"Last Knight" Live Blog 9 -- Ransom
From the beginning of the “marginal” revolution economists have had to take a stand on a very simple problem. They’ve needed to explain how we move from the private and purely logical world of a value relations (marginal utility theory) to the the public and causal world of changing relative price relations. Economists have never done a very good job of this. A central theme of Hulsmann’s Mises biography is that Menger did a better job of this than Walras and Jevons (Marshall isn’t discussed much), but that Menger’s work was ultimately muddled and incomplete — for example he failed to go much beyond simple consumption, and failed to work out the consistent details of how his simple consumption pricing story could be unified with an explanation of production pricing.
Into the story steps our hero, Ludwig Mises, who corrects and completes the Mengerian program with a revolutionary twist. On Hulsmann’s account what Mises shows is that we can’t make sense of the valuation of production goods using the privately surveyable logic of marginal utility theory alone — instead we can understand the pricing of production goods only as a public process in which individuals necessarily make use of a publicly available social tool — market prices — lying outside any marginal logic of “given” value relations and utilities fully surveyable to a single mind in a “model” or economic plan.
Throughout this story Mises’ foil is the confused Friedrich Wieser who believes it is possible to apply marginal utility theory to production goods. And Mises’ intellectual nemeses are Wieser’s students, who remain blinded by Wieser and just don’t understand. Among these folks is the economist Friedrich Hayek, who proceeds to obscure Mises’ great insight with his own work on the problem of socialism. Hulsmann has this later part of the story largely wrong, I’m going to show. It’s simply not true that Hayek remained a “Wieserian economist” in his explanatory strategy, or that Hayek failed to understand or make use of Mises’ revolutionary insight into the non-optional role of money price calculations in the explanation of market phenomena — most particularly those involving production goods.
But I’ve gotten ahead of the story. More later.