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James Ahiakpor writes: 
 
>>Hayek also appears to have been quite unhelpful where the  
Say's Law debate is concerned.<<   
 
 
Let's grant first that "Say's Law" is an essentially contested notion.  
 If one must come out on one side of the debate to be helpful, then  
any position can be attacked as 'unhelpful' from the point of view of  
an opposing position.  Of course, this verbal play merely begs the  
question.   
 
The questions "What does Hayek contribute to the debate over  
Say's Law?" is an interesting question in its own right.  Hayek's  
contribution is to think of Say's Law as defining feature of particular  
kind of logical construction -- i.e. the defining feature of a general  
equilibrium construct.   
 
The relevant discussion can be found on pages 31-32 of _The Pure  
Theory of Capital_:   
 
".. where analysis aims directly at a causal explanation of the  
economic process as it proceeds in time, the use of the concept of  
a money-less exchange economy is misplaced. [Sidebar: "Real  
term analysis [i.e. logical analysis in terms of ratios between  
quantities] is legitimate only within equilibrium construction"] It is  
self-contradictory to discuss a process which admittedly could not  
take place without money, and at the same time to assume that  
money is absent or has no effect.  In the case of our ideal position  
of equilibrium, which we construct as a guide to interpretation, and  
in which all parts are assumed to be perfectly matched, the case  
case is different.  Here analysis in real terms is not only in place,  
but is almost essential.  Since at each point money is in the strict  
sense only an intermediary between definite quantities of certain  
goods, all the essential relations in this system are relations  
between goods (rates of substitution between certain quantities of  
goods determined by the total quantities of these goods).  Or, in  
other words, it will be true of this system -- what has sometimes  
been asserted to be true in the real world -- that the total supply of  
goods and the total demand for goods must be identical.  (This so- 
called 'Law of Markets' of J. B. Say is indeed one of the first  
formulations of the modern concept of equilibrium)."   
 
 
James Ahiakpor continues: 
 
>>His [Hayek's] touting of the Austrian Capital theory, following the  
work of Bohm-Bawerk, helped to suppress the classical "capital"  
supply and demand theory of interest in the debate, just as Keynes  
had done.<<    
 
Hayek found reason to reject aspects of Bohm-Bawerk's theory of  
capital and interest as early as 1927.  In the rush to put together  
his 1931 LSE lectures, Hayek used what he considered to be the  
flawed aggregated version of Bohm-Bawerk's account of the logic of  
capital valuation / interest (the 'average-period' of production  
construct -- known today, but not to Hayek, as the "Austrian"  
theory of capital).  Hayek left this aspect of his own work as a still  
flawed "black box" which had to be replaced.  In 1936 Hayek  
explicitly condemned and rejected the so-called "Austrian" theory  
of capital (i.e. Bohm-Bawerk's aggregated version of the logic of  
capital valuation).  Hayek points out also that neither Menger,  
Wieser or even Schumpeter accepted Bohm-Bawerk's work on  
capital.   
 
In Hayek's view his own effort to replace Bohm-Bawerk's "average  
period" construct using real term analysis as a means of  
understanding interest and/or capital goods valuation thru time  
represented a move to restore elements of analysis which can be  
found earlier in Ricardo, Mill, Rae and others. Hayek writes:  
"Economists have often felt the need for some such analysis in real  
terms, and in fact a considerable part of classical economics,  
explicitly or implicitly, makes use of this idea" (Hayek, 1941, p.  
30); and "All that is claimed is that in the [current] 'Anglo-American'  
treatment of [of capital and interest theory] the aspects stressed  
[in common] by [Menger, Bohm-Bawerk, Wieser] have in recent  
times(1) been neglected.  fn 1:  It may perhaps be mentioned here  
that the classical English economists since Ricardo, and  
particularly J. S. Mill (the latter probably partly under the influence  
of Rae), were in this sense more 'Austrian' than their successors."  
[Hayek, 1941, pp. 46-47]   
 
 
James Ahiakpor continues: 
 
>>Without the link between savings, interest rates, and investment  
spending entailed in Say's Law (classical economics), Keynes  
appeared to his audience to have been correct in claiming that the  
economic process, as described by the classics, was  
incomplete.<<   
 
Hayek's purpose just is to show this link, in real terms, using  
marginalist principles of valuation, and without the old muddles and  
confusions -- and without Keynes' new ones.   
 
