Friedrich A. von Hayek

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Friedrich A. von Hayek

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.