Quotation of the Day…

by Don Boudreaux on November 15, 2011

in Hayek, Myths and Fallacies, State of Macro

… is from pages 218-219 of Hayek’s 1978 collection, New Studies in Philosophy, Politics, Economics and the History of Ideas; in particular, it is from Part 4, Section I of his essay “The Campaign Against Keynesian Inflation”; original emphasis:

It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathised.  He had attempted by a succession of new theories to justify the same, superficially persuasive, intuitive belief that had been held by many practical men before, but that will not withstand rigorous analysis of the price mechanism: just as there cannot be a uniform price for all kinds of labour, an equality of demand and supply of labour in general cannot be secured by managing aggregate demand.

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{ 62 comments }

david nh November 15, 2011 at 10:35 am

Fantastic quote, Don. I can just imagine blood is boiling throughout the land.

John Muir November 15, 2011 at 10:36 am

Nice quote from F.A. Hayek!

Nikolai Luzhin, Eastern Promises November 15, 2011 at 10:41 am

was this quote paid for by the Kochs?

or, was it written in anticipation of a check from the Kochs?

of course, Keynes never said why Hayek attributes to him

Methinks1776 November 15, 2011 at 10:50 am

It must be tough for someone who doesn’t write anything or think anything without ore-approval from his Soros handlers to imagine that some people actually think for themselves.

idiot.

Invisible Backhand November 15, 2011 at 11:25 am

What’s “ore-approval”? Is that like an assay?

GAAPrulesIFRSdrools November 15, 2011 at 11:39 am

If you were assayed, the results would be to drop the last four letters off that word.

By the way, nice to see you are resting the Muirbot personality.

Methinks1776 November 15, 2011 at 12:24 pm

That would be the typo that occasionally happens when one doesn’t simply cut and paste other people’s work because one can’t think for himself.

vikingvista November 15, 2011 at 12:29 pm

“one can’t think for himself.”

Is “one” the correct pronoun to use when referring to someone with multiple personality disorder?

Invisible Backhand November 15, 2011 at 3:47 pm

Look at the top of the page where it says “methinks”

http://i.imgur.com/4ZzyY.gif

Ken November 15, 2011 at 4:59 pm

Hunting over bait is usually considered unsporting…. ;)

Craig November 15, 2011 at 7:06 pm

“of course, Keynes never said why Hayek attributes to him”

Ah, yes. The ultimate defense of Keynes, whose “General Theory” was so dense, so opaque, and so contradictory that one can read what he wrote and still quite easily deny it.

Invisible Backhand November 15, 2011 at 10:49 am

“He was the one really great man I ever knew, and for whom I had unbounded admiration. The world will be a very much poorer place without him.”

–Hayek

Invisible Backhand November 15, 2011 at 11:16 am

The world will be a very much poorer place without him.

Yep, and as Keynesian polices are reimplemented, the world is getting dramatically poorer.

Invisible Backhand November 15, 2011 at 11:28 am

nyuck nyuck nyuck. It also seems Hayek doesn’t agree with Hayek either.

“utopian libertarianism nearly always gives way to the needs and desires of the business class” — Thomas Harvey

John Muir November 15, 2011 at 11:39 am

Except there is no libertarian utopia. Utopia is a myth that you socialists dreamed up.

Daniel Kuehn November 15, 2011 at 12:21 pm

There is no libertarian utopia. There are certainly utopian libertarians.

Methinks1776 November 15, 2011 at 12:23 pm

Well, if you say so. Like who?

Jon Murphy November 15, 2011 at 12:24 pm

Me, for one.

Methinks1776 November 15, 2011 at 12:30 pm

You don’t strike me as one, Jon. How do you define a Utopian Libertarian?

vikingvista November 15, 2011 at 12:31 pm

“Me, for one.”

Why would you deliberately believe in the impossible? Isn’t reality interesting enough for you?

John Muir November 15, 2011 at 12:44 pm

Daniel, please list some prominent utopian libertarians, other than Jon of course.

Jon Murphy November 15, 2011 at 2:03 pm

I guess what I mean by that I am an Utopian libertarian is that I believe, under a form of government that Libertarianism would prescribe, the most Good would be achieved (net benefits, if you will).

Methinks1776 November 15, 2011 at 2:12 pm

huh. That doesn’t sound Utopian, Jon. To my understanding, Utopia require ideal humans and I don’t think that’s consistent with libertarians’ understanding of humanity. I’ve heard of this lot”

http://pidssa.ca/?page_id=708

But, I don’t consider them libertarian.

