The Review of Austrian Economics, 16:4, 291–307, 2003.
2003 Kluwer Academic Publishers. Manufactured in The Netherlands.
Knowledge Questions: Hayek, Keynes and Beyond
WILLIAM N. BUTOS firstname.lastname@example.org
Professor of Economics, Trinity College, Hartford, CT , USA
Abstract. This paper discusses the “knowledge problem” in terms of both the use and generation of knowledge.
This is analyzed in the context of Hayek’s failure to respond to the “Keynes Challenge”—the claim that markets
fail to produce relevant knowledge—by suggesting that in the aftermath of The General Theory he was not well-
positioned to address that problem. Ironically, his post-World War II work in cognitive psychology, The Sensory
Order,offers a theory of the generation of knowledge which can provide a useful analogy for understanding the
generation of market-level knowledge.
KeyWords: Hayek, Keynes, knowledge
JEL classiﬁcation: B31, B53.
I propose to revisit the Hayek-Keynes debate—not so much to rehash old war stories but to
make some observations that contemporary Austrians may ﬁnd useful in their own thinking.
In particular, I think that one way to understand Keynes’s argument is to interpret it as a
claim that the market economy does not have the capacity to reliably generate relevant
market knowledge. A crucial question, then, would be: Did Hayek have available a theory
which could have responded to such a claim? No, I don’t think so. Would he come close?
Yes, but it wasn’t until much later that a supporting cast of theories providing the basis for
such a response would emerge. So, although my hook, if you will, is to couch the question in
terms of Hayek & Keynes, my underlying purpose is to talk about the “knowledge problem”
familiar to Austrian economists and to generalize it in a way that may suggest some different
lines of inquiry.
2. Keynes on Market Failure
As Caldwell (1998) observes, Hayek gave several explanations for not directly responding
to The General Theory. Among these was his belief as stated in his “Personal Recollections
of Keynes and the Keynesian Revolution” that The General Theory was just “obviously
another tract for the times, conditioned by what [Keynes] thought were the momentary
needs of policy” (Hayek  1995:241). It is perhaps not difﬁcult to understand Hayek’s
Earlier drafts of this paper were presented as the Presidential Address at the Annual Conference of the Society
for the Development of Austrian Economics (November 2002) and at the NYU Austrian Economics Colloquium