Paul Omerod on Why Hayek's Approach May Succeed Where Friedman's Failed

by Liberty and Power

"Milton Friedman was a highly original economic thinker. But even in the one area he was proved correct, his work is likely to be outshone by that of another economist."

"Friedman was a brilliant polemicist. He had several highly original ideas about how economies work. Most have proved to be wrong, but at least he had them. And in the one area where he was proved correct, he exercised great influence on policymakers. But even in this area, Hayek's insights go much deeper and offer a better framework for the research programmes of the 21st century."

Read British economist Paul Omerod's thoughtful essay on the contributions of Keynes, Friedman, and Hayek here at Prospect online.

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Sudha Shenoy - 11/25/2006

At least Hayek _is_ distinguished from Friedman. But otherwise: Ormerod has only the concepts of neoclassical economics to work with. He's had to somehow squeeze Hayek into a framework which precisely is incapable of grasping Hayek's analytics.

Steven Horwitz - 11/24/2006

Omerod writes:

"Hayek believed that the business cycle was even more deeply rooted in individual behaviour. Individual decision-makers form plans under conditions of inherent uncertainty about the future. These plans may be disrupted by external shocks (oil price increases are a modern example). But more fundamentally, it is almost impossible for these various plans to be compatible with one another, regardless of whether shocks are experienced or not. Firms lack knowledge about the future, and their plans cannot be co-ordinated in advance. So irregular and unexpected fluctuations in total output are inevitable."

This is simply and utterly false as a description of Hayek's (or the Mises-Hayek) theory of the business cycle. Where's the excess supply of money, interest rate, capital malinvestment nexus? It is THAT set of ideas that distinguishes Hayek's approach from that of both Keynes and Friedman (though in different ways).

Perhaps this is just my frustration as a Hayek scholar, but it doesn't do much good to praise Hayek for things he didn't say.