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Preliminary drafts of the book were completed by , but Hayek chose to rework his drafts and finally brought the book to publication in three volumes in , and Hayek became a professor at the University of Salzburg from to and then returned to Freiburg, where he spent the rest of his days. When Hayek left Salzburg in , he wrote: "I made a mistake in moving to Salzburg".
The economics department was small and the library facilities were inadequate. The reasons for the two of them winning the prize are described in the Nobel committee's press release. Hayek later sent him a Russian translation of The Road to Serfdom. Before he had finished, Thatcher "reached into her briefcase and took out a book. It was Hayek's The Constitution of Liberty. Interrupting our pragmatist, she held the book up for all of us to see. Writing to The Times , Hayek said: "May one who has devoted a large part of his life to the study of the history and the principles of liberalism point out that a party that keeps a socialist government in power has lost all title to the name 'Liberal'.
Certainly no liberal can in future vote 'Liberal'". In , Hayek came into conflict with Liberal Party leader David Steel , who claimed that liberty was possible only with "social justice and an equitable distribution of wealth and power, which in turn require a degree of active government intervention" and that the Conservative Party were more concerned with the connection between liberty and private enterprise than between liberty and democracy.
Hayek claimed that a limited democracy might be better than other forms of limited government at protecting liberty, but that an unlimited democracy was worse than other forms of unlimited government because "its government loses the power even to do what it thinks right if any group on which its majority depends thinks otherwise". Hayek stated that if the Conservative leader had said "that free choice is to be exercised more in the market place than in the ballot box, she has merely uttered the truism that the first is indispensable for individual freedom while the second is not: free choice can at least exist under a dictatorship that can limit itself but not under the government of an unlimited democracy which cannot".
President Ronald Reagan listed Hayek as among the two or three people who most influenced his philosophy and welcomed Hayek to the White House as a special guest. Some supporting examples include the following:. There is no figure who had more of an influence, no person had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market editions, read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union.
The most interesting among the courageous dissenters of the s were the classical liberals, disciples of F. Hayek, from whom they had learned about the crucial importance of economic freedom and about the often-ignored conceptual difference between liberalism and democracy. Estonian Prime Minister Mart Laar came to my office the other day to recount his country's remarkable transformation.
He described a nation of people who are harder-working, more virtuous — yes, more virtuous, because the market punishes immorality — and more hopeful about the future than they've ever been in their history. I asked Mr. Laar where his government got the idea for these reforms. Do you know what he replied? He said, "We read Milton Friedman and F.
I was 25 years old and pursuing my doctorate in economics when I was allowed to spend six months of post-graduate studies in Naples, Italy. I read the Western economic textbooks and also the more general work of people like Hayek. By the time I returned to Czechoslovakia, I had an understanding of the principles of the market. In , I was glad at the political liberalism of the Dubcek Prague Spring, but was very critical of the Third Way they pursued in economics. In , Hayek, a non-practising Roman Catholic ,  was one of twelve Nobel laureates to meet with Pope John Paul II "to dialogue, discuss views in their fields, communicate regarding the relationship between Catholicism and science, and 'bring to the Pontiff's attention the problems which the Nobel Prize Winners, in their respective fields of study, consider to be the most urgent for contemporary man'".
Frederick from now on. After his twenty-minute audience with the Queen, he was "absolutely besotted" with her according to his daughter-in-law Esca Hayek. Hayek said a year later that he was "amazed by her.
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That ease and skill, as if she'd known me all my life". The audience with the Queen was followed by a dinner with family and friends at the Institute of Economic Affairs. When later that evening Hayek was dropped off at the Reform Club , he commented: "I've just had the happiest day of my life". In , President George H. Bush awarded Hayek the Presidential Medal of Freedom , one of the two highest civilian awards in the United States, for a "lifetime of looking beyond the horizon". Hayek died on 23 March in Freiburg , Germany and was buried on 4 April in the Neustift am Walde cemetery in the northern outskirts of Vienna according to the Catholic rite.
Hayek's principal investigations in economics concerned capital , money and the business cycle. Ludwig von Mises had earlier applied the concept of marginal utility to the value of money in his Theory of Money and Credit in which he also proposed an explanation for "industrial fluctuations" based on the ideas of the old British Currency School and of Swedish economist Knut Wicksell. Hayek used this body of work as a starting point for his own interpretation of the business cycle, elaborating what later became known as the Austrian theory of the business cycle.
