Ohio Class Notes: Hayek Is Overtaking Keynes

I hope Power Line readers took in and enjoyed the two “Hayek v. Keynes” rap music YouTube videos that were a viral hit last year.  (The first one is up to 2.6 million views.)  They are the product partly of George Mason University economist Russ Roberts, who does one of the more interesting interview podcast series around—worth checking on if you haven’t.)  One of the small subtexts of these videos is that Keynes is the more celebrated of the two; he gets the chicks (even though Keynes reportedly favored guys), the better hotel rooms, etc.

So I was interested to note two articles yesterday suggesting that the battle line for the 2012 election cycle in some ways reduces to Hayek versus Keynes.  Writing on Bloomberg.com (and there’s an irony—is there any less of a Hayekian figure in public life today than the egregious Michael Bloomberg?), Sylvia Nasar notes that the “Hayek versus Keynes” theme is inaccurate in many respects, as Hayek knew and liked Keynes, and vice-versa.  (There’s one famous late letter from Keynes to Hayek where Keynes indicated agreement with much of Hayek’s argument in The Road to Serfdom: “In my opinion it is a grand book [Keynes wrote]. We all have the greatest reason to be grateful to you for saying so well what needs so much to be said. . . . Morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.”  Keynes died shortly after, and some die-hard lefties dispute the context of this remark.)  Meanwhile, Steven Rattner’s account of things in the Financial Times is not as clearheaded, but gets the political outline right: “‘Keynes’ has almost become a vulgarity in US discourse. . .”

It appears to me that Hayek’s vindication is slowly proceeding.  (And as a special Bloomberg bonus, Amity Shlaes offers a great article on Frederic Bastiat.  If Mayor Bloomberg ever reads his own site, his head might explode.)

All of this is preface to passing along this week’s class notes from my Monday night political economy course at Ashland University, where we’re doing a close reading of Hayek’s Constitution of Liberty and related material.  This week we covered chapter 2 of Constitution (“The Creative Powers of a Free Society”) along with Hayek’s seminal 1945 American Economic Review essay, “The Use of Knowledge in Society.”  The two main points of the class were to underscore Hayek’s central insight on the facts that markets work because of the dispersal of knowledge, which leads to the important corollary that markets are important not primarily for their efficiency, but because markets are the best discovery process mankind has ever come up with—except that mankind didn’t consciously design it this way.

If you’ve never read the essay (and if not–do), here’s perhaps the key paragraph:

The peculiar character of the problem of a rational economic order is determined precisely by the fact that the knowledge of the circumstances of which we must make use never exists in concentrated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowledge which all the separate individuals possess. The economic problem of society is thus not merely a problem of how to allocate “given” resources—if “given” is taken to mean given to a single mind which deliberately solves the problem set by these “data.” It is rather a problem of how to secure the best use of resources known to any of the members of society, for ends whose relative importance only these individuals know. Or, to put it briefly, it is a problem of the utilization of knowledge which is not given to anyone in its totality.

And just one more excerpt:

I have deliberately used the word “marvel” to shock the reader out of the complacency with which we often take the working of this mechanism for granted. I am convinced that if it were the result of deliberate human design, and if the people guided by the price changes understood that their decisions have significance far beyond their immediate aim, this mechanism would have been acclaimed as one of the greatest triumphs of the human mind. Its misfortune is the double one that it is not the product of human design and that the people guided by it usually do not know why they are made to do what they do. But those who clamor for “conscious direction”—and who cannot believe that anything which has evolved without design (and even without our understanding it) should solve problems which we should not be able to solve consciously—should remember this: The problem is precisely how to extend the span of our utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do.

Now, if the Obama administration could take this to heart, maybe we’ll stop seeing fiascos like Solyndra, Stimulus II, Obamacare, etc.