If you haven’t studied economics, there is a good chance you have never heard of Friedrich Hayek. So you might not know that he was one of the most important thinkers in the classical liberal and conservative tradition. Here are three quick reasons why you should study his work:
1. Friedrich Hayek was perhaps the most influential intellectual defender of freedom in the twentieth century
That claim may strike you as brash given the many conservative and libertarian heroes: Russell Kirk, Richard Weaver, Milton Friedman, William F. Buckley, Ronald Reagan, Ludwig von Mises, Murray Rothbard, among others. Yet none of them, with the possible exception of Milton Friedman, had Hayek’s intellectual chops and wide-ranging influence.
Although Friedrich Hayek (1899–1992) had socialist sympathies when he was young, he quickly became a staunch advocate of free markets after studying Austrian economics with Eugen Böhm-Bawerk and Ludwig von Mises. During his career Hayek traveled across the intellectual world, from the University of Vienna to the London School of Economics (1931–50), from the University of Chicago (1950–62) to the University of Freiburg (1962–68) to the University of Salzburg (1969–77). Along the way Hayek founded the Mont Pelerin Society in 1947 and won the Nobel Memorial Prize in Economics in 1974.
Hayek was the epitome of a man with nineteenth-century ideals who lived his entire life in the twentieth. And he lived to witness most of those ideals, such as robust civil societies, limited national governments, free markets, and the classical gold standard, assaulted intellectually and undermined politically. Despite setback after setback during most of his life, Hayek’s intellectual contributions inspired generations of thinkers and politicians, including Ronald Reagan and Margaret Thatcher. His ideas even held their own in the hostile world of academia.
2. Hayek developed piercing and enduring critiques of large-scale government programs and planning—critiques that are as relevant today as they were in the 1920s, 1930s, and 1940s
His criticism of socialism and government planning can be broken into two categories: knowledge problems and incentive problems. Hayek, along with Ludwig von Mises, was one of the major participants in the Socialist Calculation Debate in the 1920s and 1930s. The initial criticisms, in a nutshell, were that central planners could not possibly have enough information to plan the economy and that in a planned economy there is little incentive for people to work hard or to innovate.
Even as he disputed the merits of socialist planning, Hayek was also engaged in one of the greatest debates in economics in the twentieth century—whether free market capitalism had created the Great Depression in the 1930s. John Maynard Keynes, a brilliant and persuasive intellectual, argued that free markets had indeed failed to provide perpetual prosperity and that therefore the economy required the steadying hand of government intervention. Keynes’s ideas took the world by storm and became the dominant paradigm in economics. Yet throughout the 1930s, his most important critic and interlocutor was Friedrich Hayek.
Although he failed to stem the rising tide of Keynesianism, Hayek made many significant contributions to economic theory during that debate. Today Hayek is most known for his work on the role of knowledge in economics. His essay “The Use of Knowledge in Society” remains one of the most widely cited articles in economics. In it he points out that for an economy to function well, people must be able to act on their own specific knowledge of “time and place.” The challenge, however, is making sure that millions of individuals use their local knowledge in ways that support and complement the use of local knowledge by the people around them—people they may never know or interact with directly.
This challenge is overcome, Hayek argued, by the existence of freely fluctuating prices. Prices convey information about the desires, goals, and available resources in society to every individual decision maker. At the same time, those prices create incentives that encourage people to utilize their local knowledge in efficient and socially productive ways. A more fundamental problem beyond using the relevant knowledge and resources is actually discovering what the relevant knowledge and resources (and the most important needs) are.
Hayek also examined how incentives shape human behavior—particularly incentives created by the use or threat of violence. In his most popular work, The Road to Serfdom, Hayek explains that central planning, by its very nature, cannot allow dissent or disagreement. What’s more, a political system that has extensive and concentrated power to direct people’s lives and wealth will create an environment where those who are best at using power, the most ruthless and cunning, will be the most successful government officials. That is why most socialist or communist countries have brutal dictators, from Lenin and Stalin to the Castros to Mao Zedong to Kim Jong-un, Kim Jong-il, and Kim Il-sung.
3. Hayek had deep insights into how markets and societies flourish through experimentation and decentralization under free institutions
Incentives created by coercion are relevant to more than just dictatorships. Hayek also wrote extensively about the uses and abuses of coercion in free societies. In his book The Constitution of Liberty, Hayek argues that coercion reduces both the knowledge that can be used by society and how much experimentation can take place, because coercion involves replacing the will of individual citizens with the will of the ruler. This nullifies citizens’ agency and prevents them from using their local knowledge effectively. Hayek argues that laws should allow citizens to pursue their own plans as much as possible. The “rule of law” means that laws are known, general, equally applicable to all people, and predictable. Much of our current legislation violates Hayek’s ideal by directing individual citizens and companies in both their goals and their means of attaining those goals.
Throughout his life, Hayek advanced the idea of spontaneous order. Economies and societies flourish, he argued, as people have greater opportunities to utilize their own knowledge, plans, and goals within a relatively stable framework of laws and social mores. Free association, including in markets, allows for complex extended coordination and order within societies. Although he denied being a conservative, Hayek spoke favorably of traditions that provide various kinds of moral approval or censure. What mattered to Hayek was that such constraints were voluntary, and thereby evolving. Freedom within a moral and social framework is the most important political idea because it leads directly to experimentation, growth, development, and ultimately human flourishing.
Hayek was one of the most versatile thinkers of the twentieth century—publishing important works on economics, psychology, history, philosophy of science, politics, and even neuroscience. But I encourage you to begin studying Hayek with the following resources:
- The Road to Serfdom (1945)
- “The Use of Knowledge in Society” (1945)
- “Competition as a Discovery Procedure” (1968)
- The Constitution of Liberty (1960)
- Hayek’s Challenge (2004)
- Law, Legislation, and Liberty
Dr. Paul Mueller is an assistant professor of economics at The King’s College in Manhattan. His interests including studying financial markets, money & banking, and classical liberalism, especially the works of Adam Smith. His writing has appeared in a variety of academic and popular outlets.