Hayek and General Equilibrium Analysis

Abstract

An unanticipated outcome of the renewed interest in Austrian economics is the claim that it shares important similarities with new-classical macroeconomics. This claim has been mounted in two related ways. First, Lucas [27] and Laidler [25] argue that the business cycle work of Hayek and Mises during the 1920s and 1930s is a precursor to contemporary equilibrium business cycle theory. Second, Colander and Guthrie [5] and Kantor [23] suggest that the rational expectations hypothesis resembles an Austrian theory of expectations. Together, these interpretations suggest a degree of correspondence between Austrian and new-classical macroeconomics not heretofore generally acknowledged by contemporary Austrian economists. Indeed, Austrians are usually at pains to emphasize a distinct Austrian point of view. Given the increased frequency of claims to the contrary, the rationale for a well-defined Austrian research program is called into question. The aim of this paper is to assess the correspondence between Hayek's business cycle studies and the equilibrium approach to business cycles favored by Lucas, Sargent, Wallace and others. Since the claim advanced by Lucas and Laidler refers only to Hayek's work in the 1920s and 1930s, I shall investigate their claim by restricting references to Hayek from the same period. In section II, I overview the equilibrium business cycle theory of newclassical macroeconomics, provide exegetical evidence pertaining to Hayek's early cycle studies, and discuss Hayek's notion of equilibrium. Section III probes the status of equilibrium theory in Hayek's early work and new-classical macroeconomics. In section IV, I summarize the main conclusions of the paper.