Where Did Economics Go Wrong? Modern Economics as a Flight from Reality
Critical Review, Vol. 11, No. 1, pp. 11-64, Winter 1997
54 Pages Posted: 17 Jan 2010
Date Written: 1997
F.A. Hayek's realistic economic theory has been replaced by the formalistic use of equilibrium models that bear little resemblance to reality. These models are as serviceable to the right as to the left: they allow the economist either to condemn capitalism for failing to measure up to the model of perfect competition, or to praise capitalism as a utopia of perfect knowledge and rational expectations. Hayek, by contrast, used equilibrium to show that while capitalism is not perfect, it contains error-correcting institutions that bring it closer to perfection than i intuitively apparent.
JEL Classification: B20, B53
Suggested Citation: Suggested Citation