Krugman Calls Hayek “Not An Important Figure In History of Macroeconomics”

Krugman Calls Hayek “Not An Important Figure In History of Macroeconomics”
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Label this one under “just plain nuts- even for Krugman standards.”

In a recent post to his blog “The (Non)Conscience Of A Liberal,” political-hack-masquerading-as-an-economist Paul Krugman attempts to discredit the Nobel winning Hayek:

Via Mark Thoma, David Warsh finally says what someone needed to say: Friedrich Hayek is not an important figure in the history of macroeconomics.

These days, you constantly see articles that make it seem as if there was a great debate in the 1930s between Keynes and Hayek, and that this debate has continued through the generations. As Warsh says, nothing like this happened. Hayek essentially made a fool of himself early in the Great Depression, and his ideas vanished from the professional discussion.

Not quite.  Many professional economists, most famously Irving “permanently high plateau” Fischer, made fools of themselves before the onset of the Great Depression by not seeing it coming.  Hayek, along with Mises, actually saw the Depression speeding down the tracks many months in advance:

I was one of the only ones to predict what was going to happen. In early 1929, when I made this forecast, I was living in Europe which was then going through a period of depression. I said that there [would be] no hope of a recovery in Europe until interest rates fell, and interest rates would not fall until the American boom collapses, which I said was likely to happen within the next few months.

Just because the Keynesian revolution took off after politicians were convinced that spending other people’s money caused prosperity to rain from the sky doesn’t mean Hayek made a fool of himself.  He just refused to become a pawn to the whims of bureaucrats knowing full well that government is bound by the same laws of scarcity and limited knowledge that govern the private, more productive sector.

Krugman then tries to rationalize Hayek’s influence:

So why is his name invoked so much now? Because The Road to Serfdom struck a political chord with the American right, which adopted Hayek as a sort of mascot — and retroactively inflated his role as an economic thinker.

What’s ironic is that not only did The Road to Serfdom strike a chord with millions of readers but also Krugman’s idol John M. Keynes:

“In my opinion it is a grand book…Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.”

Krugman, being ever the sly dog, neglects to mention this as he does most facts that fly in the face of his “vulgar Keynesianism.”

Whether Krugman wants to admit it or not, the great debate did continue and exists even more prominently today thanks to the internet and such sites as,, and (and LvMIC of course!).

What Krugman means when he says Hayek was a marginal figure in the history of macroeconomics is that Hayek didn’t fall under Keynes’ spell of aggregates and “not enough demand.”

It’s hard to imagine that Krugman has ever read the brilliant “The Use of Knowledge in Society,” arguably the most important refutation of macroeconomics, as it shatters his utopian worldview of armchair economists possessing enough knowledge over millions of individual actors to guide an economy.

One reason why economists are increasingly apt to forget about the constant small changes which make up the whole economic picture is probably their growing preoccupation with statistical aggregates, which show a very much greater stability than the movements of the detail. The comparative stability of the aggregates cannot, however, be accounted for—as the statisticians occasionally seem to be inclined to do—by the “law of large numbers” or the mutual compensation of random changes. The number of elements with which we have to deal is not large enough for such accidental forces to produce stability. The continuous flow of goods and services is maintained by constant deliberate adjustments, by new dispositions made every day in the light of circumstances not known the day before, by B stepping in at once when A fails to deliver. Even the large and highly mechanized plant keeps going largely because of an environment upon which it can draw for all sorts of unexpected needs; tiles for its roof, stationery for its forms, and all the thousand and one kinds of equipment in which it cannot be self-contained and which the plans for the operation of the plant require to be readily available in the market.

This is, perhaps, also the point where I should briefly mention the fact that the sort of knowledge with which I have been concerned is knowledge of the kind which by its nature cannot enter into statistics and therefore cannot be conveyed to any central authority in statistical form. The statistics which such a central authority would have to use would have to be arrived at precisely by abstracting from minor differences between the things, by lumping together, as resources of one kind, items which differ as regards location, quality, and other particulars, in a way which may be very significant for the specific decision. It follows from this that central planning based on statistical information by its nature cannot take direct account of these circumstances of time and place and that the central planner will have to find some way or other in which the decisions depending on them can be left to the “man on the spot.”

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them.

Hayek’s anti-macroeconomics views make him an extremely important figure in the field just as Keynes plays an important role in Austrian economics.  Intellectual opponents force others to reevaluate their theories in order to build upon and strengthen them or abandon them completely.  But then again, this is Paul Krugman we are talking about who will never find a “public works program” to his disliking.

  • Jerry

    Go, Krugman, Go. Each time you type you make a bigger fool of yourself.

    The internet won't ever let him escape the foolish statements he makes. He demonstates how far the Noble prize in economics has fallen and exposes it's bias. A man of desperation. Perhaps he has a death wish to join Marx in disrepute.

  • frey

    Hayek was a genius who made immense contributions to the field of economics. Krugman is a politcal hack who thinks trillion dollar coins and alien invasions are good ideas.

  • Jeremy

    What is the text?

    • lemoutongris

      I believe the original title was One Hundred Years of Being Right. It was a speech given in Auburn some time ago

  • lemoutongris

    I see it every day when I discuss economics. People say that the Austrain scholl is merely a theory that has no basis. To the admin : you should publish the text I translated (in both languages, of course), showing that the Austrians have been right in the past 1000 years

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James E. Miller is editor-in-chief of Mises Canada and a regular contributor to the Mitrailleuse . Send him mail

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