Hayek and Hurwicz (once more)

Co-Nobel Prize winner Roger Myerson sees the connection between Hayek and Hurwicz very clearly in this 2006 Lecture in Honor of Hurwicz.

Download hurwicz.pdf

In addition, it should be pointed out how big an influence mechanism design theory has been on Vernon Smith's work in experimental economics and understanding of the price system and the theory of the market economy.  The quest to design incentive compatible systems led to another field that Vernon contributed greatly to captured by the label 'economic system design'.

Comments

[Ludwig van den Hauwe]

Pete
Why all at once you no longer mention Mises? Myerson also sees a connection with Mises in his lecture. This is a perfect illustration of what I said only a few days ago on this forum, namely that contemporary mathematical economists can claim to be the true heirs not only of Hayek but also of Mises. Perhaps Mises - who was known for his gift of prophecy after all - simply forefelt that he and his times were on the eve of major mathematical turn in economics and therefore made these ambiguous statements in Human Action...

[Bogdan Enache]

I'm halfway through the above text and I don't know what other readers think about it but I - despite the simple math there, bu which succeeds in giving the air of much complexity - have never read such a strange text before.

For example, what is this phrase suppose to mean ?

"Under socialism, there is no problem getting the manager to reveal type honestly, because
he is willing to report his type honestly when we just pay him a flat wage no matter what he
reports."

And by making incentives the big issue of feasible socialism (plus a very narrow understanding of information constrains coming in in second position) I humbly think that the author completely misunderstood both Hayek and Mises's critique. All liberal economists before them pointed out, even if usually not in such a detailed and rigours manner, incentive problems; Mises and Hayek's main critique was beyond this, it was exactly about "modeling resource constraints", though they've noted the very real and separate - incentive problem.

*He also believes that Mises's argument required a competitive market equilibrium :

"Mises (1920) argued that prices
from a competitive market equilibrium are necessary for efficient allocation of resources."

[Jonathan Bathgate]

It is a big error to talk with such contempt and disdain about these brilliant Nobel Prize winning economists. Compared to their work Kirzner´s trivialities about entrepreneurship are peanuts... And even if their understanding of Mises and Hayek is perhaps not perfect, surely they understand much more about Mises´ and Hayek´s ideas than the average Austrian understands about the work of these Nobel Prize winning economists - the average Austrian who is typically not even capable of solving a simple mathematical equation... I would like to interpret the fact that these economists refer to Hayek and Mises as an important sign, namely of the fact that we are on the eve of the emergence of a new kind of economics, that will combine the great ideas of Menger, Mises and Hayek with the sophisticated tools of modern economic analysis.

[Peter Boettke]

Jonathan,

I think you need to be a little more careful in your assessments. First, who do you define as the relevant community of Austrian economists? If you mean those practicing within the academic economics profession, then your claim about mathematical skills and aptitude would need to be adjusted since these individuals all passed through PhD programs in economics which require an ability to do such basic maths. Second, one can be critical of mechanism design theory while also being respectful of the contribution these guys made. Third, it is not really a subject for dispute that mechanism design theory was inspired by Mises-Hayek. But it is not clear that they have passed Mises-Hayek by in terms of dealing with dynamism of the market economy. I would recommend here the Ostroy paper in the JEL on creativity if you want to explore this question. Finally, I think your judgement of Kirzner is way off base (see my remarks on why Kirzner should win the prize).

Pete

[John]

Jonathan,

Not that Dr. Boettke needs my agreement but I think it's preposterous to suggest that "Austrians" lack skills in mathematical economics.

Even if it wasn't obvious that they have this skill set in spades as is easily known in that they have doctorates in economics (there are no PhD's in Austrian Econ), if you read much of their work and watch videos of the likes Salerno, Murphy and Klein at Mises.org, it's quite clear that they have as much ability in mainstream and mathematical economics in their lectures.

I see "Austrians" as economists like any other BUT with a preference and conviction in this alternate methodology which they carry in addition to mainstream expertise.

