The Great Recession has brought with it a renewed interest in Hayek's business-cycle theory, which holds that loose monetary policy generates an unsustainable boom characterized by a lengthening of the capital structure. Hayek's theory has received robust criticism for decades, although the criticisms have varied in quality. Various empirical disconfirmations pose the most serious challenge. The small empirical literature on the subject generally confirms Hayek's predictions about variations in the capital structure, but has not persuasively linked the capital structure to (...) the business cycle. A better option, then, may be to abandon Hayek's business-cycle theory, preserve his capital theory, and graft it onto a Keynesian or monetarist understanding of the business cycle that is more consistent with modern macroeconomics. (shrink)

This paper provides a history of the development of Harold Hochman and James Rodgers’ theory of Pareto optimal redistribution, which modeled income transfers as a public good. Pareto optimal redistribution provided an economic efficiency case for redistribution policy. After reviewing the emergence of Pareto optimal redistribution at the University of Virginia and its elaboration at the Urban Institute in the early 1970s, the paper describes James M. Buchanan’s efforts to grapple with his colleague’s ideas in the context of public choice (...) theory. Initially, Buchanan provided an even more expansive argument for redistribution than Hochman and Rodgers. By the mid-1970s, though, Buchanan largely rejected his earlier approach to redistribution and theorized new criteria for redistribution that were narrower in scope. (shrink)