Chapter 9: The Hayek Difference
* What I propose to do, in this short chapter, is to concentrate specifically on ‘the Hayek difference,’ by which I mean the net effect of Hayek’s presence on attitudes and ideas, both those reflected in the scientific academies and in the general public discourse, along with the consequent impact on the observed and experienced events of the century’s history. I was a graduate student at the University of Chicago in the immediate postwar years, 1946–48. At that time, all students in economics, graduate or undergraduate, soon learned that the first step toward literacy involved mastering Henry Simons’s syllabus, which contained the famous rent problems. These problems, in highly stylized fashion, were designed to demonstrate how a market would allocate resources efficiently, and, particularly, how resource or input units would tend to be paid their marginal products, and how such payments, made to all resource inputs, would exhaust the total value produced. But how could the marginal product of an input unit be measured? The Simons’s problem offered the clear answer. By simply assuming away the input unit and conceptually observing how other units would be reallocated followed by a new measure of total product, we could impute the value shortfall specifically to the input unit removed in the experiment. I propose that we do this here. Let us imagine the century past as if Hayek had never existed. What was his product? Of course, the full measure cannot be taken, since some of the effect has yet to...
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