[PrestoPundit]

In some of Hurwicz's early papers he is directly citing Hayek and Hayek's work on "information". It's also clear in those papers -- and in Hurwicz's later exchanges with Kirzner -- that he really doesn't "get it" when it comes to Hayek's work & Hayek's challenge to central planning.

Maybe this award will give further justification to a Kirzner Nobel Prize next year. It should.

[John]

Presto,

I agree. I was just reading thru that speech. I find it amazing that he acknowledge Hayek' point about knowledge about markets and the limits of modeling incentives...not to mention giving props to Mises for price determination and the impossibility for socialism that it creates....and then say that Hayek's point is informal and not based on sound theory (by this, I assume he means models). He then says we need to ignore the paradigm that Hayek's work created and find another way. On mises, he said that the fact that Mises appears right about socialism doesn't mean he was because there's no model for it.

HA!

I guess this is why Austrians hate math and models....it makes people blind about limits of them...even in the face of info that says why they are limited in use. And why so blind?

BECAUSE THERE'S NO MODEL TO SHOW WHY!!

Amazing.

[PrestoPundit]

Hurwicz' comments on a paper by Kirzner dealing with knowledge, competition and welfare economics can be read here:

http://www.cato.org/pubs/journal/cj4n2/cj4n2-4.pdf

Among other things, Hurwicz says:

"The ideas of Hayek (whose classes at the London School of Economics I attended during the academic year 1938—39) have played a major role In Influencing my thinking and have been so
acknowledged. But my ideas have also been influenced by Oskar Lange (University of Chicago, 1940—42), as well as by Ludwig von Mises in whose Geneva seminar I took part during 1938—49.
By now there is a considerable literature in this area.’ A careful perusal of this literature,I believe, would show that Professor Kirzner’s
opening statement (that "the Hayekian lesson was simply not grasped by subsequent welfare economists") does not apply to present-
day mainstream welfare economics .. "

[Jonathan Bathgate]

In fact I sincerely hope that Kirzner will get the Prize one day because this would be important for the Austrian movement, but I am afraid it won´t happen.
The tendency towards formalization in economics seems to be irreversible, at least for the time being. Merely verbal, literary economics is considered to belong to the past, to the field of "history of economic thought". The possible exception seems to occur when an individual launched an extensive research program with many followers... (See e.g. Coase who didn´t use math either but founded a school and had many followers... Besides that Coase remained a mainstream price theorist in my opinion.) I am not sure this really applies to Kirzner. But I can be mistaken.

[Jonathan Bathgate]

To Pete:
I did not mean to say that Austrians do not master basic mathematical skills. This is irrelevant and PhD programs differ widely as to the level of math skills they require. Besides that some of the greatest mathematicians were amateurs... But all this is irrelevant.
Only Austrians do not use it in writing and this has many consequences. How many Austrians get positions in research departments? Most of them are undergraduate teachers; in the best case they are in business schools. Your own case is an exception.

[Ludwig van den Hauwe]

As regards the math skills one supposedly has to take up during graduate study in economics, note that Hurwicz has no degree in Economics. At his arrival in the US in 1940 he only had a Law degree from the University of Warsaw! It´s also true he later became Samuelson´s assistant. Well, that´s what I read in the media this morning.

[zac]

How come crazy Republican anti-Hayekian right-winger Prestopundit has taken down the stuff on his blog about being: "Among other things I'm a world- respected authority on the work of Friedrich Hayek."

Amazing for someone who has never published in a peer-reviewed journal.

I wonder if Prof Boettke or Dr Caldwell have similar stuff on their webpages?

