Friedrich A. Hayek (1899-1992)
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| by Peter J.
Boettke |
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Friedrich A. Hayek, who died on March 23,
1992, at the age of 92, was probably the
most prodigious classical liberal scholar of
the 20th century. Though his 1974 Nobel
prize was in Economic Science, his scholarly
endeavors extended well beyond economics. He
published 130 articles and 25 books ranging
from technical economics to theoretical
psychology, from political philosophy to
legal anthropology, and from the philosophy
of science to the history of ideas. Hayek
was no mere dabbler; he was an accomplished
scholar in each of these fields of inquiry.
He made major contributions to our
understanding in at least three different
areas-government intervention, economic
calculation under socialism, and development
of the social structure. It is unlikely that
we will see the likes of such a wide-ranging
scholar of the human sciences again.
Hayek was born into a family of
intellectuals in Vienna on May 8,1899. He
earned doctorates from the University of
Vienna (1921 and 1923). During the early
years of the 20th century the theories of
the Austrian School of Economics, sparked by
Menger's Principles of Economics (1871),
were gradually being formulated and refined
by Eugen Boehm-Bawerk, his brother-in-law,
Friedrich Wieser, and Ludwig von Mises. When
Hayek attended the University of Vienna, he
sat in on one of Mises' classes, but found
Mises' anti-socialist position too strong
for his liking. Wieser was a Fabian
socialist whose approach was more attractive
to Hayek at the time, and Hayek became his
pupil. Yet, ironically it was Mises, through
his devastating critique of socialism
published in 1922, who turned Hayek away
from Fabian socialism.
The best way to understand Hayek's vast
contributions to economics and classical
liberalism is to view them in light of the
program for the study of social cooperation
laid out by Mises. Mises, the great system
builder, provided Hayek with the research
program. Hayek became the great dissecter
and analyzer. His life's work can best be
appreciated as an attempt to make explicit
what Mises had left implicit, to refine what
Mises had outlined, and to answer questions
Mises had left unanswered. Of Mises, Hayek
stated: "There is no single man to whom I
owe more intellectually." The Misesian
connection is most evident in Hayek's work
on the problems with socialism. But the
insights derived from the analysis of
socialism permeate the entire corpus of his
work, from business cycles to the origin of
social cooperation.
Hayek did not meet Mises when he was
attending the University of Vienna. He was
introduced to Mises after he graduated
through a letter from his teacher, Wieser.
The Hayek-Mises collaboration then began.
For five years, Hayek worked under Mises in
a government office. In 1927, he became the
Director of the Institute for Business Cycle
Research which he and Mises had set up
together. The Institute was devoted to
theoretical and empirical examinations of
business cycles.
Building on Mises' The Theory of Money and
Credit (1912), Hayek refined both the
technical understanding of capital
coordination and the institutional details
of credit policy. Seminal studies in
monetary theory and the trade cycle
followed. Hayek's first book, Monetary
Theory and the Trade Cycle (1929), analyzed
the effects of credit expansion on the
capital structure of an economy.
Publication of that book prompted an
invitation from Lionel Robbins for Hayek to
lecture at the London School of Economics.
His lectures there were published in a
second book on the "Austrian Theory of the
Trade Cycle," Prices and Production (1931),
which was cited by the Nobel Prize Committee
in 1974.
Hayek's 1930-1931 lectures at the London
School were received with such great acclaim
that he was called back to the prestigious
University of London and appointed Tooke
Professor of Economic Science and
Statistics. At age 32, Hayek had reached the
pinnacle of the economics profession.
The Mises-Hayek theory of the trade cycle
explained the "cluster of errors" that
characterizes the cycle. Credit expansion,
made possible by the artificial lowering of
interest rates, misleads businessmen; they
are led to engage in ventures that would not
otherwise have appeared profitable. The
false signal generated by credit expansion
leads to malcoordination of the production
and consumption plans of economic actors.
This malcoordination first manifests itself
in a "boom," and then, later, in the "bust"
as the time pattern of production adjusts to
the real pattern of savings and consumption
in the economy.
Hayek versus Keynes
Soon after Hayek's arrival in London he
crossed swords with John Maynard Keynes.
Keynes, a prominent member of the British
civil service then serving on the
governmental Committee on Finance and
Industry, was credited by the academic
community as the author of serious books on
economics. The Hayek-Keynes debate was
perhaps the most fundamental debate in
monetary economics in the 20th century.
