Page 48 - Šolsko polje, XXIX, 2018, no. 1-2: The Language of Neoliberal Education, ed. Mitja Sardoč
P. 48
šolsko polje, letnik xxix, številka 1–2
confirmed equilibrium theory “since the empirical observation that prices
do tend to correspond to costs was the beginning of our science” (1949a: p.
51), his own confidence in the idea was waning. The following statement is
not exactly brimming with confidence:
I am afraid that I am now getting to a stage where it becomes exceedingly
difficult to say what exactly are the assumptions on the basis of which we
assert that there will be a tendency toward equilibrium and to claim that
our analysis has an application to the real world. I cannot pretend that I
have as yet got much further on this point. Consequently all I can do is
to ask a number of questions to which we will have to find an answer if
we want to be clear about the significance of our argument. (1949a: p. 48)
In the same article, Hayek observes that both Smith and Ricardo
had noted that the stability of community structures were essential pre-
conditions for any equilibrium to operate (1949a: 48, note 13).12 By 1945
in ‘The Use of Knowledge in Society’, he recognizes that the concept of
equilibrium was irrelevant for practical purposes, had “mislead […] lead-
ing thinkers” [in economics], and he represents it as “no more than a use-
ful preliminary to the study of the main problem” (1949b: p. 91). In ‘The
Meaning of Competition’ of 1946, also, he notes how “the modern theo-
ry of competitive equilibrium assumes the situation to exist” (1949c: 94).
In his doubts, expressed across all of these papers, Hayek’s was also to ob-
serve that even if it can be recast as an empirical proposition, subject to
verification, equilibrium theory then becomes only a possibility rath-
er than an actuality. More to the point, Hayek was by no means certain
what sorts of empirical tests could validate it, and he very much doubted
“whether [any] such investigations would tell us anything new” (1949a: p.
55). He also notes how simply to assume equilibrium overlooks the nega-
tive externalities and global disparities associated with markets, including
increasing inequalities of wealth and resources, and increasingly monopo-
listic behavior of large companies and multinationals. His confidence did
not improve in later years.
It was related to these doubts that many economists from Hayek’s
own Department – Hicks, Kaldor, Lerner. Scitovsky and Shackle
12 He quotes Smith (The Wealth of Nations, Bk. I, 116): “In order, however, that this equality [of
wages] may take place in the whole of their advantages or disadvantages, three things are
required even when there is perfect freedom. First, the employment must be well known
and long established in the neighbourhood…”; and David Ricardo, (Letters to Malthus,
October 22nd, 1811: p. 18): “It would be no answer to me to say that men were ignorant of
the best and cheapest mode of conducting their business and paying their debts, because
that is a question of fact, not of science, and might be argued against almost every proposi-
tion in Political Economy.”
46
confirmed equilibrium theory “since the empirical observation that prices
do tend to correspond to costs was the beginning of our science” (1949a: p.
51), his own confidence in the idea was waning. The following statement is
not exactly brimming with confidence:
I am afraid that I am now getting to a stage where it becomes exceedingly
difficult to say what exactly are the assumptions on the basis of which we
assert that there will be a tendency toward equilibrium and to claim that
our analysis has an application to the real world. I cannot pretend that I
have as yet got much further on this point. Consequently all I can do is
to ask a number of questions to which we will have to find an answer if
we want to be clear about the significance of our argument. (1949a: p. 48)
In the same article, Hayek observes that both Smith and Ricardo
had noted that the stability of community structures were essential pre-
conditions for any equilibrium to operate (1949a: 48, note 13).12 By 1945
in ‘The Use of Knowledge in Society’, he recognizes that the concept of
equilibrium was irrelevant for practical purposes, had “mislead […] lead-
ing thinkers” [in economics], and he represents it as “no more than a use-
ful preliminary to the study of the main problem” (1949b: p. 91). In ‘The
Meaning of Competition’ of 1946, also, he notes how “the modern theo-
ry of competitive equilibrium assumes the situation to exist” (1949c: 94).
In his doubts, expressed across all of these papers, Hayek’s was also to ob-
serve that even if it can be recast as an empirical proposition, subject to
verification, equilibrium theory then becomes only a possibility rath-
er than an actuality. More to the point, Hayek was by no means certain
what sorts of empirical tests could validate it, and he very much doubted
“whether [any] such investigations would tell us anything new” (1949a: p.
55). He also notes how simply to assume equilibrium overlooks the nega-
tive externalities and global disparities associated with markets, including
increasing inequalities of wealth and resources, and increasingly monopo-
listic behavior of large companies and multinationals. His confidence did
not improve in later years.
It was related to these doubts that many economists from Hayek’s
own Department – Hicks, Kaldor, Lerner. Scitovsky and Shackle
12 He quotes Smith (The Wealth of Nations, Bk. I, 116): “In order, however, that this equality [of
wages] may take place in the whole of their advantages or disadvantages, three things are
required even when there is perfect freedom. First, the employment must be well known
and long established in the neighbourhood…”; and David Ricardo, (Letters to Malthus,
October 22nd, 1811: p. 18): “It would be no answer to me to say that men were ignorant of
the best and cheapest mode of conducting their business and paying their debts, because
that is a question of fact, not of science, and might be argued against almost every proposi-
tion in Political Economy.”
46
