Saturday, 30 April 2011

Soros on Hayek

George Soros writes,
Friedrich Hayek is generally regarded as the apostle of a brand of economics which holds that the market will assure the optimal allocation of resources — as long as the government doesn’t interfere. It is a formalized and mathematical theory, whose two main pillars are the efficient market hypothesis and the theory of rational expectations.

This is usually called the Chicago School, and it dominates the teaching of economics in the United States. I call it market fundamentalism.
That has to be one of the greatest misrepresentations of Hayek ever penned!

Hayek, "formalized and mathematical"? Hayek's thought is based on the "efficient market hypothesis and the theory of rational expectations"? Hayek and the Chicago School do at times reach similar conclusions but they get there via different routes. Hayek and the Austrian School in general see the market in terms of a process while the Chicago School see them is terms of equilibrium. And there are many other differences. Roger W. Garrison notes the difference between Hayek and Milton Friedman on monetary economics,
[...] Hayek’s Monetary Theory and the Trade Cycle ([1928] 1975) and Friedman’s Optimum Quantity of Money and Other Essays (1969) are worlds apart. [...] the methods and substance of the their economics, particularly the economics of money and business cycles, divide them.
I am not the only one who thinks Sorocs's view of Hayek is odd. Arnold Kling writes,
Soros equated Hayek with the Chicago school of economics. In particular, Soros blamed Hayek for promoting rational expectations and the efficient markets hypothesis. I doubt that anyone else on the panel or in the room shared this view of Hayek. However history views Hayek, I do not expect him to get credit for anticipating Fama or Lucas. In fact, as Frydman and Goldberg point out in Imperfect Knowledge Economics, rational expectations runs counter to Hayek's theory of local knowledge, which is one of his most important contributions. I do not see how Hayek could approve of any form of representative-agent modeling.
One wonders if Soros has ever read Hayek.

No comments: