Making Economic Sense
Making
Economic Sense
by Murray Rothbard
(Contents
by Publication Date)
Chapter 108
Friedrich August von Hayek: 1899-1992
The death of F.A. Hayek at the age of 92 marks the
end of an era, the Mises-Hayek era.
Converted from Fabian socialism by Ludwig von Mises's devastating
critique, Socialism, in the
early 1920s, Hayek took his place as the greatest of the glittering
generation of economists and
social scientists who became followers of Mises in the Vienna of the
1920s, and who took part in
Mises's famed weekly privatseminar held in his
office at the Chamber of Commerce. In
particular, Hayek elaborated Mises's brilliant business cycle theory,
which demonstrated that
boom-bust cycles are caused, not by mysterious defects inherent in
industrial capitalism, but by
the unfortunate inflationary bank credit expansion propelled by central
banks. Mises founded the
Austrian Institute for Business Cycle Research in 1927, and named Hayek
as its first director.
Hayek proceeded to develop and expand Mises's cycle
theory, first in a book of the late
1920s, Monetary Theory and the Trade Cycle. He
was brought over to the London School of
Economics in 1931 by
an influential English Misesian, Lionel Robbins. Hayek gave a
series of lectures on cycle theory that took the world of English
economics by storm, and were
published quickly in English as Prices and Production.
Remaining at a permanent post at the London School,
Hayek soon converted the leading
young English economists to the Misesian-Austrian view of capital and
business cycles,
including such later renowned Keynesians as John R. Hicks, Abba Lerner,
Nicholas Kaldor, and
Kenneth E. Boulding. Indeed, in two lengthy review-essays in 1931-32 of
Keynes's widely
trumpeted magnum opus, the two-volume Treatise on Money,
Hayek was able to demolish that
work and to send Keynes back to the drawing-board to concoct another
economic "revolution."
One of the reasons for the swift diffusion of
Misesian views in England in the 1930s was
that Mises had predicted the Great Depression, and that his business
cycle theory provided an
explanation for that harrowing event of the 1930s. Unfortunately, when
Keynes came back with
his later model, the General Theory in 1936, his
brand new "revolution" swept the boards,
swamping economic opinion, and converting or dragging along almost all
the former Misesians
in its wake.
England was then the prestigious center of world
economic thought, and Keynes had
behind him the eminence of Cambridge University, as well as his own
stature in the intellectual
community. Add to this Keynes's personal charm, and the fact that his
allegedly revolutionary
theory put the imprimatur of "economic science" behind statism and
massive increases of
government spending, and Keynesianism proved irresistible. Of all the
Misesians who had been
nurtured in Vienna and London, by the end of the 1930s only Mises and
Hayek were left, as
indomitable champions of the free market, and opponents of statism and
deficit spending.
In later years Hayek conceded that the worst
mistake of his life was to fail to write the
sort of devastating refutation of the General Theory
that he had done for the Treatise, but he had
concluded that there was no point in doing so, since Keynes changed his
mind so often.
Unfortunately, this time there was no demolition by Hayek to force him
to do so.
If the business cycle theory was swamped by the
Keynesian model, so too was the
Mises-Hayek critiques of socialism, which Hayek had also brought to
London, and to which he
had contributed in the 1930s. But this line of argument had been
brought to an end, in the late
1930s, when most economists came to believe that socialist governments
could easily engage in
economic calculation by simply ordering their managers to act as if
they were participating in a
real market for resources and capital goods.
During World War II, at a low point in the fortunes
of human freedom and Austrian
economics, in the midst of an era when it seemed that socialism and
communism would
inevitably triumph, Hayek published The Road to Serfdom
(1944). It linked the statism of
communism, social democracy, and fascism, and demonstrated that, just
as people who are best
suited for any given occupations will rise to the top in those
pursuits, so under statism, "the
worst" would inevitably rise to the top. Thanks to promotion efforts
funded by J. Howard Pew of
the then Pew-owned Sun Oil Company, the Road to Serfdom
became extraordinarily influential
in American intellectual and academic life.
In 1974, perhaps not coincidentally the year after
his mentor Ludwig von Mises died, F.A.
Hayek received the Nobel Prize. The first free-market economist to
receive that honor, Hayek
was accorded the prize explicitly for his elaboration of Misesian
business cycle theory in the
1920s and '30s. Since both Mises and Hayek had by that time dropped
down the Orwellian
memory hole of the economics profession, many economists were sent
scurrying to find out who
this person Hayek might be, thus helping give rise to a renaissance of
the Austrian School.
Hayek's receipt of the Nobel at this time was
deeply ironic, since after World War II his
ideas began to diverge increasingly from those of Mises and thus
acquire acclaim from latter-day
Hayekians who are scarcely familiar with the work which had made Hayek
eminent to begin
with. To the extent that Hayek remained interested in cycle theory, he
began to engage in shifting
and contradictory deviations from the Misesian paradigm--ranging from
calling for price-level
stabilization, in direct contrast to his warning about the inflationary
consequences of such
measures during the 1920s; to blaming unions instead of bank credit for
price inflation;
to concocting bizarre schemes for individuals and banks to issue their
own newly named
currency.
Increasingly, Hayek's interests shifted from
economics to social and political philosophy.
But here his approach differed strikingly from Mises's ventures into
broader realms. Mises entire
lifework is virtually a seamless web, a mighty architectonic, a system
in which he added to and
enriched monetary and cycle theory by wider economic political and
social theories. But Hayek,
instead of providing a more elaborate and developed system, kept
changing his focus and
viewpoint in a contradictory and muddled fashion. His major problem,
and his major divergence
from Mises, is that Hayek, instead of analyzing man as a rational,
conscious, and purposive
being, considered man to be irrational, acting virtually unconsciously
and unknowingly.
Since Hayek was radically scornful of human reason,
he could not, like John Locke or the
Scholastics, elaborate a libertarian system of personal and property
rights based on the insights of
human reason into natural law. Nor could he, like Mises, emphasize
man's rational insight into
the vital importance of laissez-faire for the flourishing and even
survival of the human race, or of
foregoing any coercive intervention into the vast and interdependent
network of the free market
economy.
Instead, Hayek had to fall back on the importance
of blindly obeying whatever social
rules happened to have "evolved," and his only feeble argument against
intervention was that the
government was even more irrational, and was even more ignorant, than
individuals in the
market economy.
It is sad commentary on academia and on
intellectual life these days that Hayek's thought,
possibly because of its very muddle, inconsistency, and contradictions,
should have attracted far
more scholarly dissertations than Mises's consistency and clarity. In
the long run, however, it
will be all too obvious that Mises has left us a grand intellectual and
scientific system for the
ages whereas Hayek's lasting contribution will boil down to what was
acknowledged by the
Nobel committee--his elaboration of Misesian cycle theory. In addition,
Hayek must always be
honored for having the courage to stand shoulder to shoulder with his
mentor, in the dark days of
the interwar and postwar years, against the twin evils of socialism and
Keynesianism.
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