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Friedrich Hayek
Friedrich Hayek.jpg
Born (1899-05-08)8 May 1899
Vienna, Cisleithania, Austria-Hungary
Died 23 March 1992(1992-03-23) (aged 92)
Freiburg im Breisgau, Baden-Württemberg, Germany
Nationality
  • Austrian
  • British
Institution
Field
School or tradition
 Austrian School
Alma mater
Influences
Influenced
Contributions
Awards
Signature Friedrich von Hayek signature.gif
Information at IDEAS / RePEc

Friedrich Hayek CH (German: [ˈfʁiːdʁɪç ˈaʊ̯ɡʊst ˈhaɪ̯ɛk]; 8 May 1899 – 23 March 1992), born in Austria-Hungary as Friedrich August von Hayek and frequently referred to as F. A. Hayek, was an Austrian and British economist and philosopher best known for his defence of classical liberalism. Hayek shared the Nobel Memorial Prize in Economic Sciences with Gunnar Myrdal for his "pioneering work in the theory of money and economic fluctuations and ... penetrating analysis of the interdependence of economic, social and institutional phenomena".[1]

Hayek was a major social theorist and political philosopher of the twentieth century,[2][3] and his account of how changing prices communicate information which enables individuals to co-ordinate their plans is widely regarded as an important achievement in economics.[4]

Hayek served in World War I and said that his experience in the war and his desire to help avoid the mistakes that had led to the war led him to his career. Hayek lived in Austria, Great Britain, the United States and Germany, and became a British subject in 1938. He spent most of his academic life at the London School of Economics (LSE), the University of Chicago, and the University of Freiburg.

In 1984, he was appointed a member of the Order of the Companions of Honour by Queen Elizabeth II on the advice of Prime Minister Margaret Thatcher for his "services to the study of economics".[5] He was the first recipient of the Hanns Martin Schleyer Prize in 1984.[6] He also received the US Presidential Medal of Freedom in 1991 from President George H. W. Bush.[7] In 2011, his article "The Use of Knowledge in Society" was selected as one of the top 20 articles published in The American Economic Review during its first 100 years.[8]

Early life

Friedrich August von Hayek was born in Vienna to August von Hayek and Felicitas née von Juraschek. Friedrich's father, from whom he received his middle name, was also born in Vienna in 1871. He was a medical doctor employed by the municipal ministry of health, with passion in botany, in which he wrote a number of monographs.
August von Hayek was also a part-time botany lecturer at the University of Vienna. Friedrich's mother was born in 1875 to a wealthy, conservative, land-owning family. As her mother died several years prior to Friedrich's birth, Felicitas gained a significant inheritance which provided as much as half of her and August's income during the early years of their marriage. Hayek was the oldest of three brothers, Heinrich (1900–69) and Erich (1904–86), who were one-and-a-half and five years younger than him.[9]

His father's career as a university professor influenced Friedrich's goals later in life.[10] Both of his grandfathers, who lived long enough for Friedrich to know them, were scholars. Franz von Juraschek was a leading economist in Austria-Hungary and a close friend of Eugen Böhm von Bawerk, one of the founders of the Austrian School of Economics. Von Juraschek was a statistician and was later employed by the Austrian government. Friedrich's paternal gradfather, Gustav Edler von Hayek, taught natural sciences at the Imperial Realobergymnasium (secondary school) in Vienna. He wrote systematic works in biology, some of which are relatively well known.[11]

On his mother's side, Hayek was second cousin to the philosopher Ludwig Wittgenstein. His mother often played with Wittgenstein's sisters, and had known Ludwig well. As a result of their family relationship, Hayek became one of the first to read Wittgenstein's Tractatus Logico-Philosophicus when the book was published in its original German edition in 1921. Although Hayek met Wittgenstein on only a few occasions, Hayek said that Wittgenstein's philosophy and methods of analysis had a profound influence on his own life and thought.[12] In his later years, Hayek recalled a discussion of philosophy with Wittgenstein, when both were officers during World War I.[13] After Wittgenstein's death, Hayek had intended to write a biography of Wittgenstein and worked on collecting family materials; and he later assisted biographers of Wittgenstein.[14]

At his father's suggestion, Hayek, as a teenager, read the genetic and evolutionary works of Hugo de Vries and the philosophical works of Ludwig Feuerbach.[15] In school Hayek was much taken by one instructor's lectures on Aristotle's ethics.

In 1917, Hayek joined an artillery regiment in the Austro-Hungarian Army and fought on the Italian front. Much of Hayek's combat experience was spent as a spotter in an aeroplane. Hayek suffered damage to his hearing in his left ear during the war,[16] and was decorated for bravery. During this time Hayek also survived the 1918 flu pandemic.[17]

Hayek then decided to pursue an academic career, determined to help avoid the mistakes that had led to the war. Hayek said of his experience, "The decisive influence was really World War I. It's bound to draw your attention to the problems of political organization." He vowed to work for a better world.[18]

Education and career

At the University of Vienna, Hayek earned doctorates in law and political science in 1921 and 1923 respectively; and he also studied philosophy, psychology, and economics. For a short time, when the University of Vienna closed, Hayek studied in Constantin von Monakow's Institute of Brain Anatomy, where Hayek spent much of his time staining brain cells. Hayek's time in Monakow's lab, and his deep interest in the work of Ernst Mach, inspired Hayek's first intellectual project, eventually published as The Sensory Order (1952). It located connective learning at the physical and neurological levels, rejecting the "sense data" associationism[clarification needed] of the empiricists and logical positivists. Hayek presented his work to the private seminar he had created with Herbert Furth called the Geistkreis.[19]

During Hayek's years at the University of Vienna, Carl Menger's work on the explanatory strategy of social science and Friedrich von Wieser's commanding presence in the classroom left a lasting influence on him.[20] Upon the completion of his examinations, Hayek was hired by Ludwig von Mises on the recommendation of Wieser as a specialist for the Austrian government working on the legal and economic details of the Treaty of Saint Germain.