[Peter Boettke]

Jonathan,

The list of contemporary Austrians, and Austrian fellow travellers, who have had appointments at PhD granting research universities would include:

James Buchanan
Leland Yeager
Israel Kirzner
Mario Rizzo
Lawrence White
Roger Garrison
Gerald O'Driscoll
Bruce Caldwell
George Selgin
Don Lavoie
Jack High
Richard Wagner
Randy Holcombe
Bruce Benson
Stephan Boehm
Stefan Voigt
Viktor Vanberg
Ulrich Witt
Manfred Streit
Don Boudreaux
Dan Klein
Tyler Cowen
Alex Tabarrok
Andy Young
Ben Powell
Chris Coyne
Pete Leeson
David Harper
Guido Huelsmann
myself

That list is not trivial. So while the vast majority of Austrians are in liberal arts colleges there is a significant number in PhD programs. In fact, 3 of my recent students have secured appointments in PhD programs --- Ben, Chris and Pete. And I am hoping that most will follow --- the conspicious production process of academics and all that.

However, you have an important point about the sociology of the profession --- what you should ask is what Austrians have obtained positions in top 25 PhD programs? The older generation had several --- Hayek (at LSE), but also Morgenstern and Machlup (Princeton) and Habeler (Harvard). And if you include Schumpeter (Harvard). So what gives? Outside of the NYU faculty (Kirzner, Rizzo (both tenured), O'Driscoll, White and myself (assistant professors), the other PhD appointed faculty are at middle to lower ranked programs.

But once you get to that point in the analysis of the contemporary state of Austrian economics, then you are half way there with me to the analysis about what it would take to succeed --- we would be agreeing on the terms of the competition.

Here I take a long term view --- perhaps not my students (though I am betting on Pete Leeson), but my students students will grab the brass ring. Think of it this way, Scott Beaulier develops a great student at Beloit, he sends them to NYU to study with Rizzo, the student finds the right language to communicate and publish in the top journals, and thus coming out of NYU can get an appointment at Penn. It is through that process that I see our ideas spreading more and more into the mainstream.

We must remember that Buchanan's students at UVA all got great appointments --- Cornell, Penn, as well as the best schools in the South. That is how intellectual movements follow a path of development in terms of the academic professions.

I am sure I am missing some important people

[Jonathan Bathgate]

I think in general you are talking too much about people and careers and not enough about substance but I agree that is already an impressive list! I suggest Austrians should set up a project similar to the "Mathematics Genealogy Project" to keep track of who´s a student of who etc...

[Peter Boettke]

Jonathan,

I knew this would happen, but I forgot two important people on my list at PhD schools: Peter Klein and Nikolai Foss.

On too much about people --- YOU raised the empirical challenge, I provided the response that is all. It is not about people and careers, it was a response to a claim being made.

Where we go from here, I don't know. I certainly don't want to get into a discussion about so and so and who and whom. I want to (a) track truth as a scholar, (b) do a high quality job in the classroom, and (c) promote what I consider great ideas in the academia, in the general public, and in the public policy discourse.

Part of (c) is responding to claims such as the one you made.

Pete

[Bogdan Enache]

There are also several notable Austrian economists in Europe, other than Guido Jorg Hulsmann, for example Pascal Salin (France), Jesus Huerta de Soto (Spain), Enrico Colombatto (Italy)...to name just some that are quite well known internationally.

[Ludwig van den Hauwe]

OK, but I think Jonathan´s question was really a different one.
How many of these individuals are accepted as research economists by their mainstream peers?
How many of these people would be eligible for, say, receiving funding or research grants from government agencies on their research projects?
I contend that if you go with a project on a subject on which Hülsmann, Huerta de Soto and others are working, to, say, the European Research Council for funding, you can forget about it. I know less about the situation in the US.
I agree that all of these economists probably think of themselves as research economists in their own perception.

[Jonathan Bathgate]

You still forgot _Hans-Hermann Hoppe_ who is working both at undergraduate and graduate levels. Auburn University on the other hand no longer has a PhD program.
I was looking at it from an Austrian perspective and then it looks as if quite a lot has been attained and the list is already fairly long.
Rectifying what I said earlier, if you look at it from a mainstream perspective, the list is EXTREMELY SHORT.
Following up on the intervention of Ludwig van den Hauwe, there is no doubt that it is still easier for an Austrian to envisage a teaching career, while trying to publish in combination with that, than to envisage a fully-funded, full-time research position.