Hayek spelled out the Austrian approach in more detail in his book, published in , an English translation of which appeared in as Monetary Theory and the Trade Cycle. There, Hayek argued for a monetary approach to the origins of the cycle. In his Prices and Production , Hayek argued that the business cycle resulted from the central bank 's inflationary credit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates.
Hayek claimed that "the past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process". In accordance with the reasoning later outlined in his essay "The Use of Knowledge in Society" , Hayek argued that a monopolistic governmental agency like a central bank can neither possess the relevant information which should govern supply of money, nor have the ability to use it correctly.
Eager to promote alternatives to what he regarded as the narrow approach of the school of economic thought that then dominated the English-speaking academic world centred at the University of Cambridge and deriving largely from the work of Alfred Marshall , Robbins invited Hayek to join the faculty at LSE, which he did in According to Nicholas Kaldor, Hayek's theory of the time-structure of capital and of the business cycle initially "fascinated the academic world" and appeared to offer a less "facile and superficial" understanding of macroeconomics than the Cambridge school's.
Keynes asked his friend Piero Sraffa to respond. Sraffa elaborated on the effect of inflation-induced "forced savings" on the capital sector and about the definition of a "natural" interest rate in a growing economy see Sraffa—Hayek debate. Hayek continued his research on monetary and capital theory, revising his theories of the relations between credit cycles and capital structure in Profits, Interest and Investment and The Pure Theory of Capital , but his reputation as an economic theorist had by then fallen so much that those works were largely ignored, except for scathing critiques by Nicholas Kaldor.
Hayek never produced the book-length treatment of "the dynamics of capital" that he had promised in the Pure Theory of Capital. After , he continued to publish works on the economics of information, political philosophy, the theory of law and psychology, but seldom on macroeconomics. At the University of Chicago , Hayek was not part of the economics department and did not influence the rebirth of neoclassical theory that took place there see Chicago school of economics.
When in he shared the Nobel Memorial Prize in Economics with Myrdal, the latter complained about being paired with an "ideologue". Milton Friedman declared himself "an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [ Pure Theory of Capital ] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time".
Building on the earlier work of Mises and others, Hayek also argued that while in centrally planned economies an individual or a select group of individuals must determine the distribution of resources, these planners will never have enough information to carry out this allocation reliably. This argument, first proposed by Max Weber , says that the efficient exchange and use of resources can be maintained only through the price mechanism in free markets see economic calculation problem. In , Hayek published Collectivist Economic Planning , a collection of essays from an earlier debate that had been initiated by Mises.
Hayek included Mises's essay in which Mises argued that rational planning was impossible under socialism. Some socialists such as H. Dickinson and Oskar Lange responded by invoking general equilibrium theory , which they argued disproved Mises's thesis. They noted that the difference between a planned and a free market system lay in who was responsible for solving the equations.
They argued that if some of the prices chosen by socialist managers were wrong, gluts or shortages would appear, signalling them to adjust the prices up or down, just as in a free market. Through such a trial and error, a socialist economy could mimic the efficiency of a free market system while avoiding its many problems. Hayek challenged this vision in a series of contributions. In "Economics and Knowledge" , he pointed out that the standard equilibrium theory assumed that all agents have full and correct information.
However, in the real world different individuals have different bits of knowledge and furthermore some of what they believe is wrong. In " The Use of Knowledge in Society " , Hayek argued that the price mechanism serves to share and synchronise local and personal knowledge, allowing society's members to achieve diverse and complicated ends through a principle of spontaneous self-organization. He contrasted the use of the price mechanism with central planning, arguing that the former allows for more rapid adaptation to changes in particular circumstances of time and place.
Hayek's research into this argument was specifically cited by the Nobel Committee in its press release awarding Hayek the Nobel prize. Hayek was one of the leading academic critics of collectivism in the 20th century. Hayek argued that all forms of collectivism even those theoretically based on voluntary co-operation could only be maintained by a central authority of some kind. In Hayek's view, the central role of the state should be to maintain the rule of law , with as little arbitrary intervention as possible. In his popular book The Road to Serfdom and in subsequent academic works, Hayek argued that socialism required central economic planning and that such planning in turn leads towards totalitarianism.