 
James Ahiakpor continues: 
 
>>One had to import a central bank's money supply role  in order  
to complete the picture, one of the fundamental claims Hayek also  
opposed as being unhelpful to an efficient economic management.   
Any wonder that Hayek lost his following at LSE?<<   
 
 
I'm lost here.  It seems as if theoretical issues are being muddled  
with policy recommendations, or perhaps that Hayek's work of the  
1970's is being taken to replace his work of the 1930s and 1940s.   
Clarification needed.   
 
James Ahiakpor continues: 
 
>>Hayek also gave the impression that he had little use for aggregate  
analysis, although he also discussed business cycles -- an aggregate 
analysis, even if it traces sectoral adjustments.  Indeed,  
Say's Law is about aggregate analysis.<< 
 
The language of "aggregation" used to critique particular  
explanatory strategies can be ambiguous.  The issue Hayek raises  
involves consistency with a universe made up of individual planners,  
valuers and adaptive learners.  In Hayek's view, some sorts of  
analysis are neither logically or causally consistent with such a  
universe.  This way of saying it puts a point on the fact that it is the  
level of aggregation, and the causal and logical role of aggregation  
which is at issue.  Of course, Hayek himself uses aggregates of  
different sorts in his analysis -- at a particular level and of a  
particular kind.  Hayek sees these as compatible with a world  
made up of individual planners, valuers and adaptive learners. The  
problem with Keynes as Hayek saw it is that Keynes' work was  
logically and causally _not_ compatible with such a world.   
Hayek's point is that in Keynes these aggregates interact directly,  
and in a way incompatible logically and causally with an underlying  
world of individual valuers, adaptive learners, and planners.  It is  
aggregate analysis in this sense that Hayek rejects.   
 
 
James Ahiakpor continues: 
 
>>  Thus those who followed Hayek in dismissing the usefulness of  
aggregate analysis and believed that Marshallian supply and  
demand analysis (microeconomics) legitimized the modern  
aggregate demand and supply framework in macroeconomics had  
little to contribute towards salvaging the logic of Say's Law as  
fundamental to sound macroeconomic analysis.<<   
 
Hayek himself uses aggregate analysis, at his own level and in a  
way he saw as compatible with individual adaptive learners,  
planners, and valuers.  On the other hand, Hayek considered  
Marshallian supply and demand analysis as a throwback to  
classical value theory, with value determination looking backward  
from the past at aggregates without significance to individual  
valuers & planners, -- unlike marginalist microeconomics which  
looks prospectively into the future just as a planning & valuing  
individual does.  That is, for Hayek built within Marshallian supply  
and demand analysis are objective elements incompatible with  
subjective marginalist economics -- similar in their logical status to  
the problematic aggregates in 'bad' macroeconomics.   
 
 
James Ahiakpor continues: 
 
>>Unfortunately, there are still modern Austrian economists who  
hold this unhelpful view of macroeconomics.  I have heard some of  
them declare that there is no such useful thing called  
macroeconomics!<<   
 
The problems here are merely semantic ones.  Hayek uses  
aggregates -- yet if aggregates are only understood as they are  
used in Keynesian economics, then Hayek is opposed to  
aggregate analysis (e.g. when "aggregate analysis" = Keynesian  
economics & a Keynesian approach to the explanatory strategy of  
economics).  Similarly, much of Hayek's work is in trade cycle  
theory, monetary theory, etc. -- which everyone calls  
"macroeconomics".  So, since Hayek clearly thought that there  
was such a thing as trade cycle theory, monetary theory, etc. he  
clearly thought that there was useful macroeconomics.  Yet when  
"macroeconomics" = Keynesian economics & a Keynesian  
approach to making sound sense of how the real world works,  
Hayek would say that there is no such thing -- there is no sound  
way to do this if one tries to do it using aggregates the way  
Keynes did.  Doing so is logically and causally incompatible with a  
world of individual planners, valuers and adaptive learners -- and  
there is no such thing as a world in which it is.   
 
Greg Ransom 
 
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