Chapter

Journey's End—Hayek's Multiple Legacies

Bruce Caldwell

in Hayek's Challenge

Published by University of Chicago Press

Published in print November 2003 | ISBN: 9780226091914
Published online February 2013 | e-ISBN: 9780226091921 | DOI: http://dx.doi.org/10.7208/chicago/9780226091921.003.0015
Journey's End—Hayek's Multiple Legacies

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This chapter offers a chronological summary and assessment of Hayek's methodological legacy. In some instances, this involves comments on his contributions to such fields as economics, psychology, and political philosophy. In others, the ways various authors have tried to extend or build on Hayek's work are noted. Hayek's methodological position is reconstructed as consisting of the following four theses: Firstly, to offer a scientific explanation of the trade cycle, one must employ a theory. Secondly, the theory must be consistent with the existing theoretical foundation of economics, or “equilibrium theory.” Next, equilibrium theory carries the implication that all markets clear. A trade cycle is a situation in which some markets do not clear, so an additional factor must be introduced that would cause this to happen. Money qualifies as such a factor since it is demanded, not for its own sake, but to satisfy other demands. This implies that the theory of the cycle must be a monetary theory. Finally, much existing monetary theory draws on the quantity theory of money. But the quantity theory only relates changes in the money supply to changes in the aggregate price level, and is, therefore, incapable of explaining the changes in the structure of production that constitute the cycle. Changes in the structure of production are caused by changes in relative prices. As such, a monetary trade cycle theory must be capable of showing the origins and effects of cycle-producing relative price changes.

Keywords: Friedrich A. Hayek; methodology; psychology; political philosophy; trade cycle; economics; equilibrium theory; monetary theory

Chapter.  19288 words. 

Subjects: Economic History

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