Hayek and the Methodenstreit at the LSE

Abstract

ABSTRACT Friedrich Hayek’s Inaugural Address at the London School of Economics (LSE), ‘The Trend of Economic Thinking’ (1 March 1933), has been recognized as of particular importance for the understanding of his work. In it, Hayek argues that economics has a key role of showing what we cannot achieve: of showing that some attractive ideals are utopian. In developing this theme, Hayek referred to Mises’ arguments about the problems of economic calculation under socialism; but the idea – which I suggest might be seen as a theory about the structural constraints imposed by a flourishing market economy – becomes a more general motif in Hayek’s work. In the lecture, Hayek’s ideas are developed through engagement with the younger German Historical School of economics, which is criticized for espousing methodological ideas that would call the idea of such constraints into question. In this article, I suggest that there were also local targets at the LSE. I discuss the way in which William Beveridge, the Director of the LSE, and Lancelot Hogben, who held a Chair in Social Biology there, were engaged in an extended empiricist critique of the methodological ideas of the LSE economists and of theoretical economists more generally in ways close to the younger German historical school.