Hayek 10: Hayek and Keynes

July 9, 2008

(Continuation of the exchange)

Noy,

This is a good post of yours and there is more clarity of the logical basis of what you have been advocating these days. I have been reading Hayek's New Studies (1978) with chapters or lectures on philosophy, politics, economics and history of ideas. I chose the book because such combination of topics will show you how they are stringed together. Indeed they are a great man's writings. A very short chapter was devoted to his recollection of Keynes as his friend and professional colleague. He has less respect of the economics of Keynes, and reading through part of his philosophy on how knowledge is produced and his critique on Keynes’ theory of demand-side macroeconomics, I can very much appreciate the man.

Caution is always a good trait in embracing what appears to be a solution to economic problems such as those in the Philippines. Hayek has demonstrated this 'caution' by deciphering the basic philosophy of how knowledge is produced and generalized into a theory and then into an application. I’d rather have this discipline because for me, the problem in the Philippines is not just economics, but it is rooted as well in politics and culture. The equilibrium in our markets as defined in supply and demand are very much defined by our attitudes - trust, practice of freedom, attitude towards authority, among others. Hayek said that social scientists, including economists, easily assume knowledge and expertise when we actually knew so little on how order and chaos are produced and reproduced in economics and social situations. The statistics or econometrics discipline cannot fully capture how a social order came to such and how the equilibrium of a market was attained.

Bill Easterly said, what can World Bank and IMF economists offer to developing countries in terms of development is, Nothing. But he never said that we should not study what these economists are saying. This has been Hayek's point in discovering that it is impossible to master the knowledge of social sciences, but still we learn what parameters we can approximately measure while leaving other parameters to evolve into their own equilibrium.

-- Joey

Hi Joey,

Hayek wrote about the virtue of spontaneity and its contribution to social progress; hence, he never believed that some bright men and women should be authorized to control and regulate people so that these “bright” guys can plan and dictate public policies that they think are “good” for the people whose lives they have already controlled and regulated. And Keynes’ economics is along the lines of command and control, like government hiking taxes, then government will distribute the confiscated money to certain sectors favored by the politicians and high State officials, or to sectors that are more vocal and more organized in their lobbying.

-- Nonoy