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An Introduction to F.A. Hayek by Vaclav Klaus

Those of us born in the 20th century—the century of two destructive world wars and two equally ruinous periods of Nazism and Communism—particularly those of us born during the Second World War and who spent four decades under Communism, who tried at that time to understand what was going on, and who eventually had the courage to try to change it, had always been looking for a compass that would make possible some elementary orientation in life. On the one hand, we looked to social sciences for a theoretical description and explanation, to the works of important scholars, thinkers, and writers; on the other, we looked for consequential, consistent, inspiring, straightforward personalities, for role models whose lives were in line with their writings.

Friedrich August Hayek was absolutely crucial for many of us in both of these aspects. Born in 1899 in Vienna, the capital of the Austro-Hungarian Empire, which was still under the rule of Emperor Franz Joseph I, Hayek took part in the First World War as a soldier on the Italian front. When he returned home to Vienna to complete his university studies, he found the empire lost, the borders in Europe redrawn, the country deeply shaken, and the economy in ruins (and experiencing a devastating hyperinflation). He started working in a government-run institution dealing with war debts under the auspices of another great Austrian economist, the one-generation-older Ludwig von Mises. Mises turned his attention to the Austrian School of Economics tradition and its powerful methodology (especially its theory of money and credit) and, with the formation of the Soviet Union and its central planning without markets and prices, to the suddenly highly relevant debate about the impossibility of economic calculation under socialism. Hayek developed and substantially enriched both topics in his writings in the following decades.

After moving to England and to the London School of Economics in 1931, in the era of the Great Depression, Hayek quite rapidly became the main opponent of John Maynard Keynes and his advocacy of massive state intervention as a necessary saviour of capitalism. Hayek sharply and uncompromisingly opposed the Keynesian doctrine, which he interpreted as the most dangerous vehicle because through it, the doors would be opened to full socialism. Many consider the dispute between Keynes and Hayek to be the main and most important controversy in the field of economics in the 20th century. For many decades—in fact until the period of stagflation in the 1970s—Keynes seemed to be the winner, at the least in practice, in the field of economic policy.

The Austrian School of Economics traditionally underestimates, if not neglects macroeconomics (or at least its importance), and Hayek understood that he was not going to win the debate accepting the Keynesian macroeconomic playground. He decided to attack the interventionist doctrine of Keynes by moving to microeconomics, to the defence of the irreplaceable role of markets and prices in the economy, and to demonstrating that interventionism makes the efficient functioning of markets impossible. His seminal articles “Economics and Knowledge,” and especially “The Use of Knowledge in Society,” are among the most important contributions to the field of economic science in the whole of the 20th century. Hayek devoted his analysis to explaining the coordination of human action in a world in which knowledge is inevitably dispersed and he was able to prove that the solution is in the price system, not in central planning.

Hayek went further. His next move was to go beyond the boundaries of economic science. During the tragic Second World War, he saw not only Nazism in Germany (and his native Austria), and communism in Russia and the whole Soviet Union, but also the similar centralization of decision-making, government planning, and administrating of the economy, the similar suppression of civil rights, and the similar introduction of all kinds of controls in all countries engaged in war. He considered this development a new tendency that had to be challenged. He did so in 1944 by publishing a non-academic book, The Road to Serfdom (dedicated to “the Socialists of all Parties”), which has become the most important text for all freedom-loving people since. I have to confess that it was almost a bible for those of us who lived for decades under Communism. Hayek turned our attention to the slippery road that descends from a limited, and at first sight almost “innocent” government interventionism, to an illiberal and unfree system. Liberty was for Hayek the essential value of Western civilization without which other values cannot be realized.

The Road to Serfdom became a bestseller (especially after its Reader’s Digest version) and for Hayek opened the door to non-academic readers. He did not stop there. He continued his mission with an important organizational activity, founding the Mont-Pélèrin Society in 1947. The society gathered together a very influential group of classical liberals and other well-known opponents of interventionism and social-democratism. For almost seven decades since, the society has been meeting regularly and is responsible for the revival of liberalism in the second half of the 20th century.

