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Book Reviews
The Cambridge Companion to Hayek Edward Feser (Ed.) Cambridge University Press, 2006, 358 pp., $32.99 paperback ISBN 0: 0521-61501-1 F.A. Hayek is one of the more controversial economists of the 20th century, as well as one of the more influential. He went head to head with Oskar Lange in the socialist calculation debate, and he also sparred with John Maynard Keynes. This addition to the Cambridge Companion series on philosophical thinkers includes 14 chapters on different aspects of Hayek’s work, by a wide variety of scholars. For those unfamiliar with the broad scope of Hayek’s work, it is a good introduction. Despite, or perhaps because of, the success and lasting influence of Hayek’s popular treatise, The Road to Serfdom, some economists have dismissed his core research program as ideologically biased. But Hayek was a profound thinker; and he has been accepted as such by serious scholars of a socialist leaning (see for example, Theodore Burczak’s book, Socialism after Hayek). Hayek did not shy away from questioning the core assumptions of economics and politics. When studying business cycles (covered in Chapter 2 by Roger E. Backhouse), he questioned the assumption of homogeneous capital. When studying socialism, he questioned the Walrasian equilibrium model that dominated at the time (Chapter 3 by Peter J. Boettke), and the popular notion of the morality of socialism (Chapter 7 by Anthony O’Hear). Hayek was also an important early proponent of modern complexity theory (covered in Chapter 12 as ‘evolution of society and mind’ by Gerald F. Gaus), anticipating recent developments in
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dynamic general equilibrium modeling and agent-based modeling. He also made important contributions to cognitive psychology (Chapter 14 by Edward Feser) and the philosophy of law (Chapter 9 by Aeon J. Skoble). Hayek’s broad-ranging career was shaped by his close, early association with Ludwig von Mises, and by his interaction with the socialist and anti-socialist economists in Vienna (discussed in Chapter 1 by Bruce Caldwell). Mises triggered the German-language socialist calculation debate, which Hayek later brought to the English-speaking world. Mises has a methodological approach very different to the Walrasian neoclassical school: it began with subjectivism and human action, and it incorporated a dynamic understanding of entrepreneurship. Hayek’s work on knowledge and the complexity of social systems came out of his desire to demonstrate why Mises’ account of the problems of calculation under socialism was accurate, despite the formal similarity to equilibrium models. This later led to work on social and political systems, cognition, and complexity. The chapter on knowledge and society (Chapter 6 by Andrew Gamble) brings together this theme. Although this collection of essays spans much of the breadth of Hayek’s work, it spends too much time attempting to understand his politics. Chapter 11 (by Roger Scruton) on ‘Hayek and Conservatism,’ examines how Hayek saw tradition as similar to common law, both of which he described as spontaneous orders, but was otherwise a free market classical liberal. It was unnecessary to supplement this with Chapter 10 (‘Hayek and liberalism’ by Chandran Kukathas) and Chapter 8 (by Jeremy Shearmur) on ‘Hayek and politics.’ Three chapters relate Hayek to other economists. One compares and contrasts Hayek to his good friend, Karl Popper (Chapter 7 by Anthony O’Hear), mainly in the context of The Road to Serfdom, and The Open Society. The focus of some of the disagreement is their disparate understanding of subjectivism and rationality. While Hayek focuses on the impossibility of planning given free will, tacit knowledge, and uncertainty, Popper respects the Kantian rational individual, and piecemeal social engineering within a democratic system. The chapter provides an interesting introduction to their ideas rather than an in-depth investigation. The other two chapters, on Keynes (Chapter 5 by Robert Skidelsky) and Marx (Chapter 4 by Meghnad Desai) are somewhat disappointing. The chapter on Hayek and Keynes disappoints because Skidelsky appears not to understand Hayek’s theory. According to Hayek, a business cycle occurs in the following way. The money supply is increased, and resources are diverted into lengthening the structure of production, instead of into producing final consumption goods. This occurs because more steps in production will lead to higher output at a lower cost, but the longer production period requires paying more out in interest (because it takes longer to produce the output). At a lower rate of interest, more steps per producer become worthwhile. Yet, because the lower interest rate was not based on a change in actual time preferences, but was artificially driven by monetary policy, ultimately consumer goods prices will have to rise. When the monetary stimulus ends, as it must to prevent runaway inflation, interest rates must rise again. When this occurs, the investment into processes with longer periods of production will no longer be profitable. Conversion from longer to
176 Book Reviews shorter period projects is destructive, and a period of restructuring is inevitable: this is the bust. This is laid out in Backhouse’s chapter on Austrian business cycles, but seems to be misunderstood by Skidelsky, who claims that ‘Hayek provides no explanation of why a change in the quantity of money should have any effect on the structure of production at all’ (p. 92). Skidelsky’s conclusions are also confusing, as he gives Hayek credit for having a ‘more complete, better worked out theory,’ but Keynes credit for ‘being a better economist’ (pp. 86 –87). It is unclear what his definition of a good economist is, in this context. The chapter on Marx is disappointing primarily because it focuses only on money and capital theory. Desai has a good grasp of Hayek’s cycle theory reasoning, and the chapter offers an interesting comparison and critique of the two thinkers in this area. However, Marx and Hayek offer many other potentially fruitful opportunities for comparison that Desai does not explore, such as their approaches to societal influence on cognition, their theories of price and exchange, and their theories of growth and of the evolution of society. An article by Eric Rahim in the January 2009 issue of this journal contrasts Schumpeter and Marx in this way; I would have liked to see Desai do the same for Hayek and Marx. Finally, there are some notable omissions from the volume. Hayek’s methodological approach is touched upon in many of the essays, but none of the chapters discusses whether Hayek remained committed to the a priori method or instead shifted to a more empirical approach. It has been argued that there were ‘two Hayeks’ (see T.W. Hutchison, The Politics and Philosophy of Economics). The early Hayek was a Misesian who believed that human action could best be understood on the basis of self-evident axioms about subjective mental processes, from which economic propositions could be logically deduced. The later Hayek was apparently a Popperian. Although Hayek’s relationship with Mises and his debates with Popper are both discussed in this collection, the evolution of Hayek’s methodology is not. Related to this, Hayek’s position on the usefulness of equilibrium analysis, which also might have changed, has been the subject of debate. And in light of the recent financial crisis, it is disappointing not to have a chapter on Hayek’s interest in free banking; in later life, he argued for competitive monies using many of the same arguments that he used in his analyses of tradition, common law, cognition, and free markets. But then, a nearly infinite number of chapters could be written on a mind as rich as Hayek’s. Overall, this is a good introduction to a fascinating figure. I recommend it to those who are unfamiliar with Hayek’s work and want a compact overview of his vast body of contributions. Guinevere Liberty Nell George Mason University # 2010 Guinevere Liberty Nell