Between 1923 and 1924 Hayek worked as a research assistant to Prof. Jeremiah Jenks of New York University, compiling macroeconomic data on the American economy and the operations of the US Federal Reserve.[21]

Initially sympathetic to Wieser's democratic socialism, Hayek's economic thinking shifted away from socialism and toward the classical liberalism of Carl Menger after reading von Mises' book Socialism. It was sometime after reading Socialism that Hayek began attending von Mises' private seminars, joining several of his university friends, including Fritz Machlup, Alfred Schutz, Felix Kaufmann, and Gottfried Haberler, who were also participating in Hayek's own, more general, private seminar. It was during this time that he also encountered and befriended noted political philosopher Eric Voegelin, with whom he retained a long-standing relationship.[22]

With the help of Mises, in the late 1920s Hayek founded and served as director of the Austrian Institute for Business Cycle Research, before joining the faculty of the London School of Economics (LSE) in 1931 at the behest of Lionel Robbins. Upon his arrival in London, Hayek was quickly recognised as one of the leading economic theorists in the world, and his development of the economics of processes in time and the co-ordination function of prices inspired the ground-breaking work of John Hicks, Abba Lerner, and many others in the development of modern microeconomics.[23]

In 1932, Hayek suggested that private investment in the public markets was a better road to wealth and economic co-ordination in Britain than government spending programs, as argued in a letter he co-signed with Lionel Robbins and others in an exchange of letters with John Maynard Keynes in The Times.[24][25] The nearly decade long deflationary depression in Britain dating from Churchill's decision in 1925 to return Britain to the gold standard at the old pre-war, pre-inflationary par was the public policy backdrop for Hayek's single public engagement with Keynes over British monetary and fiscal policy, otherwise Hayek and Keynes agreed on many theoretical matters, and their economic disagreements were fundamentally theoretical, having to do almost exclusively with the relation of the economics of extending the length of production to the economics of labour inputs.

Economists who studied with Hayek at the LSE in the 1930s and the 1940s include Arthur Lewis, Ronald Coase, John Kenneth Galbraith, Abba Lerner, Nicholas Kaldor, George Shackle, Thomas Balogh, Vera Smith, L. K. Jha, Arthur Seldon, Paul Rosenstein-Rodan, and Oskar Lange.[26][27][28] Hayek also taught or tutored many other LSE students, including David Rockefeller.[29]

Unwilling to return to Austria after the Anschluss brought it under the control of Nazi Germany in 1938, Hayek remained in Britain and became a British subject in 1938. He held this status for the remainder of his life, but he did not live in Great Britain after 1950. He lived in the United States from 1950 to 1962 and then mostly in Germany but also briefly in Austria.[30]

The Road to Serfdom

Hayek was concerned about the general view in Britain's academia that fascism was a capitalist reaction to socialism and The Road to Serfdom arose from those concerns. It was written between 1940 and 1943. The title was inspired by the French classical liberal thinker Alexis de Tocqueville's writings on the "road to servitude".[31] It was first published in Britain by Routledge in March 1944 and was quite popular, leading Hayek to call it "that unobtainable book", also due in part to wartime paper rationing.[32] When it was published in the United States by the University of Chicago in September of that year, it achieved greater popularity than in Britain.[33] At the arrangement of editor Max Eastman, the American magazine Reader's Digest also published an abridged version in April 1945, enabling The Road to Serfdom to reach a far wider audience than academics. The book is widely popular among those advocating individualism and classical liberalism.[citation needed]

Chicago

In 1950, Hayek left the London School of Economics for the University of Chicago, where he became a professor in the Committee on Social Thought. Senior university officials at Chicago wanted the Economics Department to hire him but they declined to do so. Hayek's friend Milton Friedman was highly critical of Hayek's economics writings, Prices and Production and his book on capital theory.[34] Hayek at the time was working in political theory, not economics, and was hostile to the positivist approach the Department embraced. Hayek had frequent contacts with some members of the Department of Economics, and his political views resembled those of many of the Chicago School activists. In terms of ideology, said Friedman, the majority of the Chicago economics department "was on Hayek's side."[35] Hayek actively promoted Aaron Director, who was active in the Chicago School in helping to fund and establish what became the "Law and Society" program in the University of Chicago Law School.[36]
Hayek, Frank Knight, Friedman and George Stigler worked together in forming the Mont Pèlerin Society, an international forum for libertarian economists. Hayek and Friedman cooperated in support of the Intercollegiate Society of Individualists, later renamed the Intercollegiate Studies Institute, an American student organisation devoted to libertarian ideas.[37][38]

