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The Cambridge Companion to Hayek (Cambridge Companions to Philosophy)

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This is an interesting collection of essays written on Hayek's contributions to economics,philosophy,and psychology.This review will concentrate on the 5 of the 14 essays( those essays were written by Desai,Skidelsky,Gamble,O'Hear,and Kukathas)that attempt to deal with Hayek's writings on knowledge and uncertainty(by which Hayek meant complete and total ignorance a la his former student ,G L S Shackle).Hayek acknowledges that the knowledge used by entrepreneurs in their decision making about production and investment is incomplete,scattered,and available in tiny bits and pieces.Hayek acknowledges that decision making takes place under radical(complete and total ignorance)uncertainty.Hayek rejects the theoretical framework of standard neoclassical economics based on either the assumption of perfect and complete knowledge(perfect certainty) or the stochastic version, used by Milton Friedman,Robert Lucas, Eugene Fama,Mankiw and Prescott and Kydland,for example, that relies on the assumption of normality of all markets.Hayek,nevertheless,arrives at the SAME,IDENTICAL conclusion-that " free markets " will spontaneously generate a full employment level of output at noninflationary levels.A careful examination of Hayek's work on uncertainty and Knowledge ,which is not done by any of the authors in this book,reveals that Hayek has no model or analysis showing HOW decision making under uncertainty will generate the conclusion claimed.Hayek simply asserts that such a solution will be attained because uncertainty creates possible opportunities for entrepreneurs.However,all of the available evidence on decision making under uncertainty/ambiguity shows that the vast majority of entrepreneurs are AVERSE to making decisions under uncertain circumstances.Hayek has failed miseribly to present a theory of decision making under uncertainty.Keynes provided just such a theory in his A Treatise on Probability(1921).This theory forms the foundation of the GT.None of the authors of the essays in this book deal with this giant lacuna in Hayek's thought.Hayek had no theory of how uncertainty impacts the business decision making process(or how expectations are formed) over time.Hayek simply asserts.He does not reason from assumption to conclusion.Hayek's conclusion requires(a) that the majority of entrepreneurs are always confident in their expectations,which are always reliable,although Hayek has no model with a variable denoting degree of confidence ,independent of degree of probability,which also lacks specificity;and (b)that the majority of entrepreneurs are always optimistic and not pessimistic,although Hayek has no variable in his "model" explaining why entrepreneurs will always be optimistic about the future. .This is why there is no essay in this book that is titled "Hayek and Uncertainty".Hayek's results are due to assertions and claims about the magic of the marketplace .The magic of the market place is a more accurate description of the extreme looseness of Hayek's claim about the spontaneous generation of coordination mechanisms which,as is always the case,are spontaneously generated by the magic of the marketplace.Hayek never explains this process.Neither do any of the authors in this book.