I was looking forward to the session on Hayek at the economic meetings in New Orleans last week. As a soldier of the revolution, I had learned a good deal from Hayek back in the day, when his occasional pieces sometimes appeared in Encounter magazine. (I knew Hayek had been the prime mover behind the founding of the classically liberal pro-markets Mont Pelerin Society in 1947; knew, too, that Encounter has been partly funded by the Central Intelligence Agency, in 1953, in an effort to counter Cold War ambivalence.
I understood that Hayek was one of a handful of economists who had been especially influential before John Maynard Keynes swept the table in the Thirties. Others included Irving Fisher, Joseph Schumpeter, A.C. Pigou, Edward Chamberlin, and Wesley Clair Mitchell. What revolution? We journalists were hoping to glimpse economics whole. The economists whom we read (and other social scientists, historians, and philosophers) seemed as blind men handling an elephant. Each described some part of the truth.
The session devoted to Bruce Caldwell’s new biography, Hayek: A Life: 1899-1950 (Chicago, 2022), didn’t disappoint. Presiding was Sandra Peart, of the University of Richmond, an expert on the still-born Virginia school of political economy of the Fifties (as opposed to the Chicago school of economics), with which Hayek was sometimes connected. Cass Sunstein, of the Harvard Law School; Hansjörg Klausinger, of Vienna University of Economics and Business; and Vernon Smith, of Chapman University, zoomed in. Steven N. Durlauf, of the University of Chicago Harris School of Public Policy (and editor if the Journal of Economic Literature); Emily Skarbek, of Brown University, were present discussants; as was, of course, Caldwell himself. The reader-friendly Hayek: A Life was itself the star of the show: a gracefully documented and thoroughly knowledgeable story of Vienna, New York, Berlin, London, Cambridge, and Chicago, during those luminous years. I look forward to the second volume, 1950-1992.
Then I walked half a mile down New Orleans’ Canal Street to hear the American Economic Association Distinguished Lecture by Daron Acemoglu, of the Massachusetts Institute of Technology. This was a very different world from that of Hayek.
For one thing, “Distorted Innovation: Does the Market Get the Direction of Technology Right?” wasn’t really a lecture at all. It was a technical paper, presenting a simple mode of directed technology, with which Acemoglu has been working for twenty-five years, followed by discussions of several examples of what Acemoglu described as instances in which technologies have become distorted by shifting incentives: energy, health and medical markets; agriculture; and modern automation technologies. The paper begins in jaunty fashion,
There is broad agreement that technical change has been a major engine of economic growth and prosperity during the last 250 years, However not all innovations are created equal and the direction of technology matters greatly as well.
What constitutes the “direction of technical change?” Acemoglu offered a striking example. Early 20th-century chemists in Germany, led by Fritz Haber and Carl Bosch, developed an industrial process for converting atmospheric nitrogen into ammonia. Synthetic fertilizers thereby rendered commercial, greatly improved agricultural yields around the world. But the same processes were employed in industrial production of potent explosives and poisonous gases which killed millions of soldiers and civilians during World War I. Which direction might an effective social planner have preferred?
One view, the one for which Hayek is famous, is that the market is the best judge of which technologies to develop. There may be insufficient incentives to innovate initially, but once the government provides the requisite research infrastructure and support, it should stand aside. What the market thinks right, meaning profitable, is right, in this view.
Diametrically opposite, Acemoglu said, is the view that the politicians, planners and bureaucrats can decide on these matters as well as or even better than markets, and therefore they should set both the overall level of innovation and seek to influence its direction. This is welfare economics, a style of economic analysis pioneered after 1911 by A.C. Pigou, then the professor of economics at Cambridge University, and, for twenty-five years, perhaps the most influential economist in the world.
In his paper Acemoglu sought to describe an intermediate position, in which markets exist to experiment in order to determine which innovations are feasible, whereupon planners have a role in applying economic analysis to gauge otherwise unexamined side-effects of various sorts that may arise from a pursuing a particular path.
It was an unusual lecture, pitched to the level of a graduate seminar, and even before Acemoglu finished, individuals began drifting off to dinner engagements. The good news is that there is a book on its way. Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity (Public Affairs),by Daron Acemoglu and Simon Johnson will appear in May. Still better news is that it tackles head-on questions about automation, artificial intelligence, and income distribution that currently abound.
With three big books behind him — Economic Origins of Dictatorship and Democracy; Why Nations Fail; and The Narrow Corridor, all with James Robinson, of the University of Chicago Harris School – behind him, Acemoglu is among the leading intellectuals of the present day. As heir to the leadership roles played by Paul Samuelson, Robert Solow, and Peter Diamond, he packs intuitional punch as well. Pay attention! Get ready for a battle royale.
The tectonic plates of scientific economics are shifting — large-scale processes are affecting the structure of the discipline. That revolution I mentioned at the beginning? The one in whose coverage we economic journalists are engaged? Its fundamental premise is that, while politics always plays a part in the background, economics makes progress over the years. In other words, Hayek takes a back seat to Acemoglu.