“The Good Economist Hayek is the thinker who has mind-blowing insights into just why the competitive market system is such a marvelous societal device for coordinating our by now 7.2 billion-wide global division of labor. Few other economists imagined that Lenin’s centrally-planned economy behind the Iron Curtain was doomed to settle at a level of productivity 1/5 that of the capitalist industrial market economies outside. Hayek did so imagine. And Hayek had dazzling insights as to why. Explaining the thought of this Hayek requires not sociology or history of thought but rather appreciation, admiration, and respect for pure genius.The Bad Economist Hayek is the thinker who was certain that Keynes had to be wrong, and that the mass unemployment of the Great Depression had to have in some mysterious way been the fault of some excessively-profligate government entity (or perhaps of those people excessively clever with money–fractional-reserve bankers, and those who claim not the natural increase of flocks but rather the interest on barren gold). Why Hayek could not see with everybody else–including Milton Friedman–that the Great Depression proved that Say’s Law was false in theory, and that aggregate demand needed to be properly and delicately managed in order to make Say’s Law true in practice is largely a mystery. Nearly everyone else did: the Lionel Robbinses and the Arthur Burnses quickly marked their beliefs to market after the Great Depression and figured out how to translate what they thought into acceptable post-World War II Keynesian language. Hayek never did.
My hypothesis is that the explanation is theology: For Hayek, the market could never fail. For Hayek, the market could only be failed. And the only way it could be failed was if its apostles were not pure enough.”

— J. Bradford DeLong

Making Sense of Friedrich A. von Hayek: Focus/The Honest Broker for the Week of August 9, 2014 http://equitablegrowth.org/making-sense-friedrich-von-hayek-focusthe-honest-broker-week-august-9-2014/ (2014)

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J. Bradford DeLong 4

American economist 1960

Alan O. Ebenstein (1959) American political scientist, educator and author

Hayek's Journey: The Mind of Friedrich Hayek (2003)

“While it is possible to imagine Mises without Hayek, it is not possible to imagine Hayek without Mises.”

Alan O. Ebenstein (1959) American political scientist, educator and author

Hayek's Journey: The Mind of Friedrich Hayek (2003)

“In the years after 1936, whilst Hayek was working on The Pure Theory of Capital, most economists were convinced by Keynes, whose theory had an elegance and simplicity that Hayek’s did not. Keynes’ theory lacked Hayek’s theoretical rigor in that it was not based on equilibrium (on individual rationality), and there were places in the argument where Keynes relied on loose, informal arguments, preferring to put his trust in intuition rather than formal theory. Keynesians did not solve the problems with capital theory that Hayek had identified: they just bypassed or ignored them. According to Hayek’s methodological criteria, Keynes’ theory was decidedly inferior. Against this, Keynes’ theory provided opportunities for mathematical and statistical analysis that Hayek’s did not. Indeed, though Hayek paid some attention to data, he did so only minimally: he certainly made no attempt to test his theory against statistical data. The choice of Keynesian theory was, at least in part, a methodological one.”

Roger Backhouse (economist) (1951) British economist

"Hayek on money and the business cycle", 2006

“The proposition that markets drive economic efficiency is central to much of economics. Adam Smith illustrated that the “invisible hand” of the market drives efficient allocation of resources in a system of division of labor. Friedrich Hayek illustrated the central importance of the price system as an information processing mechanism more powerful than any centrally planned system could ever be. Kenneth Arrow and Gerard Debreu illustrated that complete and perfect markets deliver a Pareto-efficient equilibrium, in which no one person can be made better off without making someone else worse off. And the development of the efficient- market and rational- expectations hypotheses suggested that financial markets are in fact efficient, and that the conditions required for efficiency and for rational and stable equilibria apply even in contracts between the present and the future, which financial markets provide.”

Adair Turner, Baron Turner of Ecchinswell (1955) British businessman

Source: Economics after the crisis : objectives and means (2012), Ch. 2 : Financial Markets: Efficiency, Stability, and Income Distribution

“With the market so much more in control of the global economy now than fifty years ago, then if economists are right, the world should be a manifestly better place: it should be growing faster, with more stability, and income should go to those who deserve it.”

Steve Keen (1953) Australian economist

Source: Debunking Economics - The Naked Emperor Of The Social Sciences (2001), Chapter 1, No More Mister Nice Guy, p. 2

“The dilemma of a socialized system is that the information flow overwhelms a centralized system if it is open to new ideas and data, that closing the system and forcing the plan to work forecloses alternatives and risks unhedged mistakes, and that decentralizing without real markets poses the problems discussed by Hayek. These information problems permeate virtually all economic processes.”

Sidney G. Winter book An Evolutionary Theory of Economic Change

Richard Nelson and Sidney Winter, An Evolutionary Theory of Economic Change (1982), p. 365

“In my essay I refuted the Hayek-Robbins argument by showing how a market mechanism could be established in a socialist economy which would lead to the solution of the simultaneous equations by means of an empirical procedure of trial and error. […] Were I to rewrite my essay today my task would be much simpler. My answer to Hayek and Robbins would be: so what’s the trouble?
Let us put the simultaneous equations on an electronic computer and we shall obtain the solution in less than a second. The market process with its cumbersome tatonnements appears old-fashioned. Indeed, it may be considered as a computing device of the preelectronic age.”