Jon Murphy November 15, 2011 at 2:17 pm

Ah, they’re one of them socialist libertarians. “We want freedom and all that, but we also want free shit.”

John Muir November 15, 2011 at 2:22 pm

Ah, they’re one of them socialist libertarians. “We want freedom and all that, but we also want free shit.”

Jon, they are not libertarian at all. Like most socialists, they lie and steal anything that sounds good. That’s why most socialists today are called liberal when that term was originally used to define the classic liberals who opposed big government.

Jon Murphy November 15, 2011 at 2:25 pm

Right, I was being kinda sarcastic. They’re Libertarian about as much as FDR

Daniel Kuehn November 15, 2011 at 2:50 pm

Any libertarian, for example, who holds that the cause of the business cycle or of monopoly is attributable to government. The implication – it seems to me – is that without that government distortion we would have an ideal enough circumstance that I, for one, would call them a “utopian”. I don’t think we need to invoke nirvana to call people that.

I was just talking to Jonathan Catalan – a frequent author at the Mises Institute – and he made precisely this assertion. It’s probably fair to call him a libertarian utopian.

If take a strong definition of “utopian” to require a nirvana on Earth, then you’re probably right – there probably are none.

But if we take a more practical definition of “utopian” they are as plentiful among libertarians as they are among any other ideology.

kyle8 November 15, 2011 at 3:01 pm

Daniel, unlike the pure Austrians I do not believe the business cycle is solely due to government or central bank meddling. There was a pronounced business cycle back when there was only gold coins and very little script.

However, I do think that government actions (and loose money policies of a central bank) are what causes a cyclic upswing to become a bubble.

Policies which promote debt are problematic, and the overreaction of the central banks using rapid retraction of the money supply is what usually triggers the recession.

So, no, not every bad thing comes from government, but government rarely makes things better, and often makes them a lot worse.

Jon Murphy November 15, 2011 at 3:14 pm

Austrians would not deny a business cycle theory. Everything has ebbs and flows. Business cycles happened long before governments and will continue long after governments (I don’t mean this in a literal sense. I’m being metaphysical). The traditional Austrian argument is that government intervention either a) causes a business cycle event where there would not have been one normally or b) makes business cycle fluctuations worse.

vikingvista November 15, 2011 at 3:19 pm

“Any libertarian, for example, who holds that the cause of the business cycle or of monopoly is attributable to government.”

Anyone who believes the government can’t be, or hasn’t been, a cause of cycles is the utopian.

With monopoly defined as an organization that legally violently suppresses competition, it *is* only the government and the firms it grants privileges to. That’s not to say there can’t criminal monopolies that somehow manage to evade the state and violently suppress competition, or that a firm can’t for a time be without competition even without using violence.

The point is usually made to emphasize to people who don’t understand economics, that the free market itself is not a source of any monopoly danger, whereas the state is always both a monopoly itself, and the source of monopolies–and of the coercive type of monopolies.

“The implication – it seems to me – is that without that government distortion we would have an ideal enough circumstance that I, for one, would call them a “utopian”.”

I don’t know what Catalan wrote. But it is an odd position coming from Mises,org, since it contradicts both Rothbard and Mises. Perhaps you mistook an assertion of improvement for “ideal”. There is enough theory to support the notion that a large state is the dominant source of economic instability, that you can’t legitimately refer to anyone holding that position as “utopian”.

John Muir November 15, 2011 at 3:40 pm

Daniel, Merriam Webster defines UTOPIA as:

1: an imaginary and indefinitely remote place
2: a place of ideal perfection especially in laws, government, and social conditions
3: an impractical scheme for social improvement

Libertarians recognize that life is imperfect, and thus, do not want imperfect, fallible people to have too much power through a centralized government. They also do not believe in “impractical schemes for social improvement.”

Jon Murphy November 15, 2011 at 3:44 pm

So, am I a Utopian or not?

vikingvista November 15, 2011 at 3:49 pm

“So, am I a Utopian or not?”

For all intents and purposes, “utopian” is a term of derision. Those receiving the accusation seldom think that they are, and those hurling it tend to be more utopian than they recognize.

John Muir November 15, 2011 at 3:52 pm

Jon, you are not a utopian. The business cycle does exist. Libertarians understand this. Their objection is that easy monetary policy may spark a boom and bust cycle that would not otherwise have occurred or, more commonly, extends and exacerbates the normal business cycle so that it is a boom and bust cycle.

