Yes, I now remember I looked at that paper shortly before I retired. I may have been wrong, but I thought you misunderstood Hayek. I don’t believe you considered his book, I think called Prices and Production, in which he explores how the price system might move the economy away from an efficient allocation of resources. In his model the recession part of a business cycle (the part in which output is declining) is the result of the price system causing a misallocation of resources during periods when monetary policy or simply bank behavior during periods of easy credit causes interest rates to be too low. These low interest rates cause firms to invest in production processes that are relatively too long to be profitable when real interest rates return to normal. The other place you neglected was his work on the socialist calculation problem which is concerned with whether it is possible to make correct calculations for investment decisions without market prices. That is, is it possible for a socialist system to allocate resources in any halfway reasonable manner without the use of markets? I read this stuff now 50 years ago, and it is very complicated (at least to me), so my recollections could be somewhat deficient. Be that as it may, you clearly are a much better social scientist than me.
Yes, I now remember I looked at that paper shortly before I retired. I may have been wrong, but I thought you misunderstood Hayek. I don’t believe you considered his book, I think called Prices and Production, in which he explores how the price system might move the economy away from an efficient allocation of resources. In his model the recession part of a business cycle (the part in which output is declining) is the result of the price system causing a misallocation of resources during periods when monetary policy or simply bank behavior during periods of easy credit causes interest rates to be too low. These low interest rates cause firms to invest in production processes that are relatively too long to be profitable when real interest rates return to normal. The other place you neglected was his work on the socialist calculation problem which is concerned with whether it is possible to make correct calculations for investment decisions without market prices. That is, is it possible for a socialist system to allocate resources in any halfway reasonable manner without the use of markets? I read this stuff now 50 years ago, and it is very complicated (at least to me), so my recollections could be somewhat deficient. Be that as it may, you clearly are a much better social scientist than me.