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Did Hayek Really Say That?

In that Rediff.com item, Sudhir Mulji tells the following story: "That during the period of sustained unemployment Kahn asked Hayek the question: 'Is it your view that if I went out tomorrow and bought a new overcoat, it would increase unemployment?' Hayek: 'Yes, but it would take a very long mathematical argument to explain why.'"

This is the story as told by Joan Robinson in her Ely Lecture (published in the AER in 1971). Bruce Caldwell deals with the episode in his introduction to Vol. 9 of the Collected Works: Contra-Keynes and Cambridge. Kahn's question was asked in the context of a boom-bust cycle--at the point where increased consumer spending cuts against the prior forced saving. Caldwell writes that "It is hard to imagine that Hayek was unable to explain the link between rising consumer prices and the slump, a link that was central to his theory."

Caldwell goes on in a footnote (p. 25) to suggest the answer that Hayek might have given. "Your individual actions do not, of course, matter. However, if the government provides consumers with credit to expand their demand for raincoats and other consumer goods, firms will try to shorter the structure of production that much more quickly, causing unemployment in the captial goods industries to rise further. In addition, if consumption demand reaches an unsustainably high level, the structure of production will be shortened too much, ensuring additional readjustment problems in the future."

Note: Hayek Lecture series begins May 27 at the London School of Economics.


Contact Roger W. Garrison

Roger W. Garrison received his doctorate degree from the University of Virginia in 1981. He is now Emeritus Professor of Economics at Auburn University in Alabama, where he taught Macroeconomics and History of Economic Thought (among other courses) from 1978 to 2012. He was a Post Doc Fellow at New York University in 1981. He was winner of the Smith Prize in Austrian Economics in 2001 for his book Time and Money: The Macroeconomics of Capital Structure. In 2003 he was named First Hayek Visiting Scholar at the London School of Economics, where he delivered LSE’s First Memorial Hayek Lecture. He served as President of the Society for the Development of Austrian Economics in 2004. His Austrian-oriented writings have appeared in Economic Inquiry, Journal of Macroeconomics, History of Political Economy, Journal of Economic Education, Independent Review, Cato Journal, Journal of Austrian Economics, and in a number of conference volumes and reference volumes. Most recently, his invited chapter titled “Friedman and the Austrians” appears in Robert A. Cord and J. Daniel Hammond, eds., Milton Friedman: Contributions to Economics and Public Policy, Oxford University Press, 2016. 

Roger Garrison is professor emeritus of economics at Auburn University and Associated Scholar of the Mises Institute.

See his web page. Send him mail.

Recent Publications (2012–2016)

Earlier Publications (1979–2012) can be accessed through www.auburn.edu/~garriro.

Garrison, Roger W., “Friedman and the Austrians,” in Robert A. Cord and J, Daniel Hammond, eds., Milton Friedman: Contributions to Economics and Public Policy, Oxford University Press, 2016 (forthcoming).

Garrison, Roger W., “Cycles and Slumps in an Overly Aggregated Theoretical Framework,” in Steven Kates, ed., What’s Wrong with Keynesian Economics, Edward Elgar, Cheltenham, UK, 2016 (forthcoming).

Garrison, Roger W., Review of Randall G. Holcombe, “Advanced Introduction to the Austrian School of Economics, Journal of Economic Literature, 2015 (vol. 53, no. 1): 119-–21.

Garrison, Roger W. and Norman Barry, eds. 2014), Elgar Companion to Hayekian Economics, Edward Elgar, Cheltenham, UK (2014).

Garrison, Roger W., Review Essay: “Alchemy Leveraged: The Federal Reserve and Modern Finance,” Kevin Dowd and Martin Hutchinson’s Alchemists of Loss: How Modern Finance and Government Regulation Crashed the Financial System, The Independent Review, 2012 (vol. 16, no. 3): 435–51.

Garrison, Roger W., “Natural Rates of Interest and Sustainable Growth,” The Cato Journal, 2012 (vol. 32, no. 2): 423–37.

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