Ever since Brad DeLong and Paul Krugman made their comments about how Hayek was not a big figure in macroeconomics, there has been a series of blog posts on the internet by the Hayekians, or defenders of Hayek, to show that Hayek was in fact a big figure in macroeconomics. Mario Rizzo, Alex Tabarrok, Russ Roberts, and Greg Ransom are just some of the defenders of Hayek responding to the DeLong/Krugman criticism towards Hayek. My response is quite simple: the New Keynesians are right, Hayek played a minor part in macroeconomics. Now I differ from DeLong and Krugman because I actually appreciate Hayek’s work and he does deserve respect for his work, but their basic point is spot on: Hayek was not a big figure in macroeconomics.
Hayek’s most popular macroeconomic thing he has done, and this is what he was most known for, is his work on the Austrian Business Cycle. Here is a lecture by Roger Garrison on the Austrian Business Cycle:
Now why do I say that Hayek was a minor figure? Because he tried to develop a theory using neoclassical tools and in the end, failed to convince the economic profession. And in using neoclassical tools to expand on his theory, he throws away essential parts of Austrian Economics, human action and subjectivism.
A thing that always bugged me more than the faulty ‘natural rate of interest,’ in the ABCT is the fact that the theory only accounts for one structure of production in his model, but in the real world there are several structures in production, so to only call for one in a model is rubbish.
In the end, Hayek did nothing more than to incorporate faulty mainstream assumptions in his model and simply calling it Austrian because it applied some notion of a structure of production. I have said this before and I’ll say it again, this is just another battle between which neoclassical theory is better.