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Chapter 3: Hayek and economic theory in the 1930s
It was Shackle (1967) who coined the term ‘the years of high theory’ to describe the period between 1926 and 1939. These were years of upheaval in economic ideas accompanying momentous economic events. The First World War seemed to have swept away an entire self-regulating economic as well as social order. By comparison with the relative stability of the Victorian and Edwardian world and its accompanying economic theory (associated in England with Alfred Marshall, and on the Continent with economists such as Carl Menger and Leon Walras) the new world was harsh and seemingly highly unstable. A price system, until 1914 widely perceived as acting like a barely noticed thermostat successfully adjusting a heating system to take account of changing weather conditions, began instead to plunge people into bouts of stifling heat and icy cold. By the late 1920s large-scale resource unemployment and the study of the business cycle were at the centre of economic attention. Dynamics rather than equilibrium statics became the focus of theoretical effort. Hayek played a leading part in the theoretical debates of this era although the period ended with his efforts mainly rejected, and Shackle does not think it necessary to discuss his contribution. Hicks (1967) reflects that Hayek was ‘a leading character in the drama’ of the 1930s though his economic writings were not widely studied after the Second World War. economic writings were not widely studied after the Second World War.
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