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Buchanan’s “Notes On Hayek”

Here’s a hot-off-the press previously unpublished short paper, from February 1979, by my late colleague Jim Buchanan.  Entitled “Notes On Hayek,” this essay is short and excellent from start to finish.  I highlight below two slices (link added):

Hayek stood almost alone in opposition to the Keynesian “explanation” of the great depression. Quite apart from the details of analysis, the aggregate-demand explanation, macroeconomics, ruled the day. Hayek alone continued to insist on the microeconomics aspects of inflationary financing, on the discoordination in plans created by the failure of monetary systems to insure stability. His theory of the business cycle fell into disuse, and it remained in the dustbin of economic ideas until the 1970s. But the aggregate-demand simplisms no longer worked at all, no longer explained anything—and, lo and behold, what have we seen? Adusting off and revival of the basic Hayekian notions about discoordination, about inflation as a means through which investment plans get all fouled up. As of now, there is really no alternative theory worthy of much respect, and we can predict that more attention will be paid to the seminal Hayekian ideas during the next decades.

(HT Pete Boettke)

Regrettably, the prediction Jim made in the last part of his final sentence here has proven (so far, at least) to be wrong.  The allure and relative ease of theorizing with aggregates – not least because of the illusion created by such theorizing that macroeconomic problems are relatively easy to ‘solve’ by smart people who keep firm grips on fiscal- and monetary-policy levers – continue to ensure that such theorizing dominates the economics profession.

The best hope of reducing the prevalence of unsound economics and of replacing it with genuinely sound economics – an economics that will do its part to strengthen the sinews of a truly liberal, prosperous, peaceful, and open society – lies in the creation and growth of what Jim calls “islands of comparative strength.”  Jim wrote the words below in 1979, four years before his and his colleagues’ move from VPI to George Mason University made GMU the flagship of such “islands.”  Our hope – indeed, our determined intention – is to transform our islands into the mainland.  Here’s Jim’s closing:

We are now winning a few battles in the ongoing war of ideas, but we cannot lapse into complacency. The islands of comparative strength in modern American academia (Miami, VPI, UCLA, Chicago, Rochester, NYU, Washington)—these must be strengthened and new islands (Auburn, Colorado) must be created. The diverse approaches of the intersecting “schools” must be the bases for conciliation, not conflict. We must marry the property-rights, law-and-economics, public-choice, Austrian subjectivist approaches. And we must continue to be able to secure sufficient independent and external financial support to ward off threats from the academic enemies within our institutions.

Let us jointly resolve, those of us who labor in the academic vineyard and those of us who provide support, that the “Hayeks” of the late 20th and early 21st century will never again, be forced to endure the lean years that Professor Hayek suffered. We cannot, we must not, make it more costly for young scholars to devote themselves either to escapist nonsense or to romantic absurdity than to the search for and to, the espousal of elementary truth. The “Hayeks” of the world are scarce; but with appropriate incentives there are many who can, and will, make significant contributions to the free society that we all must seek.