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Steven writes:
>>The Keynesian Revolution was seemingly fought across a
hundred battle grounds yet was won from the very first moment
when controversy failed to appear over the question whether
aggregate demand had any role in macroeconomics and the
business cycle.<<
But in fact, the most famous of those who 'fought' Keynes and the
Keynesian Revolution -- Friedrich Hayek -- based his whole
argument on the fact that, "economic activity is not guided by such
totals [i.e. macroeconomic aggregates and averages] but always
by relations between different magnitudes". (F. A. Hayek, "Review
of Harrod's _Life of J. M. Keynes_". _J. of Modern History_, vol. 24,
no.2. June, 1952).
Indeed, Hayek was battling "Keynesian" economics in these terms
even before Keynes advanced his own version of deficiency of
aggregate demand thesis. And, of course, it is not for no reason
that Hayek introduced the intertemporal equilibrium construction
into economics in 1928 -- as a means for getting some picture of
the _relational_ valuation process across time, and as a correction
to the misleading view produced by aggregative thinking in
monetary / cycle economics.
It is worth noting, however, that period when the real fight over
Keynesian economics should have taken place -- and would have
taken place -- was at a time when most economists were at war,
and not thinking much about theoretical economics. It took a
couple of years for folks to recognize that Keynes' latest recasting
of his monetary/cycle economics would be one that people took up
as their own way of looking at things. It wasn't in 1936
immediately obvious the latest thing produced by Keynes was
going to be universally accepted. Nor indeed were folks even sure
in 1936 that Keynes himself would not eventually supersede his
own work once again, as he had done in the past with his work.
When Hayek was ready to challenge Keynes in the most
fundamental terms -- in 1940 -- most everyone wasn't paying
attention, they were instead at work for the government or the
military.
It was hard enough for most British economists to understand a
non-Marshallian picture of economic processes before the war,
when many focused time and attention on fundamental issues in
theoretical economics. During the war -- when folks were working
on practical problems for the government -- it is not surprising that
most had little time or interest in doing so. Thinking in aggregates
of demand came naturally to British economists schooled in the
economics of Marshall. It came less naturally to Austrian
economists schooled in the marginalist & subjectivist economics of
Wieser.
During the war years Hayek continued his assault on aggregative
economics -- but this time did so at the most fundamental level of
all, thru an investigation of the explanatory strategy of all social
sciences. In this work Hayek introduced Schumpeter's term
"methodological individualism" into English language discussions
(Hayek had done so earlier in his LSE classes). Hayek's work on
the explanatory problems & strategies of all social theory
dovetailed with his work on the division of knowledge and the
signaling role of _relative_ prices. The focus was on the individual
plan-reviser learning in a social context of relative price changes.
>From Hayek's Wieserian perspective, British trained economists
taken with Keynesian macroeconomics and collectivist central
planning failed to see the importance of the individual plan-reviser
adjusting his or her affairs in the context of relative price changes.
Most importantly, they failed to see the importance of relative price
relations within the structure of capital goods across time -- and
the significance of the individual plan-revisor learning and adapting
within this structure.
Looked at in this way, the 'fight' against Keynes took place as
much in Hayek's famous essays "Economics & Knowledge",
"Scientism and the Study of Society" and his "The Use of
Knowledge in Society" as much as it did in his explicit attack on
Keynes and Keynesian economics in his "The Pure Theory of
Capital" and his "Review of Sir William Beveridge's _Full
Employment in a Free Society_".
The most interesting question from the point of view of the history
of economic thought is this: why did this fundamental attack on
the explanatory strategy of Keynes and the Keynesians go
unrecognized for so long? Why does it still go unrecognized? (not
by all, but by so many)
Greg Ransom
MiraCosta College
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