Paul Samuelson on Hayek and "Prices and Production"

From "A few remembrances of Friedrich von Hayek (1899–1992)," Journal of Economic Behavior & Organization 69, pp. 1–4. This selection on Prices and Production is quite harsh, but Samuelson has better things to say about other work that Hayek had done later in the article. Nevertheless, that other work is not the subject of our reading group!:

"Rise and Fall of 1931 Prices and Production

There were good historical reasons for fading memories of Hayek within the mainstream last half of the twentieth century economist fraternity. In 1931, Hayek’s Prices and Production had enjoyed an ultra-short Byronic success. In retrospect hindsight tells us that its mumbo-jumbo about the period of production grossly misdiagnosed the macroeconomics of the 1927–1931 (and the 1931–2007) historical scene.

When a centrist like me says this about an extremist like Hayek, readers have a right to reserve judgment. More weighty was the later opinion to the same effect of the conservative Lionel Robbins. It was Robbins who had brought Hayek out of Austria to the LSE. It was Robbins who wrote a 1934 Hayekian book entitled The Great Depression. Not so very long after 1934, Robbins repudiated his own early take, saying in effect, I must have been a bit loony at the time.
Aside from the substance of Hayek’s (1931) text, part of his short-lived popularity came from the fact that many in England, annoyed by Maynard Keynes’s unorthodox testimonies before the 1930 Macmillan Committee, hoped that Hayek would be the White Knight to slay the Black Dragon.

Productivity and reputation of Keynes itself fluctuated in Kondratief waves. His 1930 two-volume Treatise on Money posterity judged to have been an anti-climatic flop. But the deeper the drop into the 1929–1935 Great Depression, the more rapidly came the recognition of Keynes as top dog in the twentieth century. (In 1932 as a 16-year-old freshman, I asked my Chicago tutor, Eugene Staley: “Who is the world’s greatest economist?” He answered, “John Maynard Keynes.” For once I never became tempted to question the authority of my many great teachers.)

Gentle Charles Darwin had Thomas Huxley to be his bulldog for evolution. Sraffa (1932) must have been editor Keynes’s bulldog to annihilate Prices and Production, and its author. I never much admired Sraffa’s methodological contentions in that debate but at least his item did have the merit of introducing for the first time Sraffa’s novel concept of “the own rate of interest” in terms of corn or rye or caviar.

For my money more to the point was Richard Kahn’s simple oral 1932 statement:

"If Hayek believes that the spending of newly printed currency on employment and consumption will worsen our current terrible depression, then Hayek is a nut."

Alas, one fatal error eclipses a few elementary true truths á la Mises and Hayek: Easy money now often does entail tighter money later which will come as a surprise to uncompleted projects and new contingent contemplated investment projects. Hayek himself, naively, diagnosed the fall of his 1931 opus as due to the fact that his period-of-production mutterings there did not do full justice to the not-yet-completed Austrian theory of capital (Menger, Böhm et al.). Therefore, heroically but hopelessly, he wasted years on a task that he was grossly under-equipped to handle. Hayek’s (1941) The Pure Theory of Capital was not stillborn. But it was a pebble thrown into the pool of economic science that seemingly left nary a ripple."

I share this to (1.) note the thoughts of a giant in modern economic thought on the subject of our studies, and (2.) to demonstrate that I'm not the harshest critic of Hayek out there!

Richard Kahn, by the way, is credited with shoving Keynes towards thinking more about employment than he had previously in the years between the Treatise on Money and the General Theory.