Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

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Sunday, June 08, 2008

Hayek's Nobel Speech

Posted by Simon Halliday | Sunday, June 08, 2008 | Category: |

Ok, so one of the topics in the course for which I have an exam soon has some references to Hayek. I have thoroughly enjoyed the articles of his that I read, The Use of Knowledge in Society and The Pretence of Knowledge. The latter was his Nobel address.

Probably my favourite quote in the Nobel address was "I prefer true but imperfect knowledge, even if it leaves much indetermined and unpredictable, to a pretence of exact knowledge that is likely to be false." He is commenting here on the problems, in 1974 and probably still now, of the obsession that economists have with finding the exact magnitudes of the effects of specific variables. He argues, quite convincingly, that even when economists think that they have 'data' they actually are being faux-scientific.

He asserts that "We know, in other words, the general conditions in which what we call, somewhat misleadingly, an equilibriumwill establish itself: but we never know what the particular prices or wages are which would exist if the market were to bring about such an equilibrium. We can merely say what the conditions are in which we can expect the market to establish prices and wages at which demand will equal supply. But we can never produce statistical information which would show how much the prevailing
prices and wages deviate from those which would secure a continuous sale of the current supply of labour."

This is in reference to the data that economists were gathering and attempting to use for prediction in the 70s with respect to the problems of stagflation. Though I believe strongly that statistics and computing capabilities have improved dramatically since 1974 when he gave delivered this address, I think that a number of his arguments are still relevant and definitely worthy of our inspection and assessment.

Give both of these a read when you have the time. I would put them up, but I think I'd be infringing copyright laws.

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