Friedrich August von Hayek (May 8, 1899 in Vienna – March 23, 1992 in Freiburg) was an economist and social scientist of the Austrian School, noted for his defense of free-market capitalism against a rising tide of socialist thought in the mid-20th century. He also made important contributions to the fields of jurisprudence and cognitive science. He shared the 1974 Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel with ideological rival Gunnar Myrdal.
Hayek was born in Vienna to a family of prominent intellectuals. At the University of Vienna, where he received doctorates in 1921 and 1923, he studied law, psychology, and economics. Initially sympathetic to socialism, Hayek's economic thinking was transformed during his student years in Vienna by his exposure to the work of Ludwig von Mises.
Hayek worked as a research assistant to Prof. Jeremiah Jenks of New York University from 1923 to 1924. He then served as director of the Austrian Institute of Economic Research before joining the faculty of the London School of Economics in 1931. Unwilling to return to Austria after its annexation to Nazi Germany, Hayek became a British citizen in 1938.
In the early 1940s, Hayek enjoyed a considerable reputation as a leading economic theorist. But after the end of World War II, Hayek's laissez-faire doctrines were eclipsed by the growing prestige of J. M. Keynes and others who argued for active government intervention in economic affairs. Unable to find employment in any of the major university departments of economics, Hayek became a professor in the Committee on Social Thought at the University of Chicago. He remained there from 1950 to 1962. From 1962 until his retirement in 1968, he was a professor at the University of Freiburg. Later he was a visiting professor at the University of Salzburg. Hayek died in 1992 in Freiburg, Germany.
Hayek's writings on capital, money, and the business cycle are widely regarded as his most important contributions to economics. Mises had earlier explained monetary and banking theory in his Theory of Money and Credit (1912), applying the marginal utility principle to the value of money and then proposing a new theory of industrial fluctuations based on the concepts of the British Currency School and the ideas of the Swedish economist Knut Wicksell. Hayek used this body of work as a starting point for his own research which later become known as the Austrian business cycle theory. In his Prices and Production (1931) and The Pure Theory of Capital (1941) he explained the origin of the business cycle in terms of central bank credit expansion and its transmission over time in terms of capital misallocation caused by artificially low interest rates.
This theory (the original Austrian business cycle theory ) has come under harsh criticism from e.g. rational expectations and other components of neoclassical economics, who point to monetary neutrality as well as real business cycles as theories that largely discredit the Austrian explanation. However, Hayek differed from Mises and Rothbard in beginning to shun the wholly monetary business cycle theory in favor of a more eccentric theory concerning more profits than interests, in his 1939 book Profits, interest and investment. He explicitly notes that most of the more accurate explanations of business cycles have to do more with real instead of nominal variables. He also notes that this more eccentric explanation model of business cycles which he ponders on in the book can hardly be called any specific Austrian theory any more.
Hayek was one of the leading academic critics of socialism in the 20th century. In his popular book, The Road to Serfdom (1944) and subsequent works, Hayek claimed that socialism had a strong probability of leading towards totalitarianism, because, in his view, central planning could not be restricted to the economic sector and would eventually affect social life as well. Hayek also contended that in centrally-planned economies an individual or a group of individuals must determine the allocation of resources, but that planners will never have enough information to carry out this allocation reliably (see economic calculation problem).
In The Use of Knowledge in Society (1945), Hayek claimed that the price mechanism serves to share and synchronize local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization. Hayek coined the term catallaxy to describe a "self-organizing system of voluntary co-operation."
Hayek viewed the price mechanism, not as a conscious invention (that which is intentionally designed by man), but as spontaneous order, or what is referred to as "that which is human action but not of human design". Thus, Hayek put the price mechanism on the same level as, for example, language. Such thinking led him to speculate on how the human brain could accommodate this evolved behavior. In The Sensory Order (1952), he proposed, independently of Donald Hebb, the connectionist hypothesis that forms the basis of the technology of neural networks and of much of modern neurophysiology.
Hayek and Conservatism
An academic outcast for much of his career, Hayek attracted new attention in the 1980s and 1990s with the rise of anti-leftist governments in the United States and the United Kingdom. Margaret Thatcher, the British prime minister from 1979 to 1990, was an outspoken devotee of Hayek's writings. Shortly after Thatcher became Leader of the Conservative Party, she "reached into her briefcase and took out a book. It was Friedrich von Hayek's The Constitution of Liberty . Interrupting [the speaker], 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." (John Ranelagh, Thatcher's People: An Insider's Account of the Politics, the Power, and the Personalities. London: HarperCollins, 1991.)
Hayek wrote an essay entitled Why I Am Not a Conservative , (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. His criticism was aimed largely at the European-style conservatism, which has often opposed capitalism as a threat to social stability and traditional values. Hayek identified himself as a classical liberal, but noted that in the United States it had become almost impossible to use "liberal" in the older sense that he gave to the term. In the U.S., Hayek is usually described as a "libertarian", but the denomination that he preferred was "Old Whig" (a phrase borrowed from Edmund Burke).
Influence and recognition
By 1947, Hayek was the chief organizer of the Mont Pelerin Society, a group of classical liberals who sought to oppose what they saw as "socialism" in various areas. For many years their efforts remained on the intellectual fringes, but they have received increasing attention over the past 30 years.
In his speech at the 1974 Nobel Prize banquet, Hayek, whose work emphasized the fallibility of individual knowledge about economic and social arrangements, expressed his misgivings about promoting the perception of economics as a strict science on par with physics, chemistry, or medicine (the academic disciplines recognized by the original Nobel Prizes).
Even after his death, Hayek maintained a significant intellectual presence in the universities where he had taught: the London School of Economics, the University of Chicago, and the University of Freiburg. A student-run group, the LSE Hayek Society, was established in his honor. The Cato Institute, one of Washington, D.C.'s leading think tanks, named its lower level auditorium after Hayek, who had been a Distinguished Senior Fellow at Cato during his later years.
From A Conversation with Friedrich A. von Hayek, AEI, Washington D.C., 1979:
- I have arrived at the conviction that the neglect by economists to discuss seriously what is really the crucial problem of our time is due to a certain timidity about soiling their hands by going from purely scientific questions into value questions. This is a belief deliberately maintained by the other side because if they admitted that the issue is not a scientific question, they would have to admit that their science is antiquated and that, in academic circles, it occupies the position of astrology and not one that has any justification for serious consideration in scientific discussion. It seems to me that socialists today can preserve their position in academic economics merely by the pretense that the differences are entirely moral questions about which science cannot decide.