Economics

"Under a system of ‘state–controlled capitalism,’ or mixed economy, large companies can avoid normal evolutionary processes by hooking up with state power in order to direct, regulate, and micromanage the economy. And if they skirt bankruptcy, they can be declared “too big to fail,” showered with billions in taxpayer bailouts, and quickly taught that bad behavior is richly rewarded."

"Let me examine the alleged "distinction from capitalism" characteristic of the Soviet Union and see whether it isn't a distinction from a certain stage of capitalism rather than from capitalism as a whole. The determining factor in analyzing the class nature of a society is not whether the means of production are the private property of the capitalist class or are state-owned, but whether the means of production ... are monopolized and alienated from the direct producers. The Soviet Government occupies in relation to the whole economic system the position which a capitalist occupies in relation to a single enterprise. ... "Bureaucratic state socialism" is an irrational expression behind which there exists the real economic relation of state-capitalist-exploiter to the propertyless exploited."

"State capitalism would be a step forward as compared with the present state of affairs in our Soviet Republic. If in approximately six months’ time state capitalism became established in our Republic, this would be a great success and a sure guarantee that within a year socialism will have gained a permanently firm hold."

"The accounting prices in a socialist economy can be determined by the same process of trial and error by which prices on a competitive market are determined. […] Neither would the Central Planning Board have to solve hundreds of thousands (as Professor Hayek expects) or millions (as Professor Robbins thinks) of equations. The only "equations" which would have to be "solved" would be those of the consumers and the managers of production. These are exactly the same "equations" which are "solved" in the present economic system and the persons who do the "solving" are the same also. Consumers "solve" them by spending their income so as to get out of it the maximum total utility; and the managers of production "solve" them by finding the combination of factors that minimizes average cost and the scale of output that equalizes marginal cost and the price of the product. They "solve" them by a method of trial and error, making (or imagining) small variations at the margin, as Marshall used to say, and watching what effect those variations have either on the total utility or on the cost of production. And only a few of them have been graduated in higher mathematics. Professor Hayek and Professor Robbins themselves "solve" at least hundreds of equations daily, for instance, in buying a newspaper or in deciding to take a meal in a restaurant, and presumably they do not use determinants or Jacobians for that purpose."

"From the human point of view, return paid to non-human factors of production is unearned. ... The employment of capital instruments and natural resources in economic production requires no personal hardship or exertion from any human being. The economic services provided by these factors of production are not corporeally inherent in human beings. The opposite is true of labor services, which can only be provided through the physical and mental activity of human beings. ... The really grossly exaggerated personal incomes in society are dominated by property income, and this source of inequality would be abrogated by the equalization of property income distribution."

"So far as I know, the MPS never produced and distributed an agreed public statement of its program. Outside the economics profession, it was invisible. The MPS was no more influential inside the economics profession. There were no publications to be discussed. The American membership was apparently limited to economists of the Chicago School and its scattered university outposts, plus a few transplanted Europeans. “Some of my best friends” belonged. There was, of course, continuing research and debate among economists on the good and bad properties of competitive and noncompetitive markets, and the capacities and limitations of corrective regulation. But these would have gone on in the same way had the MPS not existed. It has to be remembered that academic economists were never optimistic about central planning. Even discussion about the economics of some conceivable socialism usually took the form of devising institutions and rules of behavior that would make a socialist economy function like a competitive market economy (perhaps more like one than any real-world market economy does). Maybe the main function of the MPS was to maintain the morale of the free-market fellowship."

"In some way, the founding and the first conference of the Mont Pèlerin Society, which, I feel entitled to say, was my own idea, although I received a great deal of support in its organisation especially from Röpke as well as from Mises, constituted the rebirth of a liberal movement in Europe. Americans have done me the honour of considering the publication of The Road to Serfdom as the decisive date, but it is my conviction that the really serious endeavour among intellectuals to bring about the rehabilitation of the idea of personal freedom especially in the economic realm dates from the founding of the Mont Pèlerin Society in 1947."