Hayek's first class at Chicago was a faculty seminar on the philosophy of science attended by many of the University's most notable scientists of the time, including Enrico Fermi, Sewall Wright and Leó Szilárd. During his time at Chicago, Hayek worked on the philosophy of science, economics, political philosophy, and the history of ideas. Hayek's economics notes from this period have yet to be published. Hayek received a Guggenheim Fellowship in 1954.[39]

After editing a book on John Stuart Mill's letters he planned to publish two books on the liberal order, The Constitution of Liberty and "The Creative Powers of a Free Civilization" (eventually the title for the second chapter of The Constitution of Liberty).[40] He completed The Constitution of Liberty in May 1959, with publication in February 1960. Hayek was concerned "with that condition of men in which coercion of some by others is reduced as much as is possible in society".[41] Hayek was disappointed that the book did not receive the same enthusiastic general reception as The Road to Serfdom had sixteen years before.[42]

Freiburg, Los Angeles, and Salzburg

From 1962 until his retirement in 1968, he was a professor at the University of Freiburg, West Germany, where he began work on his next book, Law, Legislation and Liberty. Hayek regarded his years at Freiburg as "very fruitful".[43] Following his retirement, Hayek spent a year as a visiting professor of philosophy at the University of California, Los Angeles, where he continued work on Law, Legislation and Liberty, teaching a graduate seminar by the same name and another on the philosophy of social science. Primary drafts of the book were completed by 1970, but Hayek chose to rework his drafts and finally brought the book to publication in three volumes in 1973, 1976 and 1979.

He became a professor at the University of Salzburg from 1969 to 1977; he then returned to Freiburg, where he spent the rest of his days. When Hayek left Salzburg in 1977, he wrote, "I made a mistake in moving to Salzburg." The economics department was small, and the library facilities were inadequate.[44]

Nobel laureate

On 9 October 1974, it was announced that Hayek would be awarded the Nobel Memorial Prize in Economics, along with Swedish socialist economist Gunnar Myrdal. The reasons for the two of them winning the prize are described in the Nobel committee's press release.[45] He was surprised at being given the award and believed that he was given it with Myrdal to balance the award with someone from the opposite side of the political spectrum.[46]

During the Nobel ceremony in December 1974, Hayek met the Russian dissident Aleksandr Solzhenitsyn. Hayek later sent him a Russian translation of The Road to Serfdom.[46] Although he spoke with apprehension at his award speech about the danger which the authority of the prize would lend to an economist,[47] the prize brought much greater public awareness of Hayek and has been described by his biographer as "the great rejuvenating event in his life".[48]

Later years

United Kingdom politics

In February 1975, Margaret Thatcher was elected leader of the British Conservative Party. The Institute of Economic Affairs arranged a meeting between Hayek and Thatcher in London soon after.[49] During Thatcher's only visit to the Conservative Research Department in the summer of 1975, a speaker had prepared a paper on why the "middle way" was the pragmatic path the Conservative Party should take, avoiding the extremes of left and right. Before he had finished, Thatcher "reached into her briefcase and took out a book. It was Hayek's The Constitution of Liberty. Interrupting our pragmatist, she held the book up for all of us to see. 'This', she said sternly, 'is what we believe', and banged Hayek down on the table".[50]

In 1977, Hayek was critical of the Lib-Lab pact, in which the British Liberal Party agreed to keep the British Labour government in office. Writing to The Times, Hayek said, "May one who has devoted a large part of his life to the study of the history and the principles of liberalism point out that a party that keeps a socialist government in power has lost all title to the name 'Liberal'. Certainly no liberal can in future vote 'Liberal'".[51] Hayek was criticised by Liberal politicians Gladwyn Jebb and Andrew Phillips, who both claimed that the purpose of the pact was to discourage socialist legislation.

Lord Gladwyn pointed out that the German Free Democrats were in coalition with the German Social Democrats.[52] Hayek was defended by Professor Antony Flew who stated that the German Social Democrats, unlike the British Labour Party, had, since the late 1950s, abandoned public ownership of the means of production, distribution and exchange and had instead embraced the social market economy.[53]

In 1978, Hayek came into conflict with the Liberal Party leader, David Steel, who claimed that liberty was possible only with "social justice and an equitable distribution of wealth and power, which in turn require a degree of active government intervention" and that the Conservative Party were more concerned with the connection between liberty and private enterprise than between liberty and democracy. Hayek claimed that a limited democracy might be better than other forms of limited government at protecting liberty but that an unlimited democracy was worse than other forms of unlimited government because "its government loses the power even to do what it thinks right if any group on which its majority depends thinks otherwise".