Jon Murphy November 15, 2011 at 3:58 pm

Damn, and here I thought I was an Utopian because of all my hopes and dreams and knowing they’d never come true.

Daniel Kuehn November 15, 2011 at 4:09 pm

John Muir -
Wow, with that definition I’d have to expand the number of libertarian utopians to probably all of them. There are “libertarians on the margin”. I’m often a “libertarian on the margin” myself, and they probably wouldn’t be utopian. But most others would if having an “impractical scheme for social improvement” is all it takes.

Expectation of a nirvana was too narrow a definition, I had thought. This definition is probably too broad. But if it’s the one you insist on, then I would say that most libertarians count as utopians under that definition.

vikingvista November 15, 2011 at 4:20 pm

DK,

What near universal libertarian impractical scheme are you referring to?

vikingvista November 15, 2011 at 4:32 pm

“Damn, and here I thought I was an Utopian because of all my hopes and dreams and knowing they’d never come true.”

It also has the meaning of an unreachable yet desirable ideal to forever to strive for. But even then, it is properly a term of derision, akin to being labelled a “mystic”. One should only strive in reality for what reality can provide.

John Muir November 15, 2011 at 4:40 pm

Daniel, LOL! It is not my definition. It is Merriam Webster’s definition, and it applies to socialists and others who believe in a perfect society. And, that is definitely not libertarianism.

Like many others whom I have discussed libertarianism with on this blog, you don’t really understand libertarianism. Most seem to believe that libertarians don’t believe in government and that is simply not true. Try reading David Boaz’s book, Libertarianism: A Primer.

Methinks1776 November 15, 2011 at 4:43 pm

DK, I think you’re really stretching the meaning of “Utopian”. I don’t think that the sole cause of all bad outcomes is government. Life is harsh and random. Theoretically, government can do some good. In practice, it has done a lot more harm. Past experience leads me to assign a high probability to harm and that makes more government a bad trade-off.

Allowing many people to test different ideas to find the best trade-offs is as good as its going to get. Jonathan Catalan essentially said that it is optimal to have no government distortion. Optimization cannot be mistaken for Utopia.

Jon Murphy November 15, 2011 at 4:43 pm

This thread has gone on a lot longer than necessary.

Randy November 15, 2011 at 4:49 pm

Now that you all mention it, there is a sort of semi-utopian streak in libertarianism that does keep me from completely self identifying as one (for example, the idea that we’d “all” be better off in a truly free market). I just want the politicians to leave me the hell alone so long as I’m not hurting anyone. Whether or not the world is a better place if they do that is not any great concern. I’m sure that nature is ultimately just – but justice doesn’t necessarily mean that everyone is better off.

Methinks1776 November 15, 2011 at 4:55 pm

Well, Randy, if you’re hurting me, it’s not the politicians I want stepping in.

We would all be much better off if we didn’t have to work and every need and want were satisfied for us. So, sure, the freeloaders might be worse off without politicians who promise them goodies stolen from others.

But, in my experience, most human beings aren’t natural parasites. They generally have to be conditioned for many years. I also don’t care if parasites can no longer find a host to suck off.

Daniel Kuehn November 15, 2011 at 11:52 pm

I don’t know what you’re so resistant to, Methinks. I can’t think of any ideological/philosophical perspectives that don’t have their share of utopians. I’m hardly going to give libertarians a pass. Libertarians have a relatively more radical, relatively less tested vision for society and they relatively more committed to it. You don’t think that’s going to lead to some utopianism?

Josh S November 16, 2011 at 8:09 am

Murray Rothbard was a utopian, at least in his political noodlings.

GAAPrulesIFRSdrools November 15, 2011 at 11:41 am

utopian statism nearly always gives way to the needs and desires of the criminal class — GAAPrulesIFRSdrools

Methinks1776 November 15, 2011 at 11:46 am

What’s with the “nearly”?

Randy November 15, 2011 at 11:43 am

And why not? We’re paying for it all.

GAAPrulesIFRSdrools November 15, 2011 at 1:54 pm

What’s with the “nearly”?

It’s art. To truly show the depth of the intellectual vaccuity of Invincible Ignorance, one must not only refute his statement, but use his method-cutting and pasting without thought.

Otherwise, you are right-”nearly” is a superfluous, if not untrue modifer.

Jon Murphy November 15, 2011 at 12:09 pm

Wait…so Hayek paying respects to a friend and intellectual rival means that Hayek was wrong?

vikingvista November 15, 2011 at 12:13 pm

That’s what qualifies or logic in his mind. Now you know why he believes most of what he believes.

