Hayek and the Methodenstreit at the LSE

ABSTRACT

Friedrich Hayek’s Inaugural Address at the London School of Economics (LSE), ‘The Trend of Economic Thinking’ (1 March 1933), has been recognized as of particular importance for the understanding of his work. In it, Hayek argues that economics has a key role of showing what we cannot achieve: of showing that some attractive ideals are utopian. In developing this theme, Hayek referred to Mises’ arguments about the problems of economic calculation under socialism; but the idea – which I suggest might be seen as a theory about the structural constraints imposed by a flourishing market economy – becomes a more general motif in Hayek’s work. In the lecture, Hayek’s ideas are developed through engagement with the younger German Historical School of economics, which is criticized for espousing methodological ideas that would call the idea of such constraints into question. In this article, I suggest that there were also local targets at the LSE. I discuss the way in which William Beveridge, the Director of the LSE, and Lancelot Hogben, who held a Chair in Social Biology there, were engaged in an extended empiricist critique of the methodological ideas of the LSE economists and of theoretical economists more generally in ways close to the younger German historical school.

KEYWORDS:

• Hayek
• Methodenstreit
• LSE
• Beveridge
• Hogben

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. See, for an early appreciation of this Caldwell (1988) and also Caldwell (2004). It was also something the importance of which was stressed in Shearmur (1987) and Shearmur (1996).

2. For some evidence as to his persisting attachment to them, see Shearmur (1996). It is also worth noting the way in which, to the consternation of those with whom he became politically allied (compare Rand, 1995), he showed some continuing attachment to measures which required a moderate amount of governmental intervention, and also to a modest notion of a welfare state.

3. See for example his critical discussion of Irving Kristol in Hayek (1973-9), chapter 9.

4. It is striking that Beveridge also pursued research in economic history which was much in the spirit of the younger Historical School.

5. He put this particular forcibly in a letter to Percy L. Greaves of 17th June 1976 Hayek Archive 22–18, Hoover Institution Archive, Stanford University.

6. Cf. Hayek’s comment in material written for an entry on the Austrian School in the New Palgrave and included as an Addendum to ‘The Austrian School of Economics’ in (Hayek, 1992); see p. 53: ‘Robbins’s own most influential work, The Nature and Significance of Economic Science, made what had been the methodological approach to microeconomic theory established by the Austrian school the generally recognized standard.’

7. See (Howson, 2004). This documents the domestic origins of Robbins’ ideas, and argues that references to the Austrians were added at a late stage: ‘the Austrian references in the first edition were late additions, made partly under the influence of Hayek and mainly in order to mention the most recent literature’ (p. 414).

8. This comment is made in the light of the character of the correspondence between Hayek and Mitchell, largely about Wieser, which was much more friendly than one might have expected in the light of Hayek’s later views. See Hayek Archive 38–28.

9. Hayek was engaged in correspondence about this with Neurath in 1945. See Hayek Archive, Box 40–7. My reason for hesitation about this, is because Hayek was I think mistaken in attributing physicalism in a realist sense to Carnap, while Neurath’s views on this issue seem to me ultimately obscure.

10. An example of this is provided by an assessment (which as a whole was favourable!) by Charles J. Bullock whom the Memorial consulted when considering the funding of the Vienna Institute for the Study of Trade Cycle Research, of which Hayek was the first director. See (Craver, 1986, pp. 212–213).

11. Two useful works for getting a feel for Hogben’s approach are his (1936) and his ‘The Creed of a Scientific Humanist’, in (Hogben, 1940b; see also 1940a).

12. He refers frequently to ‘Austrian economics’, but his specific criticisms seem to focus particularly on Robbins, although, as we shall see, he is also critical of Hicks.

13. I will, again for reasons of space, not discuss Hogben’s more positive views about the possible contributions of social biology, in which context see for example (Hogben, 1931)

14. There is a reference to Hogben in ‘Scientism and the Study of Society’, part 2, page 40, in which Hayek notes correctly that Hogben is among those who talk about available energy in relation to the meeting of human needs. But Hayek does not go on to explore what, in Hogben, is behind all this (i.e. his critique of consumer choice). He also refers briefly but critically to Hogben in essays now included in (Hayek, 1997).

15. See Caldwell’s editorial introduction to Hayek’s Studies in the Abuse of Reason (Hayek, 2010).

16. Hogben does not himself provide a reference, but Isabel Stearns, who provided annotations to (Hogben, 1937a), identifies it as Aphorism 24. The quotation is from (Hogben, 1937a, p. 6).

17. The quotation is from (Hogben, 1940b, p. 84); Hogben provides a reference simply to ‘Economica, 1937’, which must be to (Hayek, 1937), although it is not obvious what specifically Hogben had in mind.

18. Hogben does not provide a reference, but the passage is to be found at (Hicks, 1966, p. 153).

19. Compare, for example, current discussions around the subject of ‘experimental economics’ and its relation to work in economic theory.

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Jeremy Shearmur

Jeremy Shearmur was educated at the London School of Economics, where he worked as assistant to Karl Popper. His PhD thesis, on Hayek’s political thought, was joint-winner of the Sir Ernest Barker Prize in political theory. He has held appointments at Edinburgh, Manchester, George Mason University and the ANU, where he taught political theory and then philosophy. He is currently an Emeritus Fellow at the ANU, and lives in Dumfries in Scotland. He has published books on Popper and on Hayek, and around 100 papers on philosophy, political theory and the history of ideas. He was joint-editor of Popper’s After the Open Society and of The Cambridge Companion to Popper, and is currently editing Hayek’s Law, Legislation and Liberty for inclusion in Hayek’s Collected Works. A collection of his papers is due to appear soon, in Persian, under the title Between Popper and Hayek.