Beginning with his essay, "The End of
Laissez Faire" (1926), Keynes presented his
interventionist pleas in the language of
pragmatic classical liberalism. As a result,
Keynes was heralded as the "savior of
capitalism," rather than being recognized as
the advocate of inflation and government
intervention that he was.
Hayek pinpointed the fundamental problem
with Keynes's economics-his failure to
understand the role that interest rates and
capital structure play in a market economy.
Because of Keynes's unfortunate habit of
using aggregate (collective) concepts, he
failed to address these issues adequately in
A Treatise on Money (1930). Hayek pointed
out that Keynes's aggregation tended to
redirect the analytical focus of the
economist away from examining how the
industrial structure of the economy emerged
from the economic choices of individuals.
Keynes did not take kindly to Hayek's
criticism. He responded at first by
attacking Hayek's Prices and Production.
Then Keynes claimed that he no longer
believed what he had written in A Treatise
on Money, and turned his attention to
writing another book, The General Theory of
Employment, Interest, and Money (1936),
which in time became the most influential
book on economic policy in the 20th century.
Rather than attempting to criticize directly
what Keynes presented in his General Theory,
Hayek turned his considerable talents to
refining capital theory. Hayek was convinced
that the essential point to convey to Keynes
and the rest of the economics profession
concerning monetary policy lay in capital
theory. Thus Hayek proceeded to set forth
his thesis in The Pure Theory of Capital
(1941). However correct his assessment may
have been, this book, Hayek's most
technical, was his least influential. By the
end of the 1930s, Keynes's brand of
economics was on the rise. In the eyes of
the public Keynes had defeated Hayek. Hayek
lost standing in the profession and with
students.
During this time, Hayek was also involved in
another grand debate in economic policy-the
socialist calculation debate, triggered by a
1920 article by Mises which stated that
socialism was technically impossible because
it would lack market prices. Mises had
refined this argument in 1922 in Socialism:
An Economic and Sociological Analysis, the
book which had profoundly impressed the
young Hayek when it appeared. Hayek
developed Mises' argument further in several
articles during the 1930s. In 1935, he
collected and edited a series of essays on
the problems of socialist economic
organization: Collectivist Economic
Planning. Additional Hayek essays on the
problems of socialism, and specifically the
model of "market socialism" developed by
Oskar Lange and Abba Lerner in their attempt
to answer Mises and Hayek, were later
collected in Individualism and Economic
Order (1948).
Again, the economics profession and the
intellectual community in general did not
appreciate Hayek's criticism. Had not modern
science given man the ability to control and
design society according to moral rules of
his own choosing? The planned society
envisioned under socialism was supposed to
be not only as efficient as capitalism
(especially in view of the chaos capitalism
was said to generate with its business
cycles and monopoly power), but socialism,
with its promise of social justice, was
expected to be fairer. Moreover, it was
considered the wave of the future. Only a
reactionary, it was argued, could resist the
inevitable tide of history. Not only had
Hayek appeared to lose the technical
economic debate with Keynes and the
Keynesians concerning the causes of business
cycles but, in view of the rising tide of
socialism throughout the world, his general
philosophical perspective was increasingly
labeled as a primitive version of
liberalism.
The Road to Serfdom
Hayek, however, kept on refining the
argument for the liberal society. The
problems of socialism that he had observed
in Nazi Germany and that he saw beginning in
Britain led him to write The Road to Serfdom
(1944). This book forced advocates of
socialism to confront an additional problem,
over and beyond the technical economic one.
If socialism required the replacement of the
market with a central plan, then, Hayek
pointed out, an institution must be
established that would be responsible for
formulating this plan. Hayek called this
institution the Central Planning Bureau. To
implement the plan and to control the flow
of resources, the Bureau would have to
exercise broad discretionary power in
economic affairs. Yet the Central Planning
Bureau in a socialist society would have no
market prices to serve as guides. It would
have no means of knowing which production
possibilities were economically feasible.
The absence of a pricing system, Hayek said,
would prove to be socialism's fatal flaw.
In
The Road to Serfdom Hayek also argued that
there was good reason to suspect that those
who would rise to the top in a socialistic
regime would be those who had a comparative
advantage in exercising discretionary power
and were willing to make unpleasant
decisions. And it was inevitable that these
powerful men would run the system to their
own personal advantage.
