The Economics of Friedrich Hayek

277 Pages·1993·14.431 MB·English

by  G. R. Steele

THE ECONOMICS OF FRIEDRICH HAYEK
Also by G. R. Steele
MONETARISM AND THE DEMISE OF KEYNESIAN
ECONOMICS
The Economics of
Friedrich Hayek
G. R. Steele
Lecturer in Economics
Lancaster University
M50th YEAR
St. Martin's Press
©G.R. Steele 1993
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First published in Great Britain 1993 by
THE MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 2XS
and London
Companies and representatives
throughout the world
A catalogue record for this book is available
from the British Library.
ISBN 0-333-57398-6
Printed in Great Britain by
Ipswich Book Co Ltd
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First published in the United States of America 1993 by
Scholarly and Reference Division,
ST. MARTIN'S PRESS, INC.,
175 Fifth Avenue,
New York, N.Y. 10010
ISBN0-312-10071-X
Library of Congress Cataloging-in-Publication Data
Steele, G. R.
The economics of Friedrich Hayek / G. R. Steele.
p. cm.
Includes bibliographical references (p. ) and index.
ISBN0-312-10071-X
1. Hayek, Friedrich A. (Friedrich August), 1899-1992.
2. Economics—History—20th century. 3. Austrian school of
economists—History. I. Title.
HB101.H39S73 1993
330'.092—dc20 93-7914
CIP
In memory of Jan
my wife and friend

Contents
Preface xi
1 Introduction 1
Friedrich Hayek 1
Background 3
Hayek's Intellectual Contribution 5
The Austrian School 9
Pseudo-scientific Exactitude and Measurement 13
Hayek's Economics 15
Neutral Money 18
Capital 19
The Business Cycle 20
The International Money Order 22
Hayek and Modern Liberalism 24
The Revival of Austrian Economics 25
2 Liberty and Law 28
Knowledge and Rationality 28
Freedom and the Spontaneous Order 30
The Meaning of Liberty 32
Reason, Liberty and Justice 35
Reason and 'Constructivist' Rationalism 38
The Organisation 39
Common Law and Legislation 41
Democracy and Constitution 47
3 Liberty and the Market 52
The Primacy of Property 52
Neighbourhood Effects 54
The Industrialised Workforce 56
Art, Literature and Civilised Values 58
vii
viii Contents
Capitalism and the Social Order 59
The Public Sector and the Burden of Taxation 61
Social Welfare Benefits 64
Social Justice and Central Planning 69
Liberty, Utilitarianism and the Free Market 71
4 Economic and Social Science 75
The Interpretation of Information 75
The Social Sciences and the Natural Sciences 76
Objective and Subjective Knowledge 77
Scientism 82
Historicism 84
Economic Facts and Economic Theory 85
The Economic Problem and Economic Analysis 86
Equilibrium 89
The Division of Knowledge 93
Levels of Economic Planning 95
The Meaning of Competition 98
5 The Socialist Calculation Debate 101
Classical Economics 102
Marx's Critique of Capitalism 103
Capitalism and Economic Calculation 106
Mises's Counter to Marx 109
Socialism and Economic Calculation 112
Institutions 118
Freedom and the Economic System 121
6 Neutral Money and Monetary Policy 129
Neutral Money 129
The Concept of Neutral Money 130
The Objectives of Monetary Policy 133
The Natural Rate of Interest 136
Forced and Voluntary Saving 137
Keynes: The Added Dimension 138
Contents ix
7 Capital 142
Capital as a Factor of Production 142
Austrian Capital Theory 145
The Yield from Capital Investment 146
The Diversity of Capital 147
Investment, the Division of Labour and Technical
Progress 148
The Dimensions of Capital 149
The Capital Theory Controversy 154
Investment, Output and the Value of Capital 156
A Capital Investment Simulation 157
Capital and Macroeconomics 160
8 Business Cycles 164
The Nature of Business Cycles 164
Capitalistic Methods of Production 166
The Interest Rate Effect 167
Bank Credit Money, and the Cumulative
Process of Investment 170
Asymmetry in the Switch from Short/Long
to Long/Short Processes 171
Policy in a Business Depression 172
The Relative Prices Effect 173
The Relative Prices Effect Illustrated 175
New Saving and New Credit 176
The Inevitable Slump 178
Conclusion 179
Addenda 181
9 International or National Money? 195
A Brief History of Money 196
Monetary Nationalism 197
International Monetary Transactions 199
Monetary Reform 210