In The Road to Serfdom , Hayek wrote:. Although our modern socialists' promise of greater freedom is genuine and sincere, in recent years observer after observer has been impressed by the unforeseen consequences of socialism, the extraordinary similarity in many respects of the conditions under "communism" and "fascism". Hayek posited that a central planning authority would have to be endowed with powers that would impact and ultimately control social life because the knowledge required for centrally planning an economy is inherently decentralised, and would need to be brought under control.
Though Hayek did argue that the state should provide law centrally, others have pointed out that this contradicts his arguments about the role of judges in "discovering" the law, suggesting that Hayek would have supported decentralized provision of legal services. Hayek also wrote that the state can play a role in the economy, specifically in creating a safety net, saying:. There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health.
Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision. Perhaps more fully than any other economist, Hayek investigated the choice theory of investment. He examined the inter-relations between non-permanent production goods and "latent" or potentially economic permanent resources, building on the choice theoretical insight that "processes that take more time will evidently not be adopted unless they yield a greater return than those that take less time".
Hayek's work on the microeconomics of the choice theoretics of investment, non-permanent goods, potential permanent resources and economically-adapted permanent resources mark a central dividing point between his work in areas of macroeconomics and that of almost all other economists. Hayek's work on the macroeconomic subjects of central planning , trade cycle theory, the division of knowledge and entrepreneurial adaptation especially, differ greatly from the opinions of macroeconomic " Marshallian " economists who follow the tradition of John Maynard Keynes and the microeconomic " Walrasian " economists who follow the tradition of Abba Lerner.
His goal was to show how a number of then-popular doctrines and beliefs had a common origin in some fundamental misconceptions about the social science. Usually, scientism involves combining the philosophers' ancient demand for demonstrative justification with the associationists' false view that all scientific explanations are simple two-variable linear relationships.
Hayek points out that much of science involves the explanation of complex multivariable and nonlinear phenomena [ citation needed ] and the social science of economics and undesigned order compares favourably with such complex sciences as Darwinian biology. These ideas were developed in The Counter-Revolution of Science in and in some of Hayek's later essays in the philosophy of science such as "Degrees of Explanation" and "The Theory of Complex Phenomena" In Counter-Revolution , for example, Hayek observed that the hard sciences attempt to remove the "human factor" to obtain objective and strictly controlled results:.
Instead, its main task became to revise and reconstruct the concepts formed from ordinary experience on the basis of a systematic testing of the phenomena, so as to be better able to recognize the particular as an instance of a general rule. Meanwhile, the soft sciences are attempting to measure human action itself: . The social sciences in the narrower sense, i.
The external stimulus which may be said to cause or occasion such actions can of course also be defined in purely physical terms. But if we tried to do so for the purposes of explaining human action, we would confine ourselves to less than we know about the situation.
He notes that these are mutually exclusive and that social sciences should not attempt to impose positivist methodology, nor to claim objective or definite results: . In The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology , Hayek independently developed a " Hebbian learning " model of learning and memory—an idea he first conceived in prior to his study of economics. Hayek's expansion of the "Hebbian synapse" construction into a global brain theory has received attention in neuroscience, cognitive science , computer science, behavioural science and evolutionary psychology by scientists such as Gerald Edelman and Joaquin Fuster.
The Sensory Order can be viewed as a development of his attack on scientism. Hayek posited two orders, namely the sensory order that we experience and the natural order that natural science has revealed. Hayek thought that the sensory order actually is a product of the brain. He described the brain as a very complex yet self-ordering hierarchical classification system, a huge network of connections.
Because of these nature of the classifier system, richness of our sensory experience can exist. Hayek's description posed problems to behaviorism , whose proponents took the sensory order as fundamental. In the latter half of his career, Hayek made a number of contributions to social and political philosophy which he based on his views on the limits of human knowledge  and the idea of spontaneous order in social institutions.
He argues in favour of a society organised around a market order in which the apparatus of state is employed almost though not entirely exclusively to enforce the legal order consisting of abstract rules and not particular commands necessary for a market of free individuals to function. These ideas were informed by a moral philosophy derived from epistemological concerns regarding the inherent limits of human knowledge. Hayek argued that his ideal individualistic and free-market polity would be self-regulating to such a degree that it would be "a society which does not depend for its functioning on our finding good men for running it".