Hayek stated that if the Conservative leader had said "that free choice is to be exercised more in the market place than in the ballot box, she has merely uttered the truism that the first is indispensable for individual freedom while the second is not: free choice can at least exist under a dictatorship that can limit itself but not under the government of an unlimited democracy which cannot".[54]

Influence on central European politics

US President Ronald Reagan listed Hayek as among the two or three people who most influenced his philosophy and welcomed Hayek to the White House as a special guest.[55] In the 1970s and 1980s, the writings of Hayek were also a major influence on many of the leaders of the "velvet" revolution in Central Europe during the collapse of the old Soviet Empire. Here are some supporting examples:
There is no figure who had more of an influence, no person had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market editions, read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union.[56]
—Milton Friedman (Hoover Institution)
The most interesting among the courageous dissenters of the 1980s were the classical liberals, disciples of F. A. Hayek, from whom they had learned about the crucial importance of economic freedom and about the often-ignored conceptual difference between liberalism and democracy.[57]
—Andrzej Walicki (History, Notre Dame)
Estonian Prime Minister Mart Laar came to my office the other day to recount his country's remarkable transformation. He described a nation of people who are harder-working, more virtuous – yes, more virtuous, because the market punishes immorality – and more hopeful about the future than they've ever been in their history. I asked Mr. Laar where his government got the idea for these reforms. Do you know what he replied? He said, "We read Milton Friedman and F. A. Hayek."[58]
—US Representative Dick Armey
I was 25 years old and pursuing my doctorate in economics when I was allowed to spend six months of post-graduate studies in Naples, Italy. I read the Western economic textbooks and also the more general work of people like Hayek. By the time I returned to Czechoslovakia, I had an understanding of the principles of the market. In 1968, I was glad at the political liberalism of the Dubcek Prague Spring, but was very critical of the Third Way they pursued in economics.[59]
—Václav Klaus (former President of the Czech Republic)

Recognition

In 1980, Hayek, a non-practicing Roman Catholic,[60] was one of twelve Nobel laureates to meet with Pope John Paul II, "to dialogue, discuss views in their fields, communicate regarding the relationship between Catholicism and science, and 'bring to the Pontiff's attention the problems which the Nobel Prize Winners, in their respective fields of study, consider to be the most urgent for contemporary man'".[61]

In 1984, he was appointed as a member of the Order of the Companions of Honour (CH) by Queen Elizabeth II of the United Kingdom on the advice of the British Prime Minister Margaret Thatcher for his "services to the study of economics".[5] Hayek had hoped to receive a baronetcy, and after he was awarded the CH he sent a letter to his friends requesting that he be called the English version of Friedrich (Frederick) from now on. After his 20 min audience with the Queen, he was "absolutely besotted" with her according to his daughter-in-law, Esca Hayek. Hayek said a year later that he was "amazed by her. That ease and skill, as if she'd known me all my life." The audience with the Queen was followed by a dinner with family and friends at the Institute of Economic Affairs. When, later that evening, Hayek was dropped off at the Reform Club, he commented: "I've just had the happiest day of my life."[62]

In 1991, US President George H. W. Bush awarded Hayek the Presidential Medal of Freedom, one of the two highest civilian awards in the United States, for a "lifetime of looking beyond the horizon". Hayek died on 23 March 1992 in Freiburg, Germany, and was buried on 4 April in the Neustift am Wald cemetery in the northern outskirts of Vienna according to the Catholic rite.[63] In 2011, his article The Use of Knowledge in Society was selected as one of the top 20 articles published in the American Economic Review during its first 100 years.[8]

The New York University Journal of Law and Liberty holds an annual lecture in his honour.[64]

Work

The business cycle

Hayek's principal investigations in economics concerned capital, money, and the business cycle. Mises had earlier applied the concept of marginal utility to the value of money in his Theory of Money and Credit (1912), in which he also proposed an explanation for "industrial fluctuations" based on the ideas of the old British Currency School and of Swedish economist Knut Wicksell. Hayek used this body of work as a starting point for his own interpretation of the business cycle, elaborating what later became known as the "Austrian Theory of the Business Cycle". Hayek spelled out the Austrian approach in more detail in his book, published in 1929, an English translation of which appeared in 1933 as Monetary Theory and the Trade Cycle. There he argued for a monetary approach to the origins of the cycle. In his Prices and Production (1931), Hayek argued that the business cycle resulted from the central bank's inflationary credit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates. Hayek claimed that "the past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process".
Hayek's analysis was based on Böhm-Bawerk's concept of the "average period of production"[65] and on the effects that monetary policy could have upon it. In accordance with the reasoning later outlined in his essay The Use of Knowledge in Society (1945), Hayek argued that a monopolistic governmental agency like a central bank can neither possess the relevant information which should govern supply of money, nor have the ability to use it correctly.[66]

In 1929, Lionel Robbins assumed the helm of the London School of Economics (LSE). Eager to promote alternatives to what he regarded as the narrow approach of the school of economic thought that then dominated the English-speaking academic world (centred at the University of Cambridge and deriving largely from the work of Alfred Marshall), Robbins invited Hayek to join the faculty at LSE, which he did in 1931. According to Nicholas Kaldor, Hayek's theory of the time-structure of capital and of the business cycle initially "fascinated the academic world" and appeared to offer a less "facile and superficial" understanding of macroeconomics than the Cambridge school's.[67]

Also in 1931, Hayek critiqued Keynes's Treatise on Money (1930) in his "Reflections on the pure theory of Mr. J. M. Keynes"[68] and published his lectures at the LSE in book form as Prices and Production.[69] Unemployment and idle resources are, for Keynes, caused by a lack of effective demand; for Hayek, they stem from a previous, unsustainable episode of easy money and artificially low interest rates.

