F.A. Hayek: In Memoriam, Part 1

A.K. and I are very excited to start a 10 part series of Great Social Scientists that have died in the last 25 years. There are so many great social scientists that have passed away, but few have impacted the profession as much as the top 10 most influential or important social scientists we have chosen. Each Tuesday, a new edition will debut. We won’t give away the top 10 just yet, but, as a major hint, we are going in chronological order of who passed away first. You may even get a sneak preview of which notable social scientist will be highlighted next week.

Each week we will give a brief summary, one longer quote, young and old pictures, two major contributions to social science (although most have many more) and a short video. This week’s edition summarizes a very important social scientist to me, Friedrich A. Hayek, who commonly signed as F.A. Hayek. Hayek wrote a seminal piece called, “The Use of Knowledge in Society”, that spoke volumes to me when I read it 6 years ago. This piece encouraged me to study economics. I am not sure one journal article has ever had such a profound impact on me… or ever will. His work is far too great to be summarized in one short post, but here is my best attempt at briefly summarizing and remembering the great F.A. Hayek.

Summary

Friedrich August Hayek was born in 1899 in Austria. He earned his doctorate in law and political science at the University of Vienna in 1921 and 1923.  Beyond Vienna, only Cambridge and Stockholm were other notable economic schools of the time. He was known as the one of the founders of “Austrian economics” which is a branch of economics that arose in 1871 by those working and studying at the Austrian School of Economics.  Austrian economists believe that  all costs and benefits to an individual are subjective and therefore, not measurable. One of the main differences of this school of thought is that Austrian economists believe that the complex reality of human action cannot be captured in a mathematical theory or analysis.

Hayek researched on law, labor unions, the welfare state, business cycles, capital theory and monetary theory. His first book, Monetary Theory and the Trade Cycle was published in 1929 . During the same time period, John Maynard Keynes was writing his famous book: General Theory of Employment, Interest and Money. Hayek frequently disagreed with Keynes’ work because he believed Keynesian policies to combat unemployment would cause inflation.  Hayek  stated that low-interest rates caused artificially high investment which will turn the boom (referencing more investment and growth) into a bust.   This view is what is accepted by mainstream economists today. Hayek also wrote The Pure Theory of Capital in 1941 related to monetary aggregates.

The famous Boom and Bust video, was posted in an earlier blog entry. It is a modern “rap” by actors impersonating Keynes and Hayek. It explains two of the greatest economic thinkers very well in such a short parody.

After studying Germany during World War II very closely, Hayek wrote The Road to Serfdom, 1944, which is regarded as one of his most famous books. The Reader’s Digest version condensed the book for the masses. For the first and only time, Reader’s Digest put the condensed book at the front of the magazine where no one would miss it. Originally only hundreds were printed, but eventually they were in the hundreds of thousands. This book explained the rise of Nazism as a cause of socialist practices. In the Foreword of the Reader’s Digest version, by Walter Williams, Williams sums up Hayek’s main point:

“Collectivism, whether is in Germany, the former Soviet Union, Britain or the USA, makes personal liberty its victim.”

 

Another great book was the Constitution of Liberty (1960) which talked about freedom and law. In the book’s post script, “Why I am Not a Conservative”, Hayek distinguished his classical liberalism from conservatism.  He states,

“One of the fundamental traits of the conservative attitude is a fear of change, a timid distrust of the new as such”(p. 522)…”like the socialist, he is less concerned with how the powers of the government should be limited than with that of who wields them; and, like the socialist, he regards himself as entitled to force the value he holds on other people” (p.523).

One of his last pieces of work was The Fatal Conceit (1988) which showed how intellectuals’ are attracted to socialism. In this book, Hayek says that property, honesty, and laws of contracts work because they allow a free society. It is conceit to suppose we can replace universal values with a council of wise men who will tell us how to act and direct us individually for the achievement of some social or economic plan. Socialist ideals appeal to our instincts, in our hunting and tribal past, but cannot work in large societies today.  Hayek is what is most commonly known as today as a classical liberal scholar.

