Professor Hayek and the Concertina-Effect

Abstract

IT was more than ten years ago that Professor Hayek first fascinated the academic world of economists by a new theory of industrial fluctuations which in theoretical conception, and perhaps even more in its practical implications, was diametrically opposed to the current trend of monetary thought. The term fascination , though perhaps slightly unacademic, aptly describes the effect of the first impact of Professor Hayek's ideas on economists trained in the Anglo-Saxon tradition (and the present writer has no wish to conceal that he was among the fascinees) to whom it suggested aspects of the nature of capitalistic production they were never taught to think of. It suggested those deep-seated underlying maladjustments in the structure of capitalist production, which may have been ultimately caused by, but which could not be adequately described in terms of, those purely monetary processes with which most of the then current speculation was concerned. In comparison with Professor Hayek's triangles , distorted price-margins , and unduly-elongated production periods, the prevailing concern with price-levels, and with the banks doing this or that, must have appeared facile and superficial. This was the first impact. On second thoughts the theory was by no means so intellectually satisfying as it appeared at first. There were admitted gaps here and there in the first published account which was m-erely intended as rudimentary,' and when one attempted to fill these gaps, they became larger, instead of smaller, and new and unsuspected gaps appeared-until one was driven to the conclusion that the basic hypothesis of the theory, that scarcity of capital causes crises, must be wrong. These second thoughts produced a remarkable crop of critics of Prices and Production in the pages of English and American journals the number of which could rarely have been equalled in the economic controversies of the past. Professor Hayek himself took an active part in this controversy and some eight years later produced a new version of his theory which in many ways radically departed from, and contradicted, the first.2 It is with this second