The economic calculation problem

Building on the earlier work of Ludwig von Mises and others, Hayek also argued that while in centrally planned economies an individual or a select group of individuals must determine the distribution of resources, these planners will never have enough information to carry out this allocation reliably. This argument, first proposed by Max Weber, says that the efficient exchange and use of resources can be maintained only through the price mechanism in free markets (see economic calculation problem).
In 1935, Hayek published Collectivist Economic Planning, a collection of essays from an earlier debate that had been initiated by Ludwig von Mises. Hayek included Mises's essay, in which Mises argued that rational planning was impossible under socialism.

Some socialists such as H. D. Dickinson and Oskar Lange, responded by invoking general equilibrium theory, which they argued disproved Mises's thesis. They noted that the difference between a planned and a free market system lay in who was responsible for solving the equations. They argued, if some of the prices chosen by socialist managers were wrong, gluts or shortages would appear, signalling them to adjust the prices up or down, just as in a free market. Through such a trial and error, a socialist economy could mimic the efficiency of a free market system, while avoiding its many problems.

Hayek challenged this vision in a series of contributions. In "Economics and Knowledge" (1937), he pointed out that the standard equilibrium theory assumed that all agents have full and correct information. In the real world, however, different individuals have different bits of knowledge, and furthermore, some of what they believe is wrong.

In The Use of Knowledge in Society (1945), Hayek argued that the price mechanism serves to share and synchronise local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization. He contrasted the use of the price mechanism with central planning, arguing that the former allows for more rapid adaptation to changes in particular circumstances of time and place.[70] Thus, he set the stage for Oliver Williamson's later contrast between markets and hierarchies as alternative co-ordination mechanisms for economic transactions.[71] He used the term catallaxy to describe a "self-organizing system of voluntary co-operation". Hayek's research into this argument was specifically cited by the Nobel Committee in its press release awarding Hayek the Nobel prize.[45]

Against collectivism

Hayek was one of the leading academic critics of collectivism in the 20th century. Hayek argued that all forms of collectivism (even those theoretically based on voluntary co-operation) could only be maintained by a central authority of some kind. In Hayek's view, the central role of the state should be to maintain the rule of law, with as little arbitrary intervention as possible. In his popular book, The Road to Serfdom (1944) and in subsequent academic works, Hayek argued that socialism required central economic planning and that such planning in turn leads towards totalitarianism.

From The Road to Serfdom:
Although our modern socialists' promise of greater freedom is genuine and sincere, in recent years observer after observer has been impressed by the unforeseen consequences of socialism, the extraordinary similarity in many respects of the conditions under "communism" and "fascism".[72]
Hayek posited that a central planning authority would have to be endowed with powers that would impact and ultimately control social life, because the knowledge required for centrally planning an economy is inherently decentralised, and would need to be brought under control.

Though Hayek did argue that the state should provide law centrally, others have pointed out that this contradicts his arguments about the role of judges in "discovering" the law, suggesting that Hayek would have supported decentralized provision of legal services.[73]

Hayek also wrote that the state can play a role in the economy, and specifically, in creating a "safety net". He wrote, "There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision."[74]

Investment and choice

Perhaps more fully than any other economist, Hayek investigated the choice theory of investment. He examined the inter-relations between non-permanent production goods and "latent" or potentially economic permanent resources – building on the choice theoretical insight that, "processes that take more time will evidently not be adopted unless they yield a greater return than those that take less time".[75]

Hayek's work on the microeconomics of the choice theoretics of investment, non-permanent goods, potential permanent resources, and economically-adapted permanent resources mark a central dividing point between his work in areas of macroeconomics and that of most all other economists. Hayek's work on the macroeconomic subjects of central planning, trade cycle theory, the division of knowledge, and entrepreneurial adaptation especially, differ greatly from the opinions of macroeconomic "Marshallian" economists in the tradition of John Maynard Keynes and the microeconomic "Walrasian" economists in the tradition of Abba Lerner.

Philosophy of science

During World War II, Hayek started doing the ‘Abuse of Reason’ project. His goal was to show how a number of then-popular doctrines and beliefs, doctrines with which he disagreed, had a common origin in some fundamental misconceptions about the social science.[76] In his philosophy of science, which has much in common with that of his good friend Karl Popper, Hayek was highly critical of what he termed scientism: a false understanding of the methods of science that has been mistakenly forced upon the social sciences, but that is contrary to the practices of genuine science. Usually, scientism involves combining the philosophers' ancient demand for demonstrative justification with the associationists' false view that all scientific explanations are simple two-variable linear relationships. Hayek points out that much of science involves the explanation of complex multivariable and nonlinear phenomena, and the social science of economics and undesigned order compares favourably with such complex sciences as Darwinian biology. These ideas were developed in The Counter-Revolution of Science in 1952, and in some of Hayek's later essays in the philosophy of science such as "Degrees of Explanation" and "The Theory of Complex Phenomena".

Psychology

In The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952), Hayek independently developed a "Hebbian learning" model of learning and memory – an idea which he first conceived in 1920, prior to his study of economics. Hayek's expansion of the "Hebbian synapse" construction into a global brain theory has received continued attention[77][78][79][80] in neuroscience, cognitive science, computer science, behavioural science, and evolutionary psychology, by scientists such as Gerald Edelman, and Joaquin Fuster.

Hayek posited two orders, the sensory order that we experience, and the natural order that natural science has revealed. Hayek thought that the sensory order is in fact a product of the brain. He characterized the brain as a highly complex but self-ordering, hierarchical classification system, a huge network of connections.

