Friedrich August von Hayek was a prominent and influential member of the Austrian School of economics who described himself as a classical liberal. F.A. Hayek was emphatically opposed to government efforts at economic management, which he saw as both futile and a threat to human freedom. However, he distinguished himself from free-market absolutists by allowing a minimal role for government in the economy.
Hayek wrote his most famous work, The Road to Serfdom, between 1940 and 1943. His particular motive was to dispute a view, then widespread among British academia, that fascism was a capitalist reaction against socialism. Instead, Hayek identified Nazism as a variant of socialism, not its opposite. More generally, he contended that a society with a centrally planned economy inevitably tends toward totalitarianism, since the information needed for making economic decisions is widely and finely diffused throughout society. A government cannot control the economy without controlling everything and everyone. The Road to Serfdom was published in 1944 and was widely read in academic circles in England. It received an even stronger reception in the United States, and in 1945, Reader’s Digest published an abridged version that reached a far wider, general audience.
From an economic standpoint, Hayek’s most famous contribution was to the Austrian business cycle theory he helped pioneer. This is an explanation of the phenomenon of business cycles held by the Austrian School of economics. According to Wikipedia, “The theory views business cycles (or, as some Austrians prefer, “credit cycles”) as the inevitable consequence of excessive growth in bank credit, exacerbated by inherently damaging and ineffective central bank policies, which cause interest rates to remain too low for too long, resulting in excessive credit creation, speculative economic bubbles and lowered savings. The theory proposes that a sustained period of low interest rates and excessive credit creation results in a volatile and unstable imbalance between saving and investment. … The main proponents of the Austrian business cycle theory historically were Ludwig von Mises and Friedrich Hayek. Hayek won a Nobel Prize in economics in 1974 (shared with Gunnar Myrdal) in part for his work on this theory.”
Hayek’s economic thinking leaned toward collectivist models until he encountered Ludwig von Mises’Socialism, published in 1922. He then began attending von Mises’ private seminars, along with several of his university friends, including Fritz Machlup and Gottfried Haberler. In the late 1920s, Hayek founded the Austrian Institute for Business Cycle Research, and in 1931 he joined the faculty of the London School of Economics. It was there that he developed his theory of the coordination function of prices, which inspired the pioneering works in microeconomics of John Hicks, Abba Lerner and Ronald Coase.
Background: Friedrich August von Hayek was born in Vienna in 1899. Hayek’s father was a physician in the municipal health service, an esteemed botanist and a member of the Austrian nobility. Both of his grandfathers were prominent academics (statistics and biology). His mother came from a wealthy bourgeoisie family and was a second cousin of Ludwig Wittgenstein. Hayek eventually became one of the first to read Wittgenstein’s Tractatus Logico-Philosophicus, in 1921.
During the First World War, Hayek served as an aerial artillery spotter. Reflecting on his wartime experience, Hayek said, “The decisive influence was really World War I. It’s bound to draw your attention to the problems of political organization.” After World War I, Hayek entered the University of Vienna and while still a student was hired by Ludwig von Mises to assist the Austrian government with the legal and economic details of the Treaty of Saint Germain. By 1923, Hayek had earned doctorates in both law and political science.
In 1938, unwilling to return to then Nazi-controlled Austria, Hayek became a British subject. In 1950, Hayek left the London School of Economics for the University of Chicago, where he would work for 12 years. During this period he wrote The Constitution of Liberty, which dealt with “that condition of men in which coercion of some by others is reduced as much as is possible in society.” From 1962 until his retirement in 1968, he was a professor at the University of Freiburg, West Germany, where he began work on Law, Legislation and Liberty. Following his retirement, Hayek spent a year as a visiting professor of philosophy at the University of California, Los Angeles.
In 1969 Hayek began a 12-year tenure as a professor at the University of Salzburg. In 1974 he shared the Nobel Memorial Prize in Economics with Swedish socialist economist Gunnar Myrdal and in 1977 returned to Freiburg, where he spent the remainder of his life. Hayek visited Chile repeatedly in the 1970s and 1980s, during the dictatorial rule of Augusto Pinochet. Asked by a Chilean interviewer about liberal, non-democratic rule, Hayek’s response was translated as, “Personally I prefer a liberal dictator to democratic government lacking liberalism.”
Friedrich August von Hayek died in Freiburg in 1992.
More from F.A. Hayek
- Tiger by the Tail
- The Road to Serfdom
- Individualism and Economic Order
- The Life & Thought of Friedrich Hayek
- The Road to Serfdom 1945 Radio Dramatisation