Friday, October 11, 2013

On the Mises-Hayek Relationship

Gene Callahan writes:

Bruce Caldwell presented a paper on Hayek at NYU last week. In a discussion following a question I asked Bruce, Israel Kirzner offered a view of the relationship of Mises and Hayek that, for me at least, was an important clarification of the understanding I had already gained (much of which was from Kirzner in the first place!).

Here is how I now understand an important aspect of the history of those two thinkers:

1937: Hayek publishes "Economics and Knowledge" and sends it to Mises, fearing he will be offended by it and break with Hayek. But Mises says he agrees with everything in the paper.

What was going on? According to Kirzner (as I understand him), a mutual misunderstanding:

1) Hayek, in noting the limited scope of the "pure logic of choice," believes he is pointing out the limits not just of neoclassical equilibrium theorizing but of Misesian economics as well: "praxeology" just doesn't take us very far, and must be supplemented with an empirical science concerning the diffusion of knowledge.

2) Mises, on the other hand, has already recognized the role of entrepreneurial alertness, or the human propensity to notice the possibility of improving the current situation, in the economy. Furthermore, he considers this recognition to be part of praxeology. The world of general equilibrium could well be populated by robots; thus Mises has already broken with the neoclassical mainstream by introducing the entrepreneurial aspect of action into his economics. And he thinks that Hayek is also pointing out the importance of entrepreneurial alertness in "Economics and Knowledge."

And, in a sense, Mises is right: Hayek is getting at the same thing, but won't fully realize it for another three decades, until:

1968: Hayek writes "Competition as a Discovery Procedure." NowHayek has arrived at a conscious appreciation of the entrepreneurial role in economic activity. (Again, I must stress that this use of "entrepreneur" does not refer to "people who start businesses" but to an aspect of human action that is alert to the opportunity for profit in the broad sense.)


  1. I see "entrepreneur" as an ***aspect*** or ***function***, not as a whole human being.
    I see "capitalist" in the same way.
    You can be both, functionally, or one, or neither. They are complementary functions. They are often confused with each other.
    An entrepreneur can start a business with no money, and a capitalist can fund and not know anything about the business. That's the whole idea behind "passive capital", right?
    After all, a union pension fund "capitalizes", but is hardly entrepreneurial.

    1. I think thats the distinction Mises was making. Entrepreneurship WAS a human condition where everybody acted as a speculator in a sense. For example, when you wake up on a saturday, you can decide to stay in for the day and make no money, or pick up a shift at work from someone to make money. Think of the former as a choice not to invest(or a choice to invest in leisure) and the latter as a choice to invest(in order to make a return on investment). Thats the idea behind praxeology. It seemed Hayek was trying to hard to integrate experimental/empirical science/psychology etc. into economics when he didnt realize those and praxeology are completely different aspects of human behavior. Although now I give him credit for realizing it later. Although his essays on knowlegde and spontaneous order are amazing.