A Tiger by the Tail

194 Pages·2009·1.85 MB·English

A Tiger by the Tail
A Tiger by the Tail
A 40-Years’ Running Commentary
on Keynesianism by Hayek
With an essay on
‘The Outlook for the 1970s:
Open or Repressed Infl ation?’
by
F.A. HAYEK
Nobel Laureate 1974
Compiled and Introduced by
Sudha R. Shenoy
Introduction by
Joseph T. Salerno
Third Edition
Published jointly by
The Institute of Economic Affairs
and the
Ludwig von Mises Institute
First published 1972
Second Impression 1973
Second Edition 1972 and 1978 © The Institute of Economic Affairs
Third Edition 2009 © The Institute of Economic Affairs
New Material 2009 © Ludwig von Mises Institute, Creative Commons 3.0
All rights reserved. Written permission must be secured from the publisher to use
or reproduce any part of this book, except for brief quotations in critical reviews or
articles.
ISBN: 978-1-933550-40-4
ACKNOWLEDGEMENTS
We are grateful to Routledge and Kegan Paul, the Editors of The
Economic Journal and Professor Hayek for permission to reproduce
extracts or articles.
— Editor
CONTENTS
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Guide to Extracts and Articles. . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Introduction to the Third Edition by Joseph T. Salerno . . . . . . xiii
Preface by Arthur Seldon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi
Preface to the Second Edition by Arthur Seldon . . . . . . . . . . . .xxv
The Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxvii
I. The Debate, 1931–1971: Sudha Shenoy . . . . . . . . . . . . . . . 1
Challenge to Keynes . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Approach to an Incomes Policy. . . . . . . . . . . . . . 5
‘Micro’ Dimensions Acknowledged . . . . . . . . . . . . . . 9
Is There a Price ‘Level’? . . . . . . . . . . . . . . . . . . . . . . 10
Further Implications of Hayekian Analysis. . . . . . . . 13
II. The Misuse of Aggregates . . . . . . . . . . . . . . . . . . . . . . . . . .15
1. Infl ationism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2. N o Causal Connection Between Macro Totals and
Micro Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3. Fallacy of ‘The’ Price Level . . . . . . . . . . . . . . . . . . . . . 17
4. Economic Systems Overleap National Boundaries . . . 18
Misleading Concepts of Prices and Incomes. . . . . . . .19
5. Dangers of ‘National’ Stabilisation . . . . . . . . . . . . . . . 20
Theoretical Case Not Argued. . . . . . . . . . . . . . . . . . 21
Relative Price and Cost Structures . . . . . . . . . . . . . . 22
6. Monetary Danger of Collective Bargaining. . . . . . . . . 24
vii
A TIGER BY THE TAIL
III. Neglect of Real for Monetary Aspects. . . . . . . . . . . . . . . . 27
7. Keynes’s Neglect of Scarcity . . . . . . . . . . . . . . . . . . . . 27
Investment Demand and Incomes . . . . . . . . . . . . . . 28
Final Position of Rate of Return. . . . . . . . . . . . . . . . 29
Mr. Keynes’s Economics of Abundance . . . . . . . . . . 30
Basic Importance of Scarcity . . . . . . . . . . . . . . . . . . 33
8. Importance of Real Factors . . . . . . . . . . . . . . . . . . . . . 34
Signifi cance of Rate of Saving . . . . . . . . . . . . . . . . . 35
9. Dangers of the Short Run . . . . . . . . . . . . . . . . . . . . . . 37
Betrayal of Economists’ Duty. . . . . . . . . . . . . . . . . . 39
IV. International versus National Policies . . . . . . . . . . . . . . . . 41
10. A Commodity Reserve Currency . . . . . . . . . . . . . . . . 41
An Irrational but Real Prestige. . . . . . . . . . . . . . . . . 42
11. Keynes’s Comment on Hayek . . . . . . . . . . . . . . . . . . . 43
Conditions for National Price Stability . . . . . . . . . . 44
Different National Policies Needed . . . . . . . . . . . . . 45
12. F.D. Graham’s Criticism of Keynes . . . . . . . . . . . . . . . 47
The ‘Natural Tendency of Wages’ . . . . . . . . . . . . . . 48
Gold Standard ‘Dictation’ . . . . . . . . . . . . . . . . . . . . 50
Unanchored Medium of Exchange. . . . . . . . . . . . . . .51
The Real Problem of Unemployment . . . . . . . . . . . . 53
Professor Hayek’s ‘Intransigence’ . . . . . . . . . . . . . . . 54
13. Keynes’s Reply to Graham . . . . . . . . . . . . . . . . . . . . . 56
V. Wage Rigidities and Infl ation . . . . . . . . . . . . . . . . . . . . . . 59
14. Full Employment, Planning and Infl ation. . . . . . . . . . 59
Full Employment the Main Priority . . . . . . . . . . . . . 60
Unemployment and Inadequate Demand. . . . . . . . . .61
Main Cause of Recurrent Unemployment . . . . . . . . 63
Expansion May Hinder Adjustment. . . . . . . . . . . . . 65
viii
CONTENTS
15. Infl ation Resulting from Downward Infl exibility
of Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Importance of Relative Wages . . . . . . . . . . . . . . . . . 68
Infl ation—A Vicious Circle . . . . . . . . . . . . . . . . . . . 70
The State of Public Opinion . . . . . . . . . . . . . . . . . . 72
16. Labour Unions and Employment . . . . . . . . . . . . . . . . 73
Changed Character of the Problem . . . . . . . . . . . . . 74
Union Coercion of Fellow Workers . . . . . . . . . . . . . 78
Wage Increases at Expense of Others . . . . . . . . . . . . 80
Harmful and Dangerous Activities. . . . . . . . . . . . . . 82
Acting against Members’ Interests . . . . . . . . . . . . . . 84
A Non-coercive Role . . . . . . . . . . . . . . . . . . . . . . . . 87
Minor Changes in the Law . . . . . . . . . . . . . . . . . . . 90
Responsibility for Unemployment . . . . . . . . . . . . . . 93
Progression to Central Control. . . . . . . . . . . . . . . . . 96
‘Unassailable’ Union Powers. . . . . . . . . . . . . . . . . . . 99
17. (a) Infl ation—A Short-term Expedient
(b) Infl ation—The Deceit is Short-lived. . . . . . . . . . . .101
17. (a) Infl ation—A Short-term Expedient . . . . . . . . .101
Infl ation Similar to Drug-taking . . . . . . . . . . . . . . 102
Accelerating Infl ation. . . . . . . . . . . . . . . . . . . . . . . 104
The Path of Least Resistance . . . . . . . . . . . . . . . . . . . . . 105
17. (b) Infl ation—The Deceit is Short-lived . . . . . . . 106
Limited Central Bank Infl uence. . . . . . . . . . . . . . . 107
Weak Opposition to Infl ation . . . . . . . . . . . . . . . . 108
VI. Main Themes Restated. . . . . . . . . . . . . . . . . . . . . . . . . . .111
18. Personal Recollections of Keynes. . . . . . . . . . . . . . . . .111
Keynes Changes His Mind . . . . . . . . . . . . . . . . . . .112
Thinking in Aggregates . . . . . . . . . . . . . . . . . . . . . .114
Full Employment Assumption . . . . . . . . . . . . . . . . .115
Wide Intellectual Interests . . . . . . . . . . . . . . . . . . . .117
19. General and Relative Wages . . . . . . . . . . . . . . . . . . . .119
ix