Ramachandra Guha’s bad understanding about F A Hayek!

Mr Ramachandra Guha had written something on F A Hayek in his book “India After Gandhi” published in 2007. It has some nasty view on Professor F.A.Hayek!

In way I’m astonished to see such a comment on Professor F. A. Hayek who made many discoveries in Economics. I’m very sad to see the following paragraph from the book in page number 221:

• “….there were dissenters. In the West there was Friedrich Hayek, who advocated a retreat of the state from economic activity. His ideas, however, were treated with benign –and sometimes not-so- benign –contempt. (He could not even get a position in the Department of Economics in the University of Chicago, being placed instead in the ‘Committee on Social Thought.’)”

Why one need to be a professor of university to make a debate? Why everybody need to be a professor of particular university?

Of course I can not compare with anyone but take for example:

Montek Singh Ahluwalia and Suman K. Bery never had a PhD degree nor taught any university! In fact Mr Bery has been exposing as a PhD holder for sometime. Don’t you think these people are not writing, debating on social and economic issues?

I have read many of Professor F A Hayek writings including the most important one http://en.wikipedia.org/wiki/The_Use_of_Knowledge_in_Society

The younger generations choose ideas based on the well know teachers, writers, leaders, etc and most importantly people who have commented honestly and rightly.

How do you know he or she writes honestly?

If you read carefully and keep on observing any persons works defiantly one can figure out what he or she is talking about.

Way back in 2002 Anand Chandavarkar reviewed a book Friedrich Hayek (A Biography) by Alan Ebenstein in the EPW (19 January). Anand’s review is titled as “Did Hayek Deserve the Nobel Prize?”. From the title alone you can think what kind of review this guy going to give for readers certainly I’m not shocked in way because many in Indian academic community did not want to see some ideas at all.

When I heard first about this article I felt what nonsense. But certainly there was a another professor quite shockingly the Indian professor late P R Brahmananda wrote a short commentary (Hayek’s Nobel Prize) such a beautifully in the EPW on 9 February 2002 .

I will take you to some of interesting paras:

• "I be permitted to point out a few of Hayek’s contributions, mostly in money and capital theory, which are deemed as sufficiently original to make him richly deserve the Nobel Prize in economics
• There is no such thing as a general price level, since different sets of prices do not all move together at the same rate and in the same direction; he distinguished between the prices of consumption goods and the prices of capital goods and works in process; the process of excessive credit expansion leading to a lower rate of interest than otherwise would lead to a shift in the allocation of resources between consumption goods and capital goods.
• The relative prices of the former will fall and the relative prices of the latter will go up. Similarly, when the credit flow becomes more scarce than otherwise, the rate of interest will become higher than otherwise and this will lead to a relative reduction in the prices of capital goods and a relative rise in the prices of consumption goods.
• When the quantity of money increases or decreases due to excessive credit expansion or credit contraction, the time structure of production gets disturbed and changes towards processes involving a greater distance of time between primary inputs and consumption goods when the interest rate is artificially lowered and changes towards processes involving a shorter distance of time between primary inputs and consumption goods when the rate of interest is artificially raised.
• The role of money when it is excessive or deficient is to tilt the rate of interest from its natural level and to cause elongation and shortenings of the time structure of production; hence, money’s neutrality towards the choice between production processes of different time lengths between inputs and consumption goods is disturbed.
• Hayek was among the first to emphasise the saving in potential transaction costs to society emerging from decentralised decision-making. No central authority can have the knowledge and information available to myriad micro units in an economy. Hence, from an efficiency angle, central planning with a totalitarian approach can make errors in choices in production including in investments.
• Hayek’s concept of competition as a process and not as an equilibrium is a very important contribution by itself.
• May I also mention that Hayek’s name is associated with that of the distinguished psychologist Hebb in the matter of external impulses/stimuli/ shocks, etc, affecting the nerves in the brain which tend to store and use such information. Thus the link between external environment and the internal working of the nervous system in the brain is supposed to have been first perceived by Hayek and his name is prominent in the world of modern psychology."