Spontaneous order

Hayek viewed the free price system not as a conscious invention (that which is intentionally designed by man), but as spontaneous order or what he referred to as "that which is the result of human action but not of human design". 
Thus, Hayek put the price mechanism on the same level as, for example, language.
Hayek attributed the birth of civilisation to private property in his book The Fatal Conceit (1988). He explained that price signals are the only means of enabling each economic decision maker to communicate tacit knowledge or dispersed knowledge to each other, to solve the economic calculation problem.

Social and political philosophy

In the latter half of his career Hayek made a number of contributions to social and political philosophy, which he based on his views on the limits of human knowledge,[81] and the idea of spontaneous order in social institutions. He argues in favour of a society organised around a market order, in which the apparatus of state is employed almost (though not entirely) exclusively to enforce the legal order (consisting of abstract rules, and not particular commands) necessary for a market of free individuals to function. These ideas were informed by a moral philosophy derived from epistemological concerns regarding the inherent limits of human knowledge. Hayek argued that his ideal individualistic, free-market polity would be self-regulating to such a degree that it would be 'a society which does not depend for its functioning on our finding good men for running it'.[82]

Hayek disapproved of the notion of 'social justice'. He compared the market to a game in which 'there is no point in calling the outcome just or unjust'[83] and argued that 'social justice is an empty phrase with no determinable content';[84] likewise "the results of the individual's efforts are necessarily unpredictable, and the question as to whether the resulting distribution of incomes is just has no meaning".[85] He generally regarded government redistribution of income or capital as an unacceptable intrusion upon individual freedom: "the principle of distributive justice, once introduced, would not be fulfilled until the whole of society was organized in accordance with it. This would produce a kind of society which in all essential respects would be the opposite of a free society."[84]

With regard to a safety net, Hayek advocated "some provision for those threatened by the extremes of indigence or starvation, be if only in the interest of those who require protection against acts of desperation on the part of the needy".[86] As referenced in the section on "The economic calculation problem", Hayek wrote that "there is no reason why... the state should not help to organize a comprehensive system of social insurance". Summarizing on this topic, Wapshott[87] writes "[Hayek] advocated mandatory universal health care and unemployment insurance, enforced, if not directly provided, by the state." Bernard Harcourt says that "Hayek was adamant about this."[88] In the 1973 Law, Legislation, and Liberty, Hayek wrote:
There is no reason why in a free society government should not assure to all, protection against severe deprivation in the form of an assured minimum income, or a floor below which nobody need descend. To enter into such an insurance against extreme misfortune may well be in the interest of all; or it may be felt to be a clear moral duty of all to assist, within the organised community, those who cannot help themselves. So long as such a uniform minimum income is provided outside the market to all those who, for any reason, are unable to earn in the market an adequate maintenance, this need not lead to a restriction of freedom, or conflict with the Rule of Law.[89]
And in The Road to Serfdom:
Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state's helping to organize a comprehensive system of social insurance is very strong.... Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make the provision for the consequences, such communal action should undoubtedly be taken.[72]

Critiques

Business cycle critiques

Keynes asked his friend Piero Sraffa to respond publicly to Hayek's challenge;[clarification needed] instead of formulating an alternative theory, Sraffa elaborated on the logical inconsistencies of Hayek's argument, especially concerning the effect of inflation-induced "forced savings" on the capital sector and about the definition of a "natural" interest rate in a growing economy.[90] Others who responded negatively to Hayek's work on the business cycle included John Hicks, Frank Knight, and Gunnar Myrdal.[91] Kaldor later wrote that Hayek's Prices and Production had produced "a remarkable crop of critics" and that the total number of pages in British and American journals dedicated to the resulting debate "could rarely have been equalled in the economic controversies of the past."[67]


Hayek continued his research on monetary and capital theory, revising his theories of the relations between credit cycles and capital structure in Profits, Interest and Investment (1939) and The Pure Theory of Capital (1941), but his reputation as an economic theorist had by then fallen so much that those works were largely ignored, except for scathing critiques by Nicholas Kaldor.[67][92] Lionel Robbins himself, who had embraced the Austrian theory of the business cycle in The Great Depression (1934), later regretted having written that book and accepted many of the Keynesian counter-arguments.[93]

Hayek never produced the book-length treatment of "the dynamics of capital" that he had promised in the Pure Theory of Capital. After 1941, he continued to publish works on the economics of information, political philosophy, the theory of law, and psychology, but seldom on macroeconomics. At the University of Chicago, Hayek was not part of the economics department and did not influence the rebirth of neoclassical theory which took place there (see Chicago school of economics). When, in 1974, he shared the Nobel Memorial Prize in Economics with Gunnar Myrdal, the latter complained about being paired with an "ideologue". Milton Friedman declared himself "an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time."[93]

Critiques of his concept of collectivist rationalism

Arthur M. Diamond argues Hayek's problems arise when he goes beyond claims that can be evaluated within economic science. Diamond argued that: “The human mind, Hayek says, is not just limited in its ability to synthesize a vast array of concrete facts, it is also limited in its ability to give a deductively sound ground to ethics. Here is where the tension develops, for he also wants to give a reasoned moral defense of the free market. He is an intellectual skeptic who wants to give political philosophy a secure intellectual foundation. It is thus not too surprising that what results is confused and contradictory.”[94]