[Ludwig]

Considered on a world-wide basis, the list is indeed EXTREMELY SHORT. I know of no Austrians in a fully-funded, full-time research position.

[Peter Boettke]

Ludwig,

What are you talking about? The mainstream of the economics profession are all tied to universities and teach PhD students. Check out Andrei Shleifer. The individuals on the list I gave have had similar arrangements and get similiar grants (though not of the same magnitude).

The only reason I am writing this is because I believe there are a lot of false impressions being promoted in the blogosphere about the status of Austrian economists within the profession. Yes we hold a minority position, but several of us have had minor degrees of success in communicating with the wider profession. Andy Yates, e.g., had a full blown model on the Austrian theory of entrepreneurship and the market process published in JET, Larry White has published in both the AER and JMCB, George Selgin was in the Econ Journal and JMCB, Gerry O'Driscoll was in the JPE, Mario Rizzo in the J of Legal Studies, and Israel Kirzner in the JPE as a youngster and the JEL as a senior spokesman.

The argument that Austrians are completely closed out of the profession is just empirically false. The argument that it is really tough to be an Austrian and grasp the brass ring of academics (tenure in a top 25 PhD program) is undoubtedly true. But it is also true for EVERY type of economist. This is just a very tough business to compete in.

So again, what are you talking about "no Austrians in a fully-funded full-time research position"? Look even in Germany --- Stefan Voigt, Urlich Witt, and Viktor Vanberg. We don't have to look just at US academics to see that something is wrong with your argument.

BTW, as far as I know Hoppe never taught PhD students (I might be wrong). Enrico Colombatto was a huge omission on my part, as was Pascal Salin, and I would also add Pierre Garrouste.

[Peter Boettke]

Name me 1 major economist who have a "fully funded research position"? Unless you are at the Institute for Advanced Study, ALL the top appointments carry with it teaching responsibilities. However, some of those teaching responsibilities are at the PhD level.

I have taught a 1-1 and my permanent teaching job is 1-2 ... with 2 of those courses being PhD courses. And I supervise PhD students. Tell me what you consider these "fully-funded" research jobs and where are they? Harvard -- nope, Shleifer teaches; Stanford -- nope, Arrow taught; Chicago -- nope, Friedman, Stigler and Becker taught/teach.

[Ludwig]

Pete,
OK, thanks for all this interesting information. Really, my aim was only to get some information. It´s more encouraging than I thought after all. I had started turning away from Austrian economics but probably I will go on now.

[Rafe]

It would be illuminating to take up Jonathan Bathgate's point about content and not just numbers. In my view that is the real strong point of the Austrian and quasi-Austrian challenge, and if these ideas can get some real traction then the practical results will be very desirable. Ideas matter, just remember the time when Marxism was confined to a tiny circle of malcontents and then see how it changed the world over the next hundred years or so. It is a shame that during that hundred years Marxists did not invite their critics to publish in their own literature so there could have been a civil and wide-ranging consideration of the content of the program.

Thirty years ago the Austrians were practically extinct and it is a rich irony that Mises died in the very year that the revival started. If you want to talk about content then look at the mix of scholarship, policy analysis and empirical work that is being done by Austrians, quasi-Austrians and fellow-travellers like the public choice school and the economics/law people.

[D.G. Lesvic]

I am just an amateur economist, but can see that you academic "experts" don't know the first thing about economics, that it is a logical and not a mathematical science. What difference does it make whether an economist is a mathematician or not when mathematics has nothing to do with economics?

[Ludwig]

I believe it makes little sense to say once and for all that "mathematics has nothing to do with economics", since you cannot know in advance which new variants/kinds of mathematics may still be invented and appear applicable in economics. Mathematics is a language after all. The only thing one can say is that certain historical applications of mathematics seem less fortunate to us than to those who actually engaged in them. Contrary to most Mises interpreters I also believe that Mises was somewhat ambiguous on this point, since he suggests praxeology should be a deductive science like mathematics. But how is this possible without turning it into some kind of mathematics? If it is only a metaphor it is a rather unfortunate one.