Friday, September 11, 2009

Edmund S. Phelps on F A Hayek

Edmund S. Phelps was awarded “The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 2006

Edmund S. Phelps delivered his Prize Lecture on 8 December 2006 at Aula Magna, Stockholm University. It seems to be that he has profound understandings of F A Hayek ideas and applies in the contemporary issues in economies.

Some excerpts from his lecture:

  • Innovativeness raises uncertainties. The future outcome of an innovative action poses ambiguity: the law of “unanticipated consequences” applies (Merton, 1936); entrepreneurs have to act on their “animal spirits,” as Keynes (1936) put it; in the view of Hayek (1968), innovations are launched first, the benefit and the cost are “discovered” afterwards.
  • Innovativeness also transforms jobs. As Hayek (1948) saw, even the lowest ranking employees come to possess unique knowledge yet difficult to transmit to others, so people had to work collaboratively.
  • At Yale and at RAND, in part through my teachers William Fellner and Thomas Schelling, I gained some familiarity with the modernist concepts of Knightian uncertainty, Keynesian probabilities, Hayek’s private know-how and M. Polyáni’s personal knowledge.
  • smaller and growth faster. The other severe limitation of the research view was, of course, that business people are the conceivers of the bulk of the innovations of a capitalist economy. Capitalism is Hayek country. In such an economy, Hayek says, there is a “division of knowledge” among different persons – not only dispersed information (“knowledge of current prices”) but, crucially, dispersed know-how about
  • “how commodities can be obtained and used.”31 (Hayek, 1937). Hayekian entrepreneurs are constantly striving to expand their knowledge into some area where knowledge is scarce or non-existent in order to see whether they might develop something commercially saleable that no one else has conceived
  • before. This is creativity – acquiring ideas that no one else has (or likely will have without doing the necessary exploration). Later he sketched a model of how the entrepreneur, not really knowing its commercial value, has to launch the innovation on the market to “discover” its value, if any (Hayek, 1968).
  • It is axiomatic that one’s conception of the good economy depends upon one’s conception of the good life. For Calvin (1536) the good life consisted of hard work and wealth accumulation. For Hayek (1944) and Friedman (1962) the good life was a life of freedom. The appeal of work and of freedom may be that they are necessary for a good life.33 But what is its substance, its essence?
His other papers on Hayek is here

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