"I was invited to become a member of the Mt. Pelerin Society in 1957, and I vividly recall my first participation in a general meeting, at the Suvretta House in St. Moritz, the most luxurious hotel I had ever seen. I recall the feet cushions in the lobby and the Spanish princess who got so many of us a bit excited by her mere presence. (No connection with the society.) I do not know who nominated me for membership, perhaps it was Frank Knight, but I do know that everyone acknowledged that the society was really Hayek's and that any new member must have been approved by Hayek himself. By 1957, the membership had grown somewhat from its small beginnings a decade earlier, but there was still a club-like aspect to the meeting and with an underlying tension between the central European and American members (the latter mostly with Chicago connections). To those of us who had libertarian-populist blood in our veins, there was too much deference accorded to Hayek, and especially to Ludwig von Mises, who seemed to demand sycophancy."

"The group’s members depicted themselves as ‘liberals’ (in the traditional European sense) because of their fundamental commitment to ideals of personal freedom. The neoliberal label signalled their adherence to those free market principles of neoclassical economics that had emerged in the second half of the nineteenth century [...] to displace the classical theories of Adam Smith, David Ricardo, and, of course, Karl Marx. Yet they also held to Adam Smith’s view that the hidden hand of the market was the best device for mobilizing even the basest of human instincts such as gluttony, greed, and the desire for wealth and power for the benefit of all. Neoliberal doctrine was therefore deeply opposed to state interventionist theories, such as those of John Maynard Keynes, which rose to prominence in the 1930s in response to the Great Depression. Many policy-makers after the Second World War looked to Keynesian theory to guide them as they sought to keep the business cycle and recessions under control. The neoliberals were even more fiercely opposed to theories of centralized state planning, such as those advanced by Oscar Lange working close to the Marxist tradition. State decisions, they argued, were bound to be politically biased depending upon the strength of the interest groups involved [...]. State decisions on matters of investment and capital accumulation were bound to be wrong because the information available to the state could not rival that contained in market signals."

"There is little doubt that the observation that quality may depend on price (productivity on wages; default probability on interest rates) has provided a rich mine for economic theorists: A simple modification of the basic assumptions results in a profound alteration of many of the basic conclusions of the standard paradigm. The Law of Supply and Demand has been repealed. The Law of the Single Price has been repealed. The Fundamental Theorem of Welfare Economics has been shown not to be valid. More than that, the theories that we describe here provide the basis of progress toward a unification of macroeconomics and microeconomics. They pro vide an explanation of unemployment and credit rationing, derived from basic microeconomic principles. It is a theory in which the extensive idleness that periodically confronts society's resources, human and capital, is seen as but the most obvious example of market failures that prevasively and persistently distort the allocation of resources."

"The people of the United States suffer from periodical financial panics to a degree substantially unknown to the other nations, which approach us in financial strength. There is no reason why we should suffer what they escape. It is of profound importance that our financial system should be promptly investigated, and so thoroughly and effectively revised as to make it certain that hereafter our currency will no longer fail at critical times to meet our needs."

"When I was a student at the University of Chicago, where I was a direct student of in the classroom, and an indirect student of Frank Knight, I could not learn why price should equal marginal cost. Even when I got to Harvard in 1935, I went around asking everybody: “What is the proof that this is so?” Of course, I did not know the 1892–1893 work of Vilfredo Pareto in which he essentially shows that a perfectly competitive equation system gives you the necessary and sufficient condition, not for ethical optimality—he was always a little slippery on that problem—but for what came to be called Pareto optimality so that there is no avoidable deadweight loss. I think I had most to learn from Abba Lerner, although I, of course, worked it out for myself."

"The phenomenon of recessions puzzled many economists in the early years of this century, and led many of them to produce their worst work. Thorstein Veblen went from his brilliant Theory of the Leisure Class to write a really terrible book (The Engineers and the Price System) purporting to explain economic slumps. Joseph Schumpeter, whose magnificent vision of the "creative destruction" inherent in capitalist growth continues to inspire many economists, wrote a turgid, almost meaningless two-volume study, Business Cycles. Marxists gleefully seized upon the biggest recession of all, the Great Depression of the 1930s, as evidence of the irrationality of capitalism, yet they never offered a good explanation of why and how such things happen, just assurances that socialism would cure them. It fell to the British economist John Maynard Keynes to provide a clear story about what happens during a recession, and some useful advice about how to get out of one."