GAAPrulesIFRSdrools November 15, 2011 at 1:59 pm

Of course. There is no civility or courtesy in leftist circles-one only need see the rampant criminality or absent hygiene amongst the “occupiers”.

The left doesn’t have rivals to be engaged, it has enemies to be destroyed-preferably by a crude and tortuous method such as vivisection, using dull, rusted and jagged implements.

SmoledMan November 15, 2011 at 3:31 pm

You can thank the French Revolution for that.

Greg G November 16, 2011 at 8:09 am

Jon

Of course he was not wrong for paying his respects. But the fact that he did so in such extravagant terms terms should alert you to the fact that Hayek himself had a much higher opinion of Keynes than Cafe Hayek does.

Methinks1776 November 16, 2011 at 8:26 am

And speaking of low resolution….I don’t know who “Cafe Hayek” is, but Don and Russ have repeatedly said they don’t think much of Keynes’s “economics”. Neither did Hayek. Hayek thought Keynes wasn’t much of an economist. However, Keynes and Hayek were friends and he seems to have valued Keynes as a friend and as a person. But, not as an economist. Don and Russ were not Keynes’s friends, so they only ever address his economics. On the issue of Keynesian economics, Don and Russ agree with Hayek. Capiche?

If you want loving tributes to the glory of Lord Keynes, why not find a blog that satisfies that emotional need?

Greg G November 16, 2011 at 9:11 am

I am satisfied here. It is interesting and there is plenty of entertainment. You are the one that seems dissatisfied and always pissed off.

Ubiquitous November 16, 2011 at 6:09 pm

You are the one that seems dissatisfied and always pissed off.

Not true. I’m dissatisfied and always pissed off, too.

You got a f#$%%^&ing problem with that?

vikingvista November 15, 2011 at 12:11 pm

“just as there cannot be a uniform price for all kinds of labour, an equality of demand and supply of labour in general cannot be secured by managing aggregate demand.”

Does that mean you can’t just toss together the demand schedule for washroom attendants with that of brain surgeons, and simply manage the resulting single aggregate demand schedule to control the employment of both?

Does that also mean that we can’t control the height of NBA players by manipulating the average height of the world population?

Does that mean that:

y = x1 + x2 + … + x1000000000000000

has 1000000000000000 degrees of freedom?

Sam November 15, 2011 at 2:37 pm

I wonder if economic aggregates are just very low resolution information. Think of the difference between a new 50″ high def TV and an old 10″ black and white. On one hand you can make out faces of the cheering fans, and on the other, you can’t even read the numbers on the players’ jerseys.

You can take any high resolution image and reduce it to a lower resolution. You can even reduce an image to just a single “aggregate” pixel. That pixel might tell you something very crude about the original image, but most of the important information would be lost.

vikingvista November 15, 2011 at 2:53 pm

“I wonder if economic aggregates are just very low resolution information.”

No. They are very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very very low resolution.

And considering the magnitude of economic information, that’s being generous on a _New Testament_ scale.

Josh S November 16, 2011 at 8:13 am

Yes, it is extremely low-res information. For any function, each statistical moment gives you more information. The first two moments are what most people who do any science at all in college know–the mean and the variance. However, to get complete information, you need all the moments, and there are infinitely many of them.

The claim that aggregates are simple functions of other aggregates is essentially the claim that the first moment of X is simply a function of the first moments of other functions, which is almost never true in the real world.

vikingvista November 16, 2011 at 1:31 pm

It’s even worse than that. Treating the aggregate as a moment, say mean, of a distribution implies the aggregated quantities are instances of the same random variable with a single (or very similar) univariate CDF. But clearly, washroom attendants have a quite different CDF than neurosurgeons, as does popcorn compared to oil tankers. And there is no end to the nearly completely different quantities we can identify in any macroeconomic aggregate. Quantities so different, that it is preposterous to model them as instances of the same random variable. Some can be, but countless ones cannot.

So, unable to make that simplification, you must deal with the more general case of an n-variate distribution, with n perhaps in the trillions. You are then collapsing via an n-to-1 transformation that multivariate CDF into a univariate CDF for the aggregate. The information loss is staggering.

Or put another way, the aggregated quantities contain a staggering amount of uncorrelated data amounting to a staggering amount of statistical information. Aggregation almost completely wipes it out.

The statistical assumptions empirical macroeconomists must make for their inferences are nowhere close to reality. The complexity is such that, they probably cannot even be reasonably approximately determined. But they crank away at the numbers anyway, spitting out P-values. This, of course, is scientism.

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