Hayek's Epistemic Theory of Industrial Fluctuations

F. A. Hayek essentially quit the study of industrial fluctuations as an explicit object of theoretical investigation following the publication of 1941’s "The Pure Theory of Capital". Nonetheless, several of Hayek’s subsequent methodologically oriented writings bear important implications for economic phenomena, especially those of industrial fluctuations. Decisions (usually, for Hayek, of a political nature) taken on the basis of a ‘pretence’ of knowledge impede the operation of the price system’s belief-coordinating function and thereby contribute to episodes of economic disequilibrium. Moreover, this later account – which I call "Hayek’s epistemic theory of industrial fluctuations" – implies certain aspects of his earlier theory. The two accounts are connected in virtue of the role that the limits of human knowledge play in each. Indeed, it turns out that – in a sense defined in the paper – Hayek’s early theory of the cycle is a special case of his more general epistemic account. The concluding section addresses the implications of the main arguments of the paper for certain themes in the secondary literature on Hayek.