Although Hayek believed in a society governed by laws, he disapproved of the notion of " social justice ". He compared the market to a game in which "there is no point in calling the outcome just or unjust"  and argued that "social justice is an empty phrase with no determinable content". This would produce a kind of society which in all essential respects would be the opposite of a free society".
Hayek viewed the free price system not as a conscious invention that which is intentionally designed by man , but as spontaneous order or what Scottish philosopher Adam Ferguson referred to as "the result of human action but not of human design". Hayek attributed the birth of civilisation to private property in his book The Fatal Conceit He explained that price signals are the only means of enabling each economic decision maker to communicate tacit knowledge or dispersed knowledge to each other to solve the economic calculation problem.
Alain de Benoist of the Nouvelle Droite New Right produced a highly critical essay on Hayek's work in an issue of Telos , citing the flawed assumptions behind Hayek's idea of " spontaneous order " and the authoritarian and totalising implications of his free-market ideology. Hayek's concept of the market as a spontaneous order has been recently applied to ecosystems to defend a broadly non-interventionist policy.
Human ignorance about the countless interactions between the organisms of an ecosystem limits our ability to manipulate nature. This analysis of ecosystems as spontaneous orders does not rely on markets qualifying as spontaneous orders. As such, one need not endorse Hayek's analysis of markets to endorse ecosystems as spontaneous orders. With regard to a social safety net , Hayek advocated "some provision for those threatened by the extremes of indigence or starvation due to circumstances beyond their control" and argued that the "necessity of some such arrangement in an industrial society is unquestioned—be it only in the interest of those who require protection against acts of desperation on the part of the needy".
There is no reason why in a society which has reached the general level of wealth which ours has attained [that security against severe physical privation, the certainty of a given minimum of sustenance for all; or more briefly, the security of a minimum income ] should not be guaranteed to all without endangering general freedom. There are difficult questions about the precise standard which should thus be assured Indeed, for a considerable part of the population of England this sort of security has long been achieved.
Nor is there any reason why the state should not assist Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance — where, in short, we deal with genuinely insurable risks — the case for the state's helping to organize a comprehensive system of social insurance is very strong Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make the provision for the consequences, such communal action should undoubtedly be taken.
In , Hayek reiterated in Law, Legislation and Liberty :. There is no reason why in a free society government should not assure to all, protection against severe deprivation in the form of an assured minimum income , or a floor below which nobody need to descend. To enter into such an insurance against extreme misfortune may well be in the interest of all; or it may be felt to be a clear moral duty of all to assist, within the organised community, those who cannot help themselves.
So long as such a uniform minimum income is provided outside the market to all those who, for any reason, are unable to earn in the market an adequate maintenance, this need not lead to a restriction of freedom, or conflict with the Rule of Law.
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Arthur M. Diamond argues Hayek's problems arise when he goes beyond claims that can be evaluated within economic science. Diamond argued:. The human mind, Hayek says, is not just limited in its ability to synthesize a vast array of concrete facts, it is also limited in its ability to give a deductively sound ground to ethics. Here is where the tension develops, for he also wants to give a reasoned moral defense of the free market. He is an intellectual skeptic who wants to give political philosophy a secure intellectual foundation. It is thus not too surprising that what results is confused and contradictory.
Chandran Kukathas argues that Hayek's defence of liberalism is unsuccessful because it rests on presuppositions that are incompatible. The unresolved dilemma of his political philosophy is how to mount a systematic defence of liberalism if one emphasizes the limited capacity of reason. Barry similarly notes that the "critical rationalism" in Hayek's writings appears incompatible with "a certain kind of fatalism, that we must wait for evolution to pronounce its verdict". Noting Hayek's vigorous defense of "invisible hand" evolution that Hayek claimed has created better economic institutions than could be created by rational design, Friedman pointed out the irony that Hayek was then proposing to replace the monetary system thus created with a deliberate construct of his own design.
Gray summarized this view as "his scheme for an ultra-liberal constitution was a prototypical version of the philosophy he had attacked". Hayek hoped that his book—this "preliminary sketch of new constitutional principles"—"may assist" Salazar "in his endeavour to design a constitution which is proof against the abuses of democracy". Asked about the liberal non-democratic rule by a Chilean interviewer, Hayek is translated from German to Spanish to English as having said the following:. As long term institutions, I am totally against dictatorships.