Chandran Kukathas argues that Hayek's defence of liberalism is unsuccessful because it rests on presuppositions which are incompatible. The unresolved dilemma of his political philosophy is how to mount a systematic defence of liberalism if one emphasizes the limited capacity of reason.[95]

Norman P. Barry similarly notes that the “critical rationalism” in Hayek’s writings appears incompatible with “a certain kind of fatalism, that we must wait for evolution to pronounce its verdict.”[96]

New Right critiques

Alain de Benoist of the Nouvelle Droite (New Right) produced a highly critical essay on Hayek's work in an issue of Telos, citing the flawed assumptions behind Hayek's idea of "spontaneous order" and the authoritarian, totalising implications of his free-market ideology.[97]

Hayek's views on dictatorship

Hayek had sent António de Oliveira Salazar a copy of Hayek’s The Constitution of Liberty (1960) in 1962. Hayek hoped that his book—this “preliminary sketch of new constitutional principles”—“may assist” Salazar “in his endeavour to design a constitution which is proof against the abuses of democracy.”

Hayek visited Chile in the 1970s and 1980s during the Government Junta of general Augusto Pinochet and accepted being named Honorary Chairman of the Centro de Estudios Públicos, the think tank formed by the economists who transformed Chile into a free market economy.

Asked about the liberal, non-democratic rule by a Chilean interviewer, Hayek is translated from German to Spanish to English as having said, "As long term institutions, I am totally against dictatorships. But a dictatorship may be a necessary system for a transitional period. [...] Personally I prefer a liberal dictatorship to democratic government devoid of liberalism. My personal impression – and this is valid for South America – is that in Chile, for example, we will witness a transition from a dictatorial government to a liberal government." In a letter to the London Times, he defended the Pinochet regime and said that he had "not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende."[98][99] Hayek admitted that "it is not very likely that this will succeed, even if, at a particular point in time, it may be the only hope there is.", he explained, however, "It is not certain hope, because it will always depend on the goodwill of an individual, and there are very few individuals one can trust. But if it is the sole opportunity which exists at a particular moment it may be the best solution despite this. And only if and when the dictatorial government is visibly directing its steps towards limited democracy".

For Hayek, the supposedly stark difference between authoritarianism and totalitarianism has much importance and Hayek places heavy weight on this distinction in his defence of transitional dictatorship. For example, when Hayek visited Venezuela in May 1981, he was asked to comment on the prevalence of "totalitarian" regimes in Latin America. In reply, Hayek warned against confusing "totalitarianism with authoritarianism," and said that he was unaware of "any totalitarian governments in Latin America. The only one was Chile under Allende". For Hayek, however, the word 'totalitarian' signifies something very specific: the want to “organize the whole of society” to attain a “definite social goal” —which is stark in contrast to “liberalism and individualism”.[100]

Influence and recognition

Hayek's influence on the development of economics is widely acknowledged. Hayek is the second-most frequently cited economist[citation needed] (after Kenneth Arrow) in the Nobel lectures of the prize winners in economics, particularly since his lecture was critical of the field of orthodox economics and neo-classical modelisation. A number of Nobel Laureates in economics, such as Vernon Smith and Herbert A. Simon, recognise Hayek as the greatest modern economist.[citation needed] Another Nobel winner, Paul Samuelson, believed that Hayek was worthy of his award but nevertheless claimed that "there were good historical reasons for fading memories of Hayek within the mainstream last half of the twentieth century economist fraternity. In 1931, Hayek's Prices and Production had enjoyed an ultra-short Byronic success. In retrospect hindsight tells us that its mumbo-jumbo about the period of production grossly misdiagnosed the macroeconomics of the 1927–1931 (and the 1931–2007) historical scene".[101] Despite this comment, Samuelson spent the last 50 years of his life obsessed with the problems of capital theory identified by Hayek and Böhm-Bawerk, and Samuelson flatly judged Hayek to have been right and his own teacher, Joseph Schumpeter, to have been wrong on the central economic question of the 20th century, the feasibility of socialist economic planning in a production goods dominated economy.[102]

Hayek is widely recognised for having introduced the time dimension to the equilibrium construction and for his key role in helping inspire the fields of growth theory, information economics, and the theory of spontaneous order. The "informal" economics presented in Milton Friedman's massively influential popular work Free to Choose (1980), is explicitly Hayekian in its account of the price system as a system for transmitting and co-ordinating knowledge. This can be explained by the fact that Friedman taught Hayek's famous paper "The Use of Knowledge in Society" (1945) in his graduate seminars.

