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Phelps on Capitalism
Interviewed by the FT Ned Phelps has this to say:
Phelps feels that he is at the stage in his career “where I can afford to be as radical as I want to be. And so I am having a lot of fun thinking about capitalism and trying to imagine how economics would have to be re-written to capture the heart of that kind of system.” Traditional economics, he explains, sees the world as if it were a plumbing system. “It’s basically rooted in equilibrium – things work out as people expect them to do.” Capitalist reality, however, “is a system of disorder. Entrepreneurs have only the murkiest picture of the future in which they are making their bets, and also there is ambiguity, they don’t know when they push this lever or that lever that the outcome is going to be what they think it is going to be – there is the law of unanticipated consequences. This is not in the economic text books, and my mission, late in my career, is to get it into the text books.”
Phelps is clearly getting at many of the ideas emphasized by the Austrians, Hayek, Schumpeter and among the moderns my colleague Peter Boettke.
Posted by Alex Tabarrok on August 20, 2007 at 07:05 AM in Economics | Permalink
Comments
God bless, but I must say, Phelps mission "to get it in to the textbooks" sounds pretty naive. Rather the epiphanies should lead us to dump the whole idea of textbooks.
Posted by: Daniel Klein at Aug 20, 2007 8:25:15 AM
Alex,
No offense, but it seems to me like the Austrian emphasis on "process over equilibrium" is pure marketing. What Austrians have to say about the “market process” is almost indistinguishable from what the “mainstream” has to say. For example, in Man, Economy, and State, Rothbard certainly has no problem using static equilibrium models like supply and demand. “Process” is really only mentioned when discussing how equilibrium is obtained. That really doesn’t seem much different than what you would find in a mainstream textbook to me.
Anything original, Austrian thoughts on the “market process” essentially begin and end with Hayek. A good example is “Competition As a Discovery Procedure”, the first half of which showcases a much deeper understanding of the importance of competition than any neo-classical welfare theorems. Ahead of its time for 1968. But fundamentally different from what you learn in university today? Not in my experience. The arguments even creep into popular infotainment works like “Emergence” by Steven Johnson (which oddly never even cites Hayek).
But maybe I’m wrong. If you can point me in the direction of a few Austrian works on the subject that don’t replicate received wisdom I would most appreciate it.
Posted by: Student at Aug 20, 2007 9:29:13 AM
Nothing new in Prof.Phelps words.It has been long written in enormous volumes by the Post-Keynesians (see "The Irrelevence of Equilibrium Economics" by Prof.Kaldor).
Posted by: GVV at Aug 20, 2007 10:31:12 AM
Nothing new in Prof.Phelps words.It has been long written in enormous volumes by the Post-Keynesians (see "The Irrelevence of Equilibrium Economics" by Prof.Kaldor).
Posted by: GVV at Aug 20, 2007 10:32:51 AM
GW,
Perhaps my chronology is off, but haven't the Austrians been saying this since there were even Keynesians...let alone POST-Keynesians??
Posted by: John at Aug 20, 2007 12:31:21 PM
GW,
Correction:
...since BEFORE there were even Keynesians...
Posted by: John at Aug 20, 2007 12:32:50 PM
John,
There really wasn't an Austrian School of Economics until Rothbard and Kirzner.
But, as I stated earlier, I haven't read anything by either author that struck me as unique or original.
Hayek is probably the exception, but I would argue that his insights have been accepted by the mainstream for some time. And I would also note that both he and Schumpeter are all but ostracized by the Rothbardian Faithful (see Von Mises Institute).
Posted by: Student at Aug 20, 2007 12:37:05 PM
John,
Chronologically correct. But the PKs Shaped it.
I must add one more paper:
"History vs Equilibrium" by Prof.Joan Robinson.
Posted by: GVV at Aug 20, 2007 1:34:16 PM
links are switched?
Posted by: tp at Aug 20, 2007 1:37:59 PM
Hey, didn't Menger come along long before Rothbard? The school got its name when he was engaged in a Methodensreit with the German Historical School.
Posted by: TGGP at Aug 20, 2007 1:51:40 PM
>But maybe I’m wrong. If you can point me in the direction of a few
>Austrian works on the subject that don’t replicate received wisdom
>I would most appreciate it.
Pure Theory of Capital by Friedrich Hayek
Time and Money by Roger Garrison
Posted by: KP at Aug 20, 2007 3:17:36 PM
At the stage in his career where he can afford to be radical?
Thats sounds quite weak to me. Live your whole life in a lie to appease people you disagree with? Now finally he can have "fun"? What has he been doing during his life up 'till now.
Mainstream media, Mainstream academics, Mainstream politics, Mainstream music, Mainstream anything. It's all the same game. Producers appease consumers they disagree with.
Posted by: RRE at Aug 20, 2007 4:14:41 PM
"The Austrian and the Anglo-American Schools and the School of Lausanne... differ only in their mode of expressing the same fundamental idea and ... are divided more by their terminology and by pecularities of presentation than by the substance of their teachings." -- Mises (1933, translated into English 1960, quoted by Kirzner 1987)
Apparently, awareness of Austrian contributions distinct from neoclassical economics more generally came later.
Meanwhile, Hayek's student Shackle found a non-equilibrium perspective in Keynes.
Posted by: Robert at Aug 20, 2007 8:41:28 PM
Student,
Read Kirzner, "How Markets work: Disequilibrium, Entreprenuership, and Discovery"
Posted by: Daniel J. D'Amico at Aug 20, 2007 11:45:50 PM
Student said: "Hayek is probably the exception, but I would argue that his insights have been accepted by the mainstream for some time. And I would also note that both he and Schumpeter are all but ostracized by the Rothbardian Faithful (see Von Mises Institute)."
I just received an invitation to the Mises Institute's 25th anniversary celebration. Along with Mises, the 11" x 17", two-sided invitation has photos of only six other people, one of whom is F.A Hayek. That's seems to me like a strange way to all but ostracize someone.
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