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 A new edition of this Hayek classic. Available as a free download.
When the IEA first published A Tiger by the Tail in 1972 it made a significant impact. At a time when events were vindicating Hayek's analysis, it reminded economists and policymakers that he had been consistently warning against Keynesianism for more than 40 years. He was awarded the Nobel Prize in Economics just two years later in 1974.
In the context of the present downturn and the widespread advocacy of fiscal stimulus as a valid policy response, it is clear that Hayek's writings are just as pertinent today.
This edition, published jointly with the Ludwig von Mises Institute, includes a superb introduction by Joseph T. Salerno, which explains the book's relevance to the current economic crisis.
INTRODUCTION TO THE THIRD EDITION
The small book you are holding in your hands is unique. It is perhaps the fi nest introduction to the thought of a major thinker ever published in the discipline of economics. What makes it unique is the fact that it comprises selections and short excerpts from a broad range of Hayek’s works written over a span of forty years.
Despite its broad coverage the book is amazingly compact and coherent, seamlessly integrating the main themes from Hayek’s writings on money, capital, business cycles, and international monetary systems.
Furthermore, although it mainly uses Hayek’s own words, some from his more technical works, it has been compiled and arranged by the late Sudha Shenoy in a way that makes it comprehensible to the layperson and student but can also be read with profit by the professional economist and teacher. ...
Visit A Tiger by the Tail: The Keynesian Legacy of Inflation Download Page
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A 40-Years’ Running Commentary on Keynesianism by Hayek
With an essay on ‘The Outlook for the 1970s: Open or Repressed Inflation?’
By F.A. HAYEK
Nobel Laureate 1974
Compiled and Introduced by Sudha R. Shenoy
Introduction by Joseph T. Salerno
Third Edition
Published jointly by The Institute of Economic Affairs and the Ludwig von Mises Institute
CONTENTS
Acknowledgements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v
Guide to Extracts and Articles. . . . . . . . . . . . . . . . . . . . . . . . . . . xi
Introduction to the Third Edition by Joseph T. Salerno . . . . . . xiii
Preface by Arthur Seldon. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xxi
Preface to the Second Edition by Arthur Seldon . . . . . . . . . . . .xxv
The Authors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .xxvii
I. The Debate, 1931–1971: Sudha Shenoy . . . . . . . . . . . . . . . 1
Challenge to Keynes . . . . . . . . . . . . . . . . . . . . . . . . . 2
The Approach to an Incomes Policy. . . . . . . . . . . . . . 5
‘Micro’ Dimensions Acknowledged . . . . . . . . . . . . . . 9
Is There a Price ‘Level’? . . . . . . . . . . . . . . . . . . . . . . 10
Further Implications of Hayekian Analysis. . . . . . . . 13
II. The Misuse of Aggregates. . . . . . . . . . . . . . . . . . . . . . . . . .15
1. Inflationism . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
2. No Causal Connection Between Macro Totals and
Micro Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
3. Fallacy of ‘The’ Price Level . . . . . . . . . . . . . . . . . . . . . 17
4. Economic Systems Overleap National Boundaries . . . 18
Misleading Concepts of Prices and Incomes. . . . . . . .19
5. Dangers of ‘National’ Stabilisation . . . . . . . . . . . . . . . 20
Theoretical Case Not Argued. . . . . . . . . . . . . . . . . . 21
Relative Price and Cost Structures . . . . . . . . . . . . . . 22
6. Monetary Danger of Collective Bargaining. . . . . . . . . 24
III. Neglect of Real for Monetary Aspects. . . . . . . . . . . . . . . . 27
7. Keynes’s Neglect of Scarcity . . . . . . . . . . . . . . . . . . . . 27
Investment Demand and Incomes . . . . . . . . . . . . . . 28
Final Position of Rate of Return. . . . . . . . . . . . . . . . 29
Mr. Keynes’s Economics of Abundance . . . . . . . . . . 30
Basic Importance of Scarcity . . . . . . . . . . . . . . . . . . 33
8. Importance of Real Factors . . . . . . . . . . . . . . . . . . . . . 34
Signifi cance of Rate of Saving . . . . . . . . . . . . . . . . . 35
9. Dangers of the Short Run . . . . . . . . . . . . . . . . . . . . . . 37
Betrayal of Economists’ Duty. . . . . . . . . . . . . . . . . . 39
IV. International versus National Policies . . . . . . . . . . . . . . . . 41
10. A Commodity Reserve Currency . . . . . . . . . . . . . . . . 41
An Irrational but Real Prestige. . . . . . . . . . . . . . . . . 42
11. Keynes’s Comment on Hayek . . . . . . . . . . . . . . . . . . . 43
Conditions for National Price Stability . . . . . . . . . . 44
Different National Policies Needed . . . . . . . . . . . . . 45
12. F.D. Graham’s Criticism of Keynes . . . . . . . . . . . . . . . 47
The ‘Natural Tendency of Wages’ . . . . . . . . . . . . . . 48
Gold Standard ‘Dictation’ . . . . . . . . . . . . . . . . . . . . 50
