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Mises Credited for Phelps's Idea

October 12, 2006

Today the Wall Street Journal published (p. A18 or online ) an article by David R. Henderson on Phelps's Nobel Prize award. Henderson notes that Phelps himself credited Milton Friedman and Ludwig von Mises. But though Mises's 1911 Theory of Money and Credit is deserving of attention, "Mr. Phelps gets the credit because—this is not his fault—academic economists now insist on formal models."

Phelps, in the Tuesday Oct. 10 WSJ (p. A14), mentions Hayek, but not too favorably. The new laureate writes,

"We all feel good to see people freed to pursue their dreams. Yet Hayek and Ayn Rand went too far in taking such freedom to be an absolute, the consequences be damned. In judging whether a nation's economic system is acceptable, its consequences for the prospects of the realization of people's dreams matter, too. Since the economy is a system in which people interact, the endeavors of some may damage the prospects of others. So a persuasive justification of well-functioning capitalism must be grounded on its all its [sic] consequences, not just those called freedoms."

So there we have it—empirical assessment of consequences trumps freedom. Phelps then goes on to express admiration for John Rawls.

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