Friedrich August von Hayek

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The Austrian-born British free market economist and social philosopher, Nobel Laureate Friedrich Auguste von Hayek (1899-1992) was one of the most distinguished social thinkers of the 20th century.

Friedrich A. von Hayek was born on May 8, 1899, in Vienna into a modest family that could lay claim to a great academic tradition. He left school to enlist in World War I in March 1917. Shortly after returning from the Italian front in November 1918 he began to study law at the University of Vienna. Hayek obtained his Juris Doctor degree only three years later, but continued to study political science, receiving his second doctorate from the same university in 1923.

Hayek in 1921 helped found the "Geistkreis, " a small circle of young social scientists in Vienna. More than half of its participants later became world-famous. In 1923 Hayek visited New York and worked part-time as a research assistant at New York University. Greatly stimulated by the newly developed advanced techniques for analyzing time series and forecasting industrial fluctuations, he returned to Vienna in 1924 and published several articles in this field and in monetary theory that paved the way for his later work. Together with his teacher Ludwig von Mises (1881-1973), the eminent scholar of Liberalism, he founded the Austrian Institute for Business Cycle Research in 1927 and directed it until 1931. In 1929 he became a lecturer at Vienna University. That same year his first book on Geldtheorie und Konjunkturtheorie (1929) appeared and set a standard in modern business cycle theory.

Becoming an International Scholar

Hayek's series of guest lectures at the London School of Economics in 1931, published as his important Prices and Production (1931), led to his appointment as Tooke Professor of Economic Science that same year. There, Hayek immediately became the only intellectual opponent of the new theories of under-consumption and under-investment of Lord John Maynard Keynes. All eminent economists of the time were involved in this major intellectual controversy.

To the big debate (which continues to this day) over the impossibility of socialist calculation and 'market socialism' in the 1930s, with Mises and Hayek on one side and Lange and H. D. Dickinson on the other, Hayek contributed a number of essays which refuted the socialist approach to economic planning. They are collected in his Individualism and Economic Order (1948). His seminal essay on "Economics and Knowledge" (1937), in which he first formulated the 'division of knowledge' in society, led him increasingly to socio-philosophical problems, although his interest in technical economics culminated in his The Pure Theory of Capital (1942). He was elected Fellow of the British Academy in 1944.

Hayek's The Road to Serfdom (1944) made him world-famous overnight and aroused heated discussions. In this best-seller of the immediate post-war years, since translated into sixteen languages, he showed that socialism carries with it no adequate provision for the preservation of freedom and that the convergence of economic systems is rooted in an economic error.

Hayek's important contributions to the methodological problems of the social sciences and scientism were later collected in his The Counter-Revolution of Science (1952). In his crucial essay on "The Use of Knowledge in Society" (1945), Hayek refined his idea of the price system as a mechanism for communicating information.

In 1947 Hayek founded the exclusive Mont Pelerin Society, an international association of like-minded scholars. By the end of 1949 he left London and accepted a professorship at the University of Chicago. The Sensory Order (1952), a discourse in pure psychology containing some of his most original and important ideas, was published in 1952, though the preliminary thoughts dated back to the early 1920s when he had been uncertain whether to become a psychologist or an economist. Hayek's socio-philosophic approach, however, led to his The Constitution of Liberty (1960), regarded as one of the great books of the mid-20th century. Here he further developed his idea of spontaneous order and laid down the ethical, legal, and economic principles of freedom.

Hayek's next move, in 1962, was to the University of Freiburg (Germany). Among many pathbreaking works, he published there his famous Studies in Philosophy, Politics, and Economics (1967). After becoming professor emeritus at Freiburg in 1968, he returned to his native Austria and joined the University of Salzburg. In this period, besides some important essays, the first and second volumes of his fundamental trilogy Law, Legislation, and Liberty (1973-1976) were published.

In 1974 he was awarded the Nobel Prize in Economics. Hayek's courageous Nobel Prize lecture on "The Pretence of Knowledge" (1974) to some extent again initiated the intellectual revival of liberalism. After Hayek's return to Freiburg in 1977 he published his widely discussed Denationalization of Money (1978), his New Studies in Philosophy, Politics, Economics and the History of Ideas (1978), and the third volume of his trilogy.

When not lecturing throughout the world, Hayek devoted himself entirely to the completion of his next work, significantly entitled The Fatal Conceit. This book presents a most important fundamental critique of rationalism, socialism, and constructivism. Hayek's career as scholar and teacher was international, and he held honorary degrees from universities all over the world. Among his honors, awards, and orders, he received the Order Pour le Merite from Germany and in 1984 the Companion of Honour from Britain.