But a dictatorship may be a necessary system for a transitional period.
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My personal impression — and this is valid for South America — is that in Chile, for example, we will witness a transition from a dictatorial government to a liberal government. In a letter to the London Times , he defended the Pinochet regime and said that he had "not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende ".
But if it is the sole opportunity which exists at a particular moment it may be the best solution despite this. And only if and when the dictatorial government is visibly directing its steps towards limited democracy". For Hayek, the distinction between authoritarianism and totalitarianism has much importance and he was at pains to emphasise his opposition to totalitarianism, noting that the concept of transitional dictatorship which he defended was characterised by authoritarianism, not totalitarianism.
For example, when Hayek visited Venezuela in May , he was asked to comment on the prevalence of totalitarian regimes in Latin America. In reply, Hayek warned against confusing "totalitarianism with authoritarianism" and said that he was unaware of "any totalitarian governments in Latin America. The only one was Chile under Allende". For Hayek, the word "totalitarian" signifies something very specific, namely the intention to "organize the whole of society" to attain a "definite social goal" which is stark in contrast to "liberalism and individualism".
Hayek's influence on the development of economics is widely acknowledged. With regard to the popularity of his Nobel acceptance lecture, Hayek is the second-most frequently cited economist after Kenneth Arrow in the Nobel lectures of the prize winners in economics. Hayek wrote critically there of the field of orthodox economics and neo-classical modelisation. Simon , recognise Hayek as the greatest modern economist.
In , Hayek's Prices and Production had enjoyed an ultra-short Byronic success. In retrospect hindsight tells us that its mumbo-jumbo about the period of production grossly misdiagnosed the macroeconomics of the — and the — historical scene". Hayek is widely recognised for having introduced the time dimension to the equilibrium construction and for his key role in helping inspire the fields of growth theory , information economics and the theory of spontaneous order.
The "informal" economics presented in Milton Friedman 's massively influential popular work Free to Choose is explicitly Hayekian in its account of the price system as a system for transmitting and co-ordinating knowledge. This can be explained by the fact that Friedman taught Hayek's famous paper "The Use of Knowledge in Society" in his graduate seminars. In , he was elected as a Fellow of the British Academy  after he was nominated for membership by Keynes. Harvard economist and former Harvard University President Lawrence Summers explains Hayek's place in modern economics: "What's the single most important thing to learn from an economics course today?
What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That's the consensus among economists.
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That's the Hayek legacy". By , Hayek was an organiser of the Mont Pelerin Society , a group of classical liberals who sought to oppose socialism. Hayek was also instrumental in the founding of the Institute of Economic Affairs , the right-wing libertarian and free-market think tank that inspired Thatcherism. He was in addition a member of the conservative and libertarian Philadelphia Society.
Hayek had a long-standing and close friendship with philosopher of science Karl Popper , who was also from Vienna. In a letter to Hayek in , Popper stated: "I think I have learnt more from you than from any other living thinker, except perhaps Alfred Tarski ".
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For his part, Hayek dedicated a collection of papers, Studies in Philosophy, Politics, and Economics , to Popper and in said that "ever since his Logik der Forschung first came out in , I have been a complete adherent to his general theory of methodology". Their friendship and mutual admiration do not change the fact that there are important differences between their ideas.
Caplan, B. Davis, O. Delli Carpini, M. New Haven: Yale University Press. Dewey, J. The Public and Its Problems. Denver Alan Swallaw. Downs, A.
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Foss, N. Frey, B. Schumpeterian Economics , pp. New York: Praeger. Granovetter, M. Hayek, F. Chicago: University of Chicago Press. London: Routledge. Studies on the Abuse of Reason , 2nd ed. Indianapolis: Liberty Press. Hirschman, A. Princeton: Princeton University Press. Huckfeldt, R.
Cambridge: Cambridge University Press. Hume, D. Kuran, T. The Social Consequences of Preference Falsification.
Cambridge and London: Harvard University Press. Lachmann, L. London: Heinemann. Lakatos, I. Criticism and the Growth of Knowledge , pp. Langlois, R. Austrian Economics: Tensions and New Directions , pp. Lerner, A. New York: Macmillan. Lowell, A. New York: Longmans, Green, and Co. Luhmann, N.