific colleagues to challenge their intellectual complacency and the special privileges granted to them by the government agencies to which they had become enslaved. Carl Menger, the founder of the Austrian School, described economics as it was practiced as a science of control, as ‘Prussian police science’ – that was not a compliment. Refining or being an efficiency expert for the state required economists to engage in tasks that required knowledge that their scientific enterprise could not possibly deliver, and so by demanding and pretending to provide it, science is destroyed and the intellectual heritage of the great world. tradition of political economy from Adam Smith onwards. Scientism kills science. The pretense of knowledge stems from scientism, not scientific research.

This year marks the 50th anniversary of Hayek receiving the Nobel Prize. Cato’s podcast had invited Bruce Caldwell and me to discuss this and some other topics. Caldwell wrote a wonderful article several years ago which details Hayek’s experience of winning the Nobel Prize, including the response to his lecture by the profession. Hayek’s Nobel Lecture remains the only essay to receive the “revise and resubmit” recommendation when submitted for publication in the winner’s “home journal” – in Hayek’s case this was the LSE journal Economicof which he had once served as editor. He chose not to revise it and instead published it in the Swedish Journal of Economics.

I hope you will have the opportunity to read this essay and the links before the announcement and reflect on the significance of the Nobel Prize for subsequent advances in scientific research programs and also to reflect on some of the important missed opportunities by the Nobel Committee that could have had significant consequences for the advancement of the Austrian School of Economics within the scientific establishment of economics.