In 1944 he was elected as a Fellow of the British Academy,[103] after he was nominated for membership by Keynes.[104]

Harvard economist and former Harvard University President Lawrence Summers explains Hayek's place in modern economics: "What's the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists. That's the Hayek legacy."[105]

By 1947, Hayek was an organiser of the Mont Pelerin Society, a group of classical liberals who sought to oppose what they saw as socialism in various areas. He was also instrumental in the founding of the Institute of Economic Affairs, the free-market think tank that inspired Thatcherism. He was in addition a member of the Philadelphia Society.[106]

Hayek had a long-standing and close friendship with philosopher of science Karl Popper, also from Vienna. In a letter to Hayek in 1944, Popper stated, "I think I have learnt more from you than from any other living thinker, except perhaps Alfred Tarski." (See Hacohen, 2000). Popper dedicated his Conjectures and Refutations to Hayek. For his part, Hayek dedicated a collection of papers, Studies in Philosophy, Politics, and Economics, to Popper and, in 1982, said that "ever since his Logik der Forschung first came out in 1934, I have been a complete adherent to his general theory of methodology".[107] Popper also participated in the inaugural meeting of the Mont Pelerin Society. Their friendship and mutual admiration, however, do not change the fact that there are important differences between their ideas.[108]

Hayek also played a central role in Milton Friedman's intellectual development. Friedman wrote:
"My interest in public policy and political philosophy was rather casual before I joined the faculty of the University of Chicago. Informal discussions with colleagues and friends stimulated a greater interest, which was reinforced by Friedrich Hayek's powerful book The Road to Serfdom, by my attendance at the first meeting of the Mont Pelerin Society in 1947, and by discussions with Hayek after he joined the university faculty in 1950. In addition, Hayek attracted an exceptionally able group of students who were dedicated to a libertarian ideology. They started a student publication, The New Individualist Review, which was the outstanding libertarian journal of opinion for some years. I served as an adviser to the journal and published a number of articles in it...."[109]
Hayek's greatest intellectual debt was to Carl Menger, who pioneered an approach to social explanation similar to that developed in Britain by Bernard Mandeville and the Scottish moral philosophers in the Scottish Enlightenment. He had a wide-reaching influence on contemporary economics, politics, philosophy, sociology, psychology and anthropology. For example, Hayek's discussion in The Road to Serfdom (1944) about truth, falsehood and the use of language influenced some later opponents of postmodernism.[110]

Hayek and conservatism

Hayek received new attention in the 1980s and 1990s with the rise of conservative governments in the United States, United Kingdom, and Canada. After winning the United Kingdom general election, 1979, Margaret Thatcher appointed Keith Joseph, the director of the Hayekian Centre for Policy Studies, as her secretary of state for industry in an effort to redirect parliament's economic strategies. Likewise, David Stockman, Ronald Reagan's most influential financial official in 1981 was an acknowledged follower of Hayek.[111]

Hayek wrote an essay, "Why I Am Not a Conservative"[112] (included as an appendix to The Constitution of Liberty), in which he disparaged conservatism for its inability to adapt to changing human realities or to offer a positive political program, remarking, "Conservatism is only as good as what it conserves". Although he noted that modern day conservatism shares many opinions on economics with classical liberals, particularly a belief in the free market, he believed it's because conservatism wants to "stand still", whereas liberalism embraces the free market because it "wants to go somewhere". Hayek identified himself as a classical liberal but noted that in the United States it had become almost impossible to use "liberal" in its original definition, and the term "libertarian" has been used instead.

However, for his part, Hayek found this term "singularly unattractive" and offered the term "Old Whig" (a phrase borrowed from Edmund Burke) instead. In his later life, he said, "I am becoming a Burkean Whig." However, Whiggery as a political doctrine had little affinity for classical political economy, the tabernacle of the Manchester School and William Gladstone.[113] His essay has served as an inspiration to other liberal-minded economists wishing to distinguish themselves from conservative thinkers, for example James M. Buchanan's essay "Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism".

A common term in much of the world for what Hayek espoused is "neoliberalism". A British scholar, Samuel Brittan, concluded in 2010, "Hayek's book [The Constitution of Liberty] is still probably the most comprehensive statement of the underlying ideas of the moderate free market philosophy espoused by neoliberals."[114] Brittan adds that although Raymond Plant (2009) comes out in the end against Hayek's doctrines, Plant gives The Constitution of Liberty a "more thorough and fair-minded analysis than it has received even from its professed adherents".[114]

In Why F A Hayek is a Conservative,[115] British policy analyst Madsen Pirie believes Hayek mistakes the nature of the conservative outlook. Conservatives, he says, are not averse to change – but like Hayek, they are highly averse to change being imposed on the social order by people in authority who think they know how to run things better. They wish to allow the market to function smoothly and give it the freedom to change and develop. It is an outlook, says Pirie, that Hayek and conservatives both share.

Personal life

In August 1926, Hayek married Helen Berta Maria von Fritsch (1901–1960), a secretary at the civil service office where Hayek worked. They had two children together.[116] Friedrich and Helen divorced in July 1950 and he married Helene Bitterlich (1900–1996)[117] just a few weeks later, moving to Arkansas to take advantage of permissive divorce laws.[118]

Hayek was an agnostic.[119]

Legacy and honours


Friedrich Hayek's grave in Neustifter Friedhof, Vienna

Even after his death, Hayek's intellectual presence is noticeable, especially in the universities where he had taught: the London School of Economics, the University of Chicago, and the University of Freiburg. A number of tributes have resulted, many posthumous:

Selected bibliography

Volume I. Rules and Order, 1973.[123]
Volume II. The Mirage of Social Justice, 1976.[124]
Volume III. The Political Order of a Free People, 1979.[125]
  • The Fatal Conceit: The Errors of Socialism, 1988. Note: The authorship of The Fatal Conceit is under scholarly dispute.[126] The book in its published form may actually have been written entirely by its editor W.W. Bartley, III, not by Hayek.[127]