25: Suppression, the Dogs That Didn’t Bark and the Emerging Chicago School of Economics

Abstract

After Lionel Robbins withdrew his 1931 Foreword to the 1935s edition of Prices and Production, Hayek apparently did not repeat his fraud about having ‘predicted’ the Great Depression—until after he was awarded the 1974 Nobel Prize. Shortly before the announcement of his Nobel Prize for Economic Science, Hayek predicted ‘continued inflation’ and the disappearance of ‘the free market and free institutions’: ‘What I expect is that inflation will drive all the Western countries into a planned economy via price controls.’ Five years later—just before the onset of the low-inflation ‘Great Moderation’—Hayek played Cassandra again: ‘I must witness the heads of governments of all Western industrial countries promising their people that they will stop the inflation and preserve full employment. But I know that they cannot do this.’ Hayek’s abysmal forecasting record was matched by his (and Mises’) post-1931 silence about his alleged ‘prediction.’ Of the nine possible explanations why Hayek was unacceptable to the Economics Department, the most likely one is that they feared being tainted by his fraud: ‘It was all right to have him at the University of Chicago so long as he wasn’t identified with the economists.’ As George Stigler explained, to get a ‘professorship at a major American university’ required that ‘a professor be at least tolerably honest.’