Hayek on Liberty by John Gray

Author:John Gray [Gray, John]
Language: eng
Format: epub, pdf
ISBN: 9781134690091
Publisher: Taylor and Francis
Published: 2013-01-10T23:00:00+00:00

Shackle's Critique of Hayek

There is a fundamental criticism of Hayek’s economic thought which is suggested at once by the arguments we have just been exploring. Much in Hayek’s account of the business cycle, as in his general view of spontaneous social order, seems to suggest that he believes economic discoordination results always from institutional factors, so that at any rate large-scale disequilibrium would be impossible in a catallaxy of wholly unhampered markets. Against this view, Hayek’s brilliant and somewhat neglected pupil, G.L.S.Shackle, has argued that the subjectivity of expectations must infect the market process with an ineradicable tendency to disequilibrium.14 It must be allowed that, if we accept Hayek’s view of equilibrium as a process in which men’s plans are coordinated by trial and error over time, there can be nothing apodictically certain about this process: conceivably, under some conditions of uncertainty in which hitherto reliable expectations are repeatedly confounded, large-scale discoordination could occur in the market process. Shackle’s argument here depends on extending Hayek’s subjectivism regarding valuation to the process of forming expectations about the economy. In Shackle’s subjectivist and indeterminist view, forming expectations is a highly creative process, not significantly governable by any algorithm or mechanical rule. Following Keynes on this point,15 Shackle sees business confidence as an almost irrational datum, a matter of animal spirits or creative imagination rather than of rational assessment. If Shackle is right, a large-scale economic collapse of the Keynesian sort could occur in the absence of any governmental intervention. It could happen in the ways Keynes described, even if Keynes was wrong about the causes of the boom—bust cycle of the twenties and thirties. This is a powerful objection to Hayek’s position, and one which poses a severe problem for all who support unregulated market processes, since it tends to restore credibility to Keynes-type macroeconomic management policies in at least some imaginable circumstances. Four counter-observations are in order, however. First, nothing in Shackle’s argument tells against the point, defensible both on theoretical grounds and as an historical interpretation, that in practice by far the most destabilizing factor in the market process is provided by governmental intervention. The sort of endogenous instability of which he speaks may remain a theoretical possibility, but it fails to explain the historical phenomena which are the classical subject matter of the theory of market disequilibrium. Secondly, and relatedly, it is unclear that the kind of disequilibrium of which Shackle speaks—disequilibrium generated by divergency in subjective expectations—could amount to anything resembling the classical business cycle, which is more plausibly accounted for in Austrian and Hayekian terms as a consequence of governmental intervention in the interest rate structure.

Thirdly, it is unclear that Shackle’s argument shows the presence in the market process of any tendency to disequilibrium. What we have in the market process is admittedly a ‘kaleidic’ world, in which expectations, tastes, and beliefs constantly and unpredictably mutate. Yet, providing market adaptation is unhampered, what we can expect from the market process is an uninterrupted series of momentary equilibrium

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