Unanchored Medium of Exchange. . . . . . . . . . . . . . .51
The Real Problem of Unemployment . . . . . . . . . . . . 53
Professor Hayek’s ‘Intransigence’ . . . . . . . . . . . . . . . 54
13. Keynes’s Reply to Graham . . . . . . . . . . . . . . . . . . . . . 56
V. Wage Rigidities and Infl ation . . . . . . . . . . . . . . . . . . . . . . 59
14. Full Employment, Planning and Infl ation. . . . . . . . . . 59
Full Employment the Main Priority . . . . . . . . . . . . . 60
Unemployment and Inadequate Demand. . . . . . . . . .61
Main Cause of Recurrent Unemployment . . . . . . . . 63
Expansion May Hinder Adjustment . . . . . . . . . . . . . 65
15. Infl ation Resulting from Downward Inflexibility
of Wages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Importance of Relative Wages . . . . . . . . . . . . . . . . . 68
Infl ation—A Vicious Circle . . . . . . . . . . . . . . . . . . . 70
The State of Public Opinion . . . . . . . . . . . . . . . . . . 72
16. Labour Unions and Employment . . . . . . . . . . . . . . . . 73
Changed Character of the Problem . . . . . . . . . . . . . 74
Union Coercion of Fellow Workers . . . . . . . . . . . . . 78
Wage Increases at Expense of Others . . . . . . . . . . . . 80
Harmful and Dangerous Activities. . . . . . . . . . . . . . 82
Acting against Members’ Interests . . . . . . . . . . . . . . 84
A Non-coercive Role . . . . . . . . . . . . . . . . . . . . . . . . 87
Minor Changes in the Law . . . . . . . . . . . . . . . . . . . 90
Responsibility for Unemployment . . . . . . . . . . . . . . 93
Progression to Central Control. . . . . . . . . . . . . . . . . 96
‘Unassailable’ Union Powers. . . . . . . . . . . . . . . . . . . 99
17. (a) Inflation—A Short-term Expedient
(b) Infl ation—The Deceit is Short-lived. . . . . . . . . . . .101
17. (a) Inflation—A Short-term Expedient . . . . . . . . .101
Infl ation Similar to Drug-taking . . . . . . . . . . . . . . 102
Accelerating Infl ation. . . . . . . . . . . . . . . . . . . . . . . 104
The Path of Least Resistance . . . . . . . . . . . . . . . . . . . . . 105
17. (b) Infl ation—The Deceit is Short-lived . . . . . . . 106
Limited Central Bank Infl uence. . . . . . . . . . . . . . . 107
Weak Opposition to Inflation . . . . . . . . . . . . . . . . 108
VI. Main Themes Restated. . . . . . . . . . . . . . . . . . . . . . . . . . .111
18. Personal Recollections of Keynes. . . . . . . . . . . . . . . . .111
Keynes Changes His Mind . . . . . . . . . . . . . . . . . . .112
Thinking in Aggregates . . . . . . . . . . . . . . . . . . . . . .114
Full Employment Assumption . . . . . . . . . . . . . . . . .115
Wide Intellectual Interests . . . . . . . . . . . . . . . . . . . .117
19. General and Relative Wages . . . . . . . . . . . . . . . . . . . .119
Unpredictability and the Price System . . . . . . . . . . 120
Wage Rigidities . . . . . . . . . . . . . . . . . . . . . . . . . . . 122
Importance of Relative Wages . . . . . . . . . . . . . . . . 123
20. Caracas Conference Remarks . . . . . . . . . . . . . . . . . . 125
VII. The Outlook for the 1970s: Open or Repressed
Inflation?: F.A. Hayek . . . . . . . . . . . . . . . . . . . . . . . . . . 127
Long-run Vicious Circle. . . . . . . . . . . . . . . . . . . . . 127
Repressed Inflation a Special Evil . . . . . . . . . . . . . . 129
Central Control and ‘Politically Impossible’
Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 130
Profit-sharing a Solution. . . . . . . . . . . . . . . . . . . . . 132
Basic Causes of Inflation . . . . . . . . . . . . . . . . . . . . 132
VIII. Addendum 1978. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .135
Introduction by Sudha Shenoy. . . . . . . . . . . . . . . . .135
Guiding Role of Individual Price Changes . . . . . . . 136
21. Good and Bad Unemployment Policies . . . . . . . . . . . 138
Maladjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . 139
Wages and Mobility. . . . . . . . . . . . . . . . . . . . . . . . 140
Dangers Ahead . . . . . . . . . . . . . . . . . . . . . . . . . . . .141
22. Full Employment Illusions . . . . . . . . . . . . . . . . . . . . 142
Money Expenditure and Employment . . . . . . . . . . 143
An Old Argument in New Form . . . . . . . . . . . . . . 144
The Shortcomings of Fiscal Policy . . . . . . . . . . . . . .145
Cyclical Unemployment. . . . . . . . . . . . . . . . . . . . . 146
Consumers’ Goods Demand and Investment
Activity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 148
Purchasing Power and Prosperity . . . . . . . . . . . . . . 148
Why the Slump in Capital Goods Industries? . . . . 148
23. Full Employment in a Free Society . . . . . . . . . . . . . . .151
Hayek’s Writings: A List for Economists . . . . . . . . . . . . . . . . . .157
Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .159
PREFACE
The purpose of the Hobart Paperbacks is to discuss, in the spirit of what was once called ‘political economy, the influences which affect the translation of economic ideas into practical policy and the economics of government activity.