Hayek's Leading Ideas

Hayek represented the subjective approach of the free-market oriented Austrian School of Economics, distinguished by its methodological individualism. His economic analysis, therefore, rested upon the insight that every individual chooses and acts in pursuit of his purposes and in accordance with his perception of his options for achieving them. His early writings, as shown above, were in pure economic theory.

Hayek's trade cycle theory explained that overinvestment leads to scarcity of capital compelling a cutback in investment and even the abandonment of a part of the real capital produced because of the excessive investment rate.

His most important discovery was the "division of knowledge" and the spontaneous order. The spontaneous interaction of millions of individuals, each possessing unique information of which beneficial use might be made, created circumstances that cannot be conveyed to any central authority. A system of signals - the price system - was therefore the only mechanism that communicates information and enables people to adapt to circumstances of which they know nothing. The whole modern order and well-being rested on the possibility of adapting to processes that were unknown. It was not scientific knowledge which matters, but the unorganized particular knowledge of time and place.

While for most social philosophers the chief aim of politics consisted in setting up an ideal social order through utopian reforms, Hayek's main task was the finding of rules that enable men with different values and convictions to live together. These rules were established so as to permit each individual to fulfill his aims and to limit government action.

In his "Denationalization of Money" (1976) he convincingly argued that inflation could be avoided only if the monopolistic power of issuing money was taken away from government and state authorities and the task given to private industry to promote competition in currencies.

According to Hayek, cultural evolution was not a result of human reason consciously building institutions, but a process in which culture and reason developed concurrently. The spontaneous social order generated by individuals interacting according to these general rules was distinguished from the constructivist approach exemplified by socialist ideas, which interpreted all order as the product of conscious design.

Hayek's seminal work arose and developed from a comprehensive approach to various intellectual disciplines that condition and influence one another. Although there were only a few direct disciples in academia, Hayek's influence on pure economics, public policy, and social, political, and legal philosophy were tremendous.

Classical Liberalism

During the 1980s, Hayek's interdisciplinary theories gained wider dissemination, especially his opposition to the concept that publc institutions could be designed to meet human requirements and intentions. He preferred an almost laissez-faire approach in which public order evolved from specific ideas and actions. Thus, he was opposed to the highly-centralized economics of the various forms of socialism, which denied the economics of the marketplace.

British Prime Minister Margaret Thatcher, was greatly influenced by Hayek's ideas of personal liberty and market economics and based many of her government's conservative policies upon her interpretation of his concepts.

In 1991, Hayek published his final volume, Economic Freedom, in which he argued that political/economic coercion is the greatest threat to individual freedom and best achieved through the natural evolution of market forces.

Since Hayek's death in March 1992, there has been continuing debate concerning his interdisciplinary system. It was thought that he diminished the role of reason, and failed to reconcile the value of such liberal institutions as have evolved with their role as preservers and nurturers of reason and freedom.

Further Reading

Probably the best collection of Hayek's most important and influential essays and chapters available is Kurt R. Leube and Chiaki Nishiyama, The Essence of Hayek (1984), which includes a biography and an introduction. A good popular presentation of Hayek's ideas can be found in Eamonn Butler, Hayek: His Contribution to the Political and Economic Thought of Our Time (1983). His political philosophy is penetratingly treated in John N. Gray, Hayek on Liberty (1984), which includes a comprehensive bibliography compiled by John Cody. Two Festschrifts are dedicated to Hayek: Erich Streissler et al. (editors), Roads to Freedom: Essays in Honour of Friedrich A. von Hayek (1969), and Kurt R. Leube and Albert H. Zlabinger (editors), The Political Economy of Freedom: Essays in Honor of F. A. Hayek (1985). Hayek's publication list covered 19 books and some 240 essays and articles.

There were several in-depth studies of Hayek's interdisciplinary theories which seek to make his concepts accessible to the uninformed but interested reader. Margaret Thatcher's The Path to Power (1995) acknowledged her debt to Hayek's The Road to Serfdom for his insights into the economic and social slavery of the authoritarian forms of socialism which were coming into vogue in the late thirties and early forties. Keith Graham in The London Times obituary of Hayek (March, 1992) presented a concise but lucid analysis of his major concepts, and contained an extensive bibliography of Hayek's main publications and secondary reading.

(1899-1992) Austrian political economist who spent much of his life in Britain. In The Road to Serfdom (1944) he portrayed state intervention and collectivism, even in their moderate forms, as inevitably leading to an erosion of liberty. In both Britain and the United States, the book became a text for supporters of laissez-faire and opponents of Keynesian economics and the welfare state for more than three decades in which their views were largely unrepresented in government. Hayek was far from a simplistic supporter of laissez-faire and in The Constitution of Liberty (1961) he was concerned to explore the necessary framework of government and the rule of law in which freedom and commerce could prosper.

