March 18, 2016

Hayek was not an economist

Comment on Maria Alejandra Madi on ‘Economic discourse and the market’


You say “In the last decades, the emergence and diffusion of the neoliberal agenda reflected the intellectual victory of Hayek’s ideas about the supremacy of the competitive economic order and the rejection of interventionism to promote economic growth and social justice.” (See intro)

This is a misunderstanding that is grounded in the provable fact that most people/ economists have no proper understanding of economics.* Therefore it is, first of all, of utmost importance to distinguish between political and theoretical economics. The main differences are:
(i) The goal of political economics is to push an agenda, the goal of theoretical economics is to explain how the actual economy works.
(ii) In political economics anything goes; in theoretical economics scientific standards are observed.

Theoretical economics has to be judged according to the criteria true/false and nothing else. The history of political economics since Adam Smith can be summarized as perpetual violation of well-defined scientific standards.

Theoretical economics has been hijacked by the agenda pushers of political economics. Smith and Ricardo fought for liberalism, Marx and Keynes were agenda pushers, so were Hayek and Friedman, and so are Krugman and Varoufakis.

It is a widespread misunderstanding to think that people who talk about the economy are economists and understand how the economy works. Hayek’s ‘Road to Serfdom’ is a political pamphlet and it is not backed by the true economic theory simply because Hayekian economics is scientifically worthless storytelling until this day.

Hayek, of course, had the right to write political pamphlets, to defend capitalism, to support Thatcher, and to found a political club like Mont Pelerin. One thing, though, should be perfectly clear: the moment an economist starts with politics he leaves economics, understood as a science, for good.

When Krugman supports the Democrats, Wren-Lewis and Keen support Corbyn, when Varoufakis fights for democratizing the Eurozone, has this anything to do with scientific research? What have they and Hayek in common? Neither has a scientifically valid theory about how the actual economy works. So, all their arguments and opinions are hanging in midair.

One task of Heterodoxy is to refute false theories. The more important task, though, is to develop the true theory of how markets work (2015). Hayekian economics never satisfied the criteria of material and formal consistency. It is worthless political economics. Let Heterodoxy throw Hayek out of economics and over the disciplinary fence to political science to where he rightfully belongs.

Egmont Kakarot-Handtke

Kakarot-Handtke, E. (2015). Essentials of Constructive Heterodoxy: The Market. SSRN Working Paper Series, 2547098: 1–10. URL

* See post ‘How the intelligent non-economist can refute every economist hands down

Related 'Economics and the weapons of mass distraction' and  'Low-IQ economics: the beginner’s guide' and 'Krugman and the scientific implosion of economics' and 'Political economics: a playground for scientific deadbeats' and  'Every thinking economist is heterodox by default, but how do we proceed from here?' and 'Are economists natural born scientific failures?'.