Hayek was right on both counts, of course-on
the economic as well as the political
problem of socialism. The 20th century is
replete with the blood of the innocent
victims of socialist experiments. Stalin,
Hitler, Mao, Pol Pot, and a host of lesser
tyrants have committed heinous crimes
against humanity in the name of one or
another variant of socialism.
Totalitarianism is not an historical
accident that emerges solely because of a
poor choice of leaders under a socialist
regime. Totalitarianism, Hayek shows, is the
logical outcome of the institutional order
of socialist planning.
After the defeat in the public forum of his
critique of Keynes and the controversy that
arose over the debate on economic
calculation under socialism, Hayek turned
his attention away from technical economics
and concentrated on restating the principles
of classical liberalism. Hayek had pointed
out the need for market prices as conveyors
of dispersed economic information. He showed
that attempts to replace or control the
market lead to a knowledge problem. Hayek
also described the totalitarian problem
associated with placing discretionary power
in the hands of a few. This led him to
examine the intellectual prejudices which
blind men from seeing the problems of
government economic planning.
During the 1940s, Hayek published a series
of essays in professional journals examining
the dominant philosophical trends that
prejudiced intellectuals in a way that did
not allow them to recognize the systemic
problems that economic planners would
confront. These essays were later collected
and published as The Counter-Revolution of
Science (1952). The Counter-Revolution,
perhaps Hayek's best book, provides a
detailed intellectual history of "rational
constructivism" and the problems of
"scientism" in the social sciences. It is in
this work that Hayek articulates his version
of the Scottish Enlightenment project of
David Hume and Adam Smith of using reason to
whittle down the claims of reason. Modern
civilization was not threatened by
irrational zealots hell-bent on destroying
the world, but rather it was the abuse of
reason by rational constructivists trying to
consciously design the modern world that had
placed mankind in chains of his own making.
In
1950, Hayek moved to the University of
Chicago, where he taught until 1962 in the
Committee on Social Thought. While there, he
wrote The Constitution of Liberty (1960).
This work represented Hayek's first systemic
treatise on classical liberal political
economy.
In
1962, Hayek moved to Germany, where he had
obtained a position at the University of
Freiburg. He then increasingly centered his
efforts on examining and elaborating the
"spontaneous" ordering of economic and
social activity. Hayek set about to
reconstruct liberal social theory and to
provide a vision of social cooperation among
free individuals.
With his three-volume study, Law,
Legislation and Liberty (1973-1979) and The
Fatal Conceit (1988), Hayek extended his
analysis of society to an examination of the
"spontaneous" emergence of legal and moral
rules. His political and legal theory
emphasized that the rule of law was the
necessary foundation for peaceful
co-existence. He contrasted the tradition of
the common law with that of statute law,
i.e., legislative decrees. He showed how the
common law emerges, case by case, as judges
apply to particular cases general rules
which are themselves products of cultural
evolution. Thus, he explained that embedded
within the common law is knowledge gained
through a long history of trial and error.
This insight led Hayek to the conclusion
that law, like the market, is a
"spontaneous" order-the result of human
action, but not of human design.
Hayek's work in technical economics,
political and legal philosophy, and
methodology of the social sciences has
attracted great interest among scholars of
at least two generations, and interest in
his work is growing. His contributions to
economic and classical liberalism are vast
and will live on in the progressive research
program he has bequeathed to future
generations of scholars.
Friedrich Hayek lived a long and fruitful
life. He had to endure the curse of
achieving fame at a young age and then
having that fame turn to ridicule as the
Keynesians and socialists gained popularity
and the intellectual and political world
moved away from his ideas. Fortunately he
lived long enough to see his towering
intellect recognized again. Both Keynesians
and socialists were eventually defeated
soundly by the tide of events and the truth
of his teachings. Classical liberalism is
once again a vibrant body of thought.
Austrian economics has re-emerged as a major
school of economic thought, and younger
scholars in law, history, economics,
politics, and philosophy are pursuing
Hayekian themes. We may mourn the loss of
this great champion of liberalism, but at
the same time we can rejoice that F. A.
Hayek left us such a brilliant gift.
A
great scholar is defined not so much by the
answers he provides as by the questions he
asks. Successive generations of scholars,
intellectuals, and political activists
throughout the world will long be pursuing
questions that Hayek has posed.
Peter J. Boettke is a professor of economics
at New York University and the author of The
Political Economy of Soviet Socialism and
Why Perestroika Failed. |