Frustrated at seeing the growing impact of Keynesianism in the 1950s and 1960s, Hayek more or less left theoretical economics and moved to more general (and less rigorous) fields—to political philosophy, law, the methodology of science, and even psychology. His topics were diverse, but their content remained very focused: freedom, its enemies, free markets, and the ambitions of constructivism. This change of topics can be easily discerned from the titles of his books and articles from that period: The Abuse of Reason; The Sensory Order; Individualism: True and False; The Theory of Complex Phenomena; Evolution of Systems; The Atavism of Social Justice; The Counter Revolution of Science, Law, Legislation and Liberty; etc.

Hayek spent most of the 1950s in the United States, a significant part of it at the University of Chicago (though to his frustration, due to the non-scientific character of The Road to Serfdom his time at Chicago wasn’t in the prestigious Department of Economics). At the beginning of the 1960s, Hayek returned to Europe, to the University of Freiburg, and spent the last third of his active life in Europe where he really belonged.

In 1974, when he had stopped formally writing on economic topics, he got the Nobel Prize in Economic Science, which was an important justification and of great satisfaction to him. In his Nobel Prize speech, “The Pretence of Knowledge,” he summarized his views about the difference between physical sciences and social sciences (including economics), and criticized attempts to use the methods of physical sciences in other fields. He called this attempt “scientism,” not science.

In the last decades of his long life (he died in 1992, at the age of 93), Friedrich Hayek was involved in preparing, in a normative way, the outline of The Constitution of Liberty, (published in 1960), in which he tried to formulate the legislative preconditions for liberty (without trying to “sell” it to any political party). He became an advocate of evolutionism and “spontaneous order” (as opposed to constructivism). The contrast between “constructive rationalism” and “the evolutionary way of thinking” was absolutely crucial for him. He tried to show the impossibility of rationalist constructivism. To understand his emphasis on the difference between human action and human design is to understand Hayek.

Hayek was one of the most significant intellectuals of the 20th century, but though he was extremely important for people in Western countries, he was not sufficiently appreciated and recognized there. I remember being in “his” Austria in November 1989, one day before the Velvet Revolution in my country, and hearing at the University of Linz that “Hayek is dead in Austria.” I reacted by saying that we would bring him back to life in Prague again. I dare argue that Hayek was more important for us in the East than for people in the West. Westerners did see a real danger in Communism, but did not see that they were beginning the path down their own Hayekian “slippery road.” They often considered his views overplayed and exaggerated. For us, Hayek was our guru, our teacher, our lighthouse, our compass in the depressing era of Communism. It was easier for Hayek to capture our hearts.

After the fall of Communism, in the optimistic era when the “end of history” doctrines (à la Fukuyama) dominated, Hayek was considered vindicated—yet ironically, his writings were increasingly forgotten, as though they were no longer relevant. He was heralded as a “proved-to-be-right prophet” (which was slightly illogical because he never believed that his views and proposals could win in the real world), but his ideas (and his warnings) seemed to belong to a different time. With the “advantage” of our Communist past, however, some of us knew that Hayek’s writings are by no means less relevant than they were before.

Two decades after Hayek´s death history is on the move again. State interventionism is back and growing, the Reagan-Thatcher era long forgotten, as is the Communist era. State paternalism, regulation and control, social and environmental blocking of the functioning of markets, constructivism and dirigism are here again and, especially in Europe, are stronger than ever. We must get back to Hayek’s teachings. We must once again take his books into our hands and try to spread his thoughts all over the world, because now they are as relevant as in the past.

This book is a good start. It starts us on the path of reintroducing Friedrich Hayek to new audiences who, even though they may not realize it, need his insights and teachings nearly as much as we did in the 20th century. Much of the Western world is well down the “slippery road” Hayek warned about in his writings. Only by understanding the tragic trajectory that might unfold will they fully understand how urgent it is that we avoid the pitfalls of the past. This book is a great resource for all who value liberty, but even more importantly, it is essential reading for all of those who are unaware of the many dangers that can befall a society that ignores the lessons of the past.

Václav Klaus
Václav Klaus is the Former President of the Czech Republic (2003-2013), currently President of the Václav Klaus Institute, Distinguished Senior Fellow of the CATO Institute, and Professor of Economics at the Prague School of Economics.