WHERE DID ECONOMICS GO WRONG - MODERN ECONOMICS AS A FLIGHT FROM REALITY

EA, Hayek's realistic economic theory has been replaced by the formali stic use of equilibrium models that bear little resemblance to reality . These models are as serviceable to the right as to the left: they al low the economist either to condemn capitalism for failing to measure up to the model of perfect competition, or to praise capitalism as a u topia of perfect knowledge and rational expectations. Hayek, by contra st, used equilibrium to show that while capitalism is not perfect, it contains error-correcting institutions that bring it closer to perfect ion than is intuitively apparent.