"If I had had perfect teachers, they would have known the Pareto work; they would have known Enrico Barone and what you might call the fundamental theorems of welfare economics that the conditions for Pareto optimality would be exactly realized by competitive arbitrage. Before Bergson, Lerner–Hicks–Hotelling–Kaldor–Scitovsky insufficiently understood that the full set of Pareto optimality conditions constituted an incomplete set of conditions for ethical maximization. You must ask the right questions and make the right distinctions. All of my teachers believed there was something to Adam Smith’s invisible hand—that each person pursuing their self interest would, by some miraculous action of the invisible hand, be led to contrive in some vague sense the best interest of all. However, none of them could explain properly what the truth and falsity was in that position. I would say that if I had been a bright student in 1894 and read Pareto’s Italian journal article, I would have understood what I now understand to be the germ of truth in the invisible hand argument. All it refers to is the avoidance of deadweight loss. Here is where my association with Abram Bergson becomes relevant."

"We're not trying to provoke — and don't think that we will need to provoke — a recession. But we do think it's absolutely essential that we restore price stability, really for the benefit of the labor market as much as anything else."

"People are right to be angry: they understand they did not cause the recession, but they had to pay for it while Wall Street grew richer."

"Robert Aumann / Thomas Schelling (2005)"

"Daniel Kahneman / Vernon L. Smith (2002)"

"Robert F. Engle / Clive Granger (2003)"

"James Heckman / Daniel McFadden (2000)"

"Robert Mundell (1999)"

"Finn E. Kydland / Edward C. Prescott (2004)"

"Edmund Phelps (2006)"

"Robert Lucas, Jr. (1995)"

"James Mirrlees / William Vickrey (1996)"

"Robert Fogel / Douglass North (1993)"

"Ronald Coase (1991)"

"Gary Becker (1992)"

"Robert C. Merton / Myron Scholes (1997)"

"Leonid Hurwicz / Eric Maskin / Roger Myerson (2007)"

"Paul Krugman (2008)"

"John Harsanyi / John Forbes Nash, Jr. / Reinhard Selten (1994)"

"Elinor Ostrom / Oliver E. Williamson (2009)"

"Peter A. Diamond / Dale T. Mortensen / Christopher A. Pissarides (2010)"

"Amartya Sen (1998)"

"Bertil Ohlin / James Meade (1977)"

"Herbert A. Simon (1978)"

"Theodore Schultz / Arthur Lewis (1979)"

"Milton Friedman (1976)"

"George Akerlof / Michael Spence / Joseph E. Stiglitz (2001)"

"Wassily Leontief (1973)"

"Gunnar Myrdal / Friedrich Hayek (1974)"

"Leonid Kantorovich / Tjalling Koopmans (1975)"

"Lawrence Klein (1980)"

"Ragnar Frisch / Jan Tinbergen (1969)"

"Paul Samuelson (1970)"

"Simon Kuznets (1971)"

"My response was the common one. At 5:30 in the morning the phone rang. My wife (was) in bed next to me and said, which child has had an accident? I listened and a Swedish accented voice said how does it feel to win the Nobel Prize? I wasn’t sure that it wasn’t a hoax, but I said to my wife, it’s okay, no child is involved. Then the announcement came that I had been named. It seemed genuine and not a hoax, and I was surprised. I think one of my reactions was, and my second daughter criticized me later when I told her about it, I said well it’s nice to have a lot of hard work rewarded. She said that was a very stuck up answer (laugh)."

"James M. Buchanan (1986)"

"I must confess that if I had been consulted whether to establish a Nobel Prize in economics, I should have decidedly advised against it. One reason was that I feared that such a prize, as I believe is true of the activities of some of the great scientific foundations, would tend to accentuate the swings of scientific fashion. This apprehension the selection committee has brilliantly refuted by awarding the prize to one whose views are as unfashionable as mine are. I do not yet feel equally reassured concerning my second cause of apprehension. It is that the Nobel Prize confers on an individual an authority which in economics no man ought to possess. This does not matter in the natural sciences. Here the influence exercised by an individual is chiefly an influence on his fellow experts; and they will soon cut him down to size if he exceeds his competence. But the influence of the economist that mainly matters is an influence over laymen: politicians, journalists, civil servants and the public generally. There is no reason why a man who has made a distinctive contribution to economic science should be omnicompetent on all problems of society - as the press tends to treat him till in the end he may himself be persuaded to believe."