I think some might quarrel with this description of the influence of the Austrian school on Chicago:
"We are the involuntary heirs to a debate with which most people are altogether unfamiliar. When asked what lies behind the new (old) economic thinking, we can reply that it was the work of Anglo-American economists associated overwhelmingly with the University of Chicago. But if we ask where the 'Chigago boys' got their ideas, we shall find that the greatest influence was exercised by a handful of foreigners, all of them immigrants from central Europe: Ludwig von Mises, Friedrich Hayek, Joseph Schumpeter, Karl Popper, and Peter Drucker." -- Tony Judt (2010) Ill Fares the Land, Penguin Press, pp. 97-98I don't think differences in details (e.g., aggregation in economic models) adequately refutes Judt's point.
Judt does read, for example, Hayek as more nuanced than some of his followers:
"The intellectual refugees - and especially the economists among them - lived in a condition of endemic resentment toward their uncomprehending hosts. All non-individualist social thought - any argument that rested upon collective categories, common objectives or the notion of social goods, justice, etc. - aroused in them troubling recollections of past upheavals... Men like Hayek or von Mises seemed doomed to professional and cultural marginality. Only when the welfare states whose failure they had so sedulously predicted began to run into difficulties did they once again find an audience for their views: high taxation inhibits growth and efficiency, government regulation stifles initiative and entrepreneuship, the smaller the state the healthier the society and so forth.
Thus when we recapitulate conventional clichés about free markets and western liberties, we are in effect echoing - like light from a fading star - a debate inspired and conducted seventy years ago by men born for the most part in the late 19th century...
It is perhaps worth noting here that even Hayek cannot be held responsible for the ideological simplifications of his acolytes. Like Keynes, he regarded economics as an interpretive science, not amenable to prediction or precision. If planning was wrong for Hayek, this was because it was obliged to base itself on calculations and predictions which were essentially meaningless and thus irrational. Planning was not a moral misstep, much less undesirable on some general principle. It was simply unworkable - and, had he been consistent, Hayek would have acknowledged that much the same applied to 'scientific' theories of the market mechanism...
In the United States, among a younger generation of self-confident econometricians (a sub-discipline of whose bostful scientificity both Hayek and Keynes would have had much to say), the belief that democratic socialism is unachievable and has perverse consequences has become something close to a theology. This creed has attached itself to every effort to increase the role of the state - or the public sector - in the daily lives of American citizens." -- Tony Judt (2010): pp. 102-104
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Kaldor in one his many (excellent) articles against Monetarism said that he was old enough to remember when these kinds of arguments were first made, namely in the 1930s by von Hayek. He also said that the Austrians had a better understanding of the issue at hand, compared to Friedman.
Kaldor, of course, was a one-time follower of von Hayek -- until he translated one of his books on the business cycle. Then he wrote a critique of it which, in turn, made von Hayek utterly rewrite his business cycle theory. Kaldor then critiqued that and von Hayek went away to try again and then basically started discussing other things.
Then in the 1970s the so-called Nobel Prize in economics people awarded von Hayek for his contributions to business cycle theory! Kaldor was never honoured, in spite refuting von Hayek twice.
Suffice to say, von Hayek was in the 1970s and '80s blaming inflation, unemployment and a host of other evils on unions and the state distorting the equilibrium of the market. Politically, then, his award had utility...
And, obviously von Hayek never got the memo that "Austrian" economics verbally rejects the notion of "equilibrium" (while invoking equilibrium concepts as and when required).
Perhaps needless to say, Kaldor (like Sraffa) is rarely mentioned in "Austrian" accounts of the 1930s and their utter defeat in the theoretical battles of those times...
Iain
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