Oskar R. Lange (1904–1965) Polish economist

"The computer and the market" (1967)

“1. The standard neoclassical model the formal articulation of Adam Smith's invisible hand, the contention that market economies will ensure economic efficiency provides little guidance for the choice of economic systems, since once information imperfections (and the fact that markets are incomplete) are brought into the analysis, as surely they must be, there is no presumption that markets are efficient.
2. The Lange-Lerner-Taylor theorem, asserting the equivalence of market and market socialist economies, is based on a misguided view of the market, of the central problems of resource allocation, and (not surprisingly, given the first two failures) of how the market addresses those basic problems.
3. The neoclassical paradigm, through its incorrect characterization of the market economies and the central problems of resource allocation, provides a false sense of belief in the ability of market socialism to solve those resource allocation problems. To put it another way, if the neoclassical paradigm had provided a good description of the resource allocation problem and the market mechanism, then market socialism might well have been a success. The very criticisms of market socialism are themselves, to a large extent, criticisms of the neoclassical paradigm.
4. The central economic issues go beyond the traditional three questions posed at the beginning of every introductory text: What is to be produced? How is it to be produced? And for whom is it to be produced? Among the broader set of questions are: How should these resource allocation decisions be made? Who should make these decisions? How can those who are responsible for making these decisions be induced to make the right decisions? How are they to know what and how much information to acquire before making the decisions? How can the separate decisions of the millions of actors decision makers in the economy be coordinated?
5. At the core of the success of market economies are competition, markets, and decentralization. It is possible to have these, and for the government to still play a large role in the economy; indeed it may be necessary for the government to play a large role if competition is to be preserved. There has recently been extensive confusion over to what to attribute the East Asian miracle, the amazingly rapid growth in countries of this region during the past decade or two. Countries like Korea did make use of markets; they were very export oriented. And because markets played such an important role, some observers concluded that their success was convincing evidence of the power of markets alone. Yet in almost every case, government played a major role in these economies. While Wade may have put it too strongly when he entitled his book on the Taiwan success Governing the Market, there is little doubt that government intervened in the economy through the market.
6. At the core of the failure of the socialist experiment is not just the lack of property rights. Equally important were the problems arising from lack of incentives and competition, not only in the sphere of economics but also in politics. Even more important perhaps were problems of information. Hayek was right, of course, in emphasizing that the information problems facing a central planner were overwhelming. I am not sure that Hayek fully appreciated the range of information problems. If they were limited to the kinds of information problems that are at the center of the Arrow-Debreu model consumers conveying their preferences to firms, and scarcity values being communicated both to firms and consumers then market socialism would have worked. Lange would have been correct that by using prices, the socialist economy could "solve" the information problem just as well as the market could. But problems of information are broader.”

Joseph E. Stiglitz book Whither Socialism?

Source: Whither Socialism? (1994), Ch. 1 : The Theory of Socialism and the Power of Economic Ideas

“It seems evident from his unpublished piece that his reading of the Mill-Taylor letters gave Hayek a bit of a shock. He knew, of course, from the Autobiography that Mill had an elevated opinion of Mrs. Taylor. The letters seem to have convinced Hayek that she dominated him. Hayek would doubtless have seen this as a weakness, and he might well have lost some respect for Mill as a result. It may also have provided a convenient explanation for Hayek for why a great mind like Mill might nonetheless “desert” the liberal camp. (Hayek’s hope to lead others to the same conclusion might have helped motivate him to write the book on the correspondence between Mill and Taylor.) Given what has sometimes been said about the dominating personality of Hayek’s second wife, one wonders whether Hayek would later in his life have felt even more commonalities with Mill.”

Bruce Caldwell (economist) (1952) economic historian

"Hayek and Mill", History of Political Economy (2008)

“Let's consider first Hayek's claim that prices in free market capitalism do not give people what they morally deserve. Hayek's deepest economic insight was that the basic function of free market prices is informational. Free market prices send signals to producers as to where their products are most in demand (and to consumers as to the opportunity costs of their options). They reflect the sum total of the inherently dispersed information about the supply and demand of millions of distinct individuals for each product. Free market prices give us our only access to this information, and then only in aggregate form. This is why centralized economic planning is doomed to failure: there is no way to collect individualized supply and demand information in a single mind or planning agency, to use as a basis for setting prices. Free markets alone can effectively respond to this information.
It's a short step from this core insight about prices to their failure to track any coherent notion of moral desert. Claims of desert are essentially backward-looking. They aim to reward people for virtuous conduct that they undertook in the past. Free market prices are essentially forward-looking. Current prices send signals to producers as to where the demand is now, not where the demand was when individual producers decided on their production plans. Capitalism is an inherently dynamic economic system. It responds rapidly to changes in tastes, to new sources of supply, to new substitutes for old products. This is one of capitalism's great virtues. But this responsiveness leads to volatile prices. Consequently, capitalism is constantly pulling the rug out from underneath even the most thoughtful, foresightful, and prudent production plans of individual agents. However virtuous they were, by whatever standard of virtue one can name, individuals cannot count on their virtue being rewarded in the free market. For the function of the market isn't to reward people for past good behavior. It's to direct them toward producing for current demand, regardless of what they did in the past.
This isn't to say that virtue makes no difference to what returns one may expect for one's productive contributions. The exercise of prudence and foresight in laying out one's production and investment plans, and diligence in carrying them out, generally improves one's odds. But sheer dumb luck is also, ineradicably, a prominent factor determining free market returns. And nobody deserves what comes to them by sheer luck.”

Elizabeth S. Anderson (1959) professor of philosophy and womens' studies

How Not to Complain About Taxes (III): "I deserve my pretax income" http://left2right.typepad.com/main/2005/01/how_not_to_comp_1.html (January 26, 2005)

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J. Bradford DeLong 4

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