— Lincoln Allison

Hayek, Friedrich (1899-1992) Austrian economist and philosopher. Born and educated in Vienna, Hayek taught at London and Chicago before returning to his native country in 1962. In a succession of economic analyses, and in more popular works (such as The Road to Serfdom, 1944), he propounded an extreme laissez-faire economic individualism, allied with the political belief that anything in the nature of state action or collective action (such as that of trade unions) undermines liberty and paves the way to totalitarianism. Similar analyses were applied to the history of positivism since Comte, in The Counter-Revolution of Science: Studies in the Abuse of Reason (1952). He was a notable influence on the economic and political right wing in Britain and the USA, especially after his views were revivified by the award of the Nobel prize in 1974.

(1899 - 1992), leading proponent of markets as an evolutionary solution to complex social coordination problems.

One of the leaders of the Austrian school of economics in the twentieth century, Friedrich Hayek received the Nobel Memorial Prize in Economic Science in 1974. Born to a distinguished family of Viennese intellectuals, he attended the University of Vienna, earning doctorates in law and economics in 1921 and 1923. He became a participant in Ludwig von Mises's private economics seminar and was greatly influenced by von Mises's treatise on socialism and his argument about the impossibility of economic rationality under socialism due to the absence of private property and markets in the means of production. Hayek developed a theory of credit-driven business cycles, discussed in his books Prices and Production (1931) and Monetary Theory and the Trade Cycle (1933). As a result he was offered a lectureship, and then the Tooke Chair in Economics and Statistics at the London School of Economics and Politics (LSE) in 1931. There he worked on developing an alternative analysis to the nascent Keynesian economic system, which he published in The Pure Theory of Capital in 1941, by which point the Keynesian macro model had already become the accepted and dominant paradigm of economic analysis.

In the 1930s and 1940s, Hayek made his major contribution to the analysis of economic systems, pointing out the role of markets and the price system in distilling, aggregating, and disseminating usable specific knowledge among participants in the economy. The role of markets as an efficient discovery procedure, generating a spontaneous order in the flux of changing and unknowable specific circumstances and preferences, was emphasized in his "Economics and Knowledge" (1937), "The Use of Knowledge in Society" (1945), and Individualism and Economic Order (1948). These arguments provided a fundamental critique of the possibility of efficient economic planning and an efficient socialist system, refining and redirecting the earlier Austrian critique of von Mises. They have also provided the basis for a substantial theoretical literature on the role of prices as a conveyor of information, and for the revival of non-socialist economic thought in the final days of the Soviet Union.

Hayek worked at LSE until 1950 when he moved to Chicago, joining the Committee of Social Thought at the University of Chicago. There Hayek moved beyond economic to largely social and philosophic-historical analysis. His major works in these areas include his most famous defense of private property and decentralized markets, The Road to Serfdom (1944), New Studies in Philosophy, Politics and Economics (1978), and the compilation The Fatal Conceit: The Errors of Socialism (1988). These works, more than his economic studies, provided much of the intellectual inspiration and substance behind the anti-Communist and economic liberal movements in eastern Europe and the Soviet Union in the 1980s and 1990s. In 1962 Hayek left Chicago for the University of Freiburg in Germany, and subsequently for Salzburg, where he spent the rest of his life. The Nobel Prize in 1974 significantly raised interest in his work and in Austrian economics.

Bibliography

Bergson, Abram. (1948). "Socialist Economics." In A Survey of Contemporary Economics, ed. H. S. Ellis. Home-wood, IL: Irwin.

Blaug, Mark. (1993). "Hayek Revisited." Critical Review 7(1):51 - 60.

Caldwell, Bruce. (1997). "Hayek and Socialism." Journal of Economic Literature, 35(4):1856 - 1890.

Foss, Nicolai J. (1994). The Austrian School and Modern Economics: A Reassessment. Copenhagen, Denmark: Handelshojskolens Forlag.

Lavoie, Don. (1985). Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered. Cambridge, UK: Cambridge University Press.

Machlup, Fritz. (1976). "Hayek's Contributions to Economics." In Buckley, William F., et al., Essays on Hayek, ed. Fritz Machlup. Hillsdale, MI: Hillsdale College Press.

O'Driscoll, Gerald P. (1977). Economics as a Coordination Problem: The Contribution of Friedrich A. Hayek. Kansas City: Sheed, Andrews and McMeel.

—RICHARD E. ERICSON

Quotes:

"There are no better terms available to describe [The] difference between the approach of the natural and the social sciences than to call the former objective and the latter subjective. ... While for the natural scientist the contrast between objective facts and subjective opinions is a simple one, the distinction cannot as readily be applied to the object of the social sciences. The reason for this is that the object, the facts of the social sciences are also opinions -- not opinions of the student of the social phenomena, of course, but opinions of those whose actions produce the object of the social scientist."