Road_to_Serfdomconstitution of libety

Main contributions as a social scientist

Hayek was unique in that he was not only a trained economist, but also in law. The style in which he wrote often erred toward philosophical and he wrote on many subjects such as taxes, Social Security, American Constitutionalism, education, and agriculture amongst the topics mentioned above. Two of his many impacts as a social scientist were:

  1. Spontaneous order/ rules of order—This is the idea that the general benefit in a social system is the spontaneous ordering and forces that are beyond the control of men. Structures of social life evolve not because they are consciously chosen, but due to recognized benefits which they would bring.  Examples Hayek uses are language, walking in someone’s foot tracks in sand and bees. Taking the footpath example, the creation of the footpath in the sand was nobody’s intention, but the fortunate result of their private ambitions to take the easiest route. While these structures are undoubtedly patterns of human behavior, they are not the consequence of human design or planning.

The task of social and political studies, then, is to discover what sorts of action at the individual level will in fact bring about a smoothly functioning social order. But for an overall social pattern to emerge and survive through evolution does not necessarily require that the individuals themselves all act in precisely the same way or have a common purpose. Even a very limited similarity of action may be sufficient: for example, rules against injuring others, or theft of property, or breaking promises, may well make co–operation and social life possible but leave each individual a great deal of scope for free action. The regularity of individual behavior will produce an overall order.

  1. Defense of individual liberty/defining role of government–Individual freedom is needed to develop society and any attempt to inhibit freedom will rob the social order of its unique ability to allocate resources efficiently and to overcome new challenges and problems.  Freedom allows people to conduct experiments and try new ideas. We are not wise enough to know what will work in the future, so we trust the independent and competitive efforts of people to induce new ideas. The best ideas will prove useful and will encourage growth.

There is no central planner who is better equipped to come up with new ideas. A free society, however, does not come without rules, but is limited to predictable rules. If we know what actions are expected of us, in terms of things we must not do and things we must do, and know the rules which bind the government in its use of force, then we are spared the arbitrary nature of many governments.

There are many important contributions from Hayek and the simplicity of his points alludes to how intelligent and well written F.A. Hayek truly was. A more complete and thorough understanding of all of Hayek’s contributions can be found: here

 

Picture of F.A. Hayek

Here is a picture of F.A. Hayek in his younger years vs. towards the end of his life:

hayek_0Friedrich_Von_Hayek

 

Selected Quote

One of Hayek’s most well-known short pieces, “The Use of Knowledge in Society”, published in the American Economic Review in 1945 expanded on Adam Smith’s belief of the invisible hand. Hayek explains how knowledge works in society without the use of a central all-knowing entity.

If we can agree that the economic problem of society is mainly one of rapid adaptation to changes in the particular circumstances of time and place, it would seem to follow that the ultimate decisions must be left to the people who are familiar with these circumstances, who know directly of the relevant changes and of the resources immediately available to meet them. We cannot expect that this problem will be solved by first communicating all this knowledge to a central board which, after integrating all knowledge, issues its orders. We must solve it by some form of decentralization. But this answers only part of our problem. We need decentralization because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used. (emphasis, his own)

Brief Video

Here is one video in which F.A. Hayek attempts to answer why Intellectuals Drift Toward Socialism:

“Part of the government ideas which govern thinking since the 18th century, is the idea that we can make everything to our pleasure, that we can design social institutions in their working. Now, that is basically mistaken, social institutions have never been designed.” (0:34)

F.A. Hayek died on March 23, 1992, but his legacy and will forever live on. Next week, A.K. will be posting on Amos Tversky in Part 2 of In Memoriam.

Additional References:

  1. Hayek, Friedrich A. The Road to Serfdom with the Intellectuals and Socialism. London: Readers Digest, 2001. Print.
  2. Hayek, F.A. The Constitution of Liberty. London: The University of Chicago Press, 2011. Print.
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One thought on “F.A. Hayek: In Memoriam, Part 1

  1. Pingback: James M. Buchanan- In Memoriam Scholar Part 8 | Economics & Institutions

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