In the first Paperback Professor W.H. Hutt examined the notion that some ideas are not adopted because they are considered to be ‘politically impossible.’
In the second Mr. Samuel Brittan analysed the consistency of British Government economic policy since June 1970. In the third Mr. W.R. Lewis analysed the conflict between ideas and policy in the aspirations of the Treaty of Rome and the performance of its interpreters at Brussels.
The translation of economic thinking into government action is perhaps nowhere more vividly illustrated than in the work of John Maynard Keynes. He was the most infl uential economist of our times, his ideas have infl uenced governments of all philosophic flavours more than any other economist. Yet it is not clear that his work will survive longer than that of some of his contemporaries. Perhaps no economist more than Adam Smith has had both early infl uence on government policy and enduring influence on the thinking of economists of succeeding generations. ...
THE AUTHORS
Friedrich August Hayek, Dr. Jur., Dr. Sc. Pol. (Vienna), D.Sc. (Econ.) (London), Visiting Professor at the University of Salzburg, Austria, 1970–74. Director of the Austrian Institute for Economic Research, 1927–31, and Lecturer in Economics at the University of Vienna, 1929–31. Tooke Professor of Economic Science and Statistics, University of London, 1931–50. Professor of Social and Moral Science, University of Chicago, 1950–62. Professor of Economics, University of Freiburg i.Brg., West Germany, 1962–68. He was awarded the Alfred Nobel Memorial Prize in Economic Sciences in 1974.
Professor Hayek’s most important publications include Prices and Production (1931), Monetary Theory and the Trade Cycle (1933), The Pure Theory of Capital (1941), The Road to Serfdom (1944), Individualism and Economic Order (1948), The Counter-Revolution of Science (1952), and The Constitution of Liberty (1960).
His latest works are a collection of his writings under the title Studies in Philosophy, Politics and Economics (1967) and Law, Legislation and Liberty (Vol. I: Rules and Order, 1973; Vol. II: The Mirage of Social Justice, 1976).
He has also edited several books and has published articles in the Economic Journal, Economica and other journals. The IEA has published his The Confusion of Language in Political Thought (Occasional Paper 20, 1968), his Wincott Memorial Lecture, Economic Freedom and Representative Government (Occasional Paper 39, 1973), an essay in Verdict on Rent Control (IEA Readings No. 7, 1972), Full Employment at Any Price? (Occasional Paper 45, 1975), Choice in Currency: A Way to Stop Infl ation (Occasional Paper 48, 1976), and Denationalisation of Money (Hobart Paper 70, 1976; 2nd edition 1978).
Sudha R. Shenoy, B.A., B.Sc.(Econ), M.A., was born in 1943 and educated at Mount Carmel School and St. Xavier’s College, Ahmedabad, India, the London School of Economics, the University of Virginia, and the School of Oriental and African Studies, University of London. Formerly Research Assistant, Queen Elizabeth House, Oxford, 1971–73. Lecturer in Economics, Univer sity of Newcastle, NSW, Australia, 1973–74. Lecturer in Economics, Cranfi eld Institute of Technology, 1975–76. Senior Tutor in Economics, University of Newcastle, NSW, since 1977.
Her publications include ‘The Sources of Monopoly’, New Individualist Review (Spring 1966); ‘Pricing for Refuse Removal’, in Essays in the Theory and Practice of Pricing, Readings in Political Economy 3 (London: IEA, 1967); ‘A Note on Mr. Sandesara’s Critique’, Indian Economic Journal (April/June, 1967); Under-development and Economic Growth, Key Book 10 (London: Longmans for the IEA, 1970); ‘The Movement of Human Capital’, in Economic Issues in Immigra tion, Readings in Political Economy (London: IEA, 1970); India: Progress or Poverty?, Research Monograph 27 (London: IEA, 1971); and (with G.P. O’Driscoll, Jr.) ‘Infl ation, Recession, Stagflation’, in E.G. Dolan (ed.), Foundations of Modern Austrian Economics (Kansas City: Sheed and Ward, 1976).
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