Happy Birthday F.A. Hayek.

Submitted by John on Thu, 05/08/2008 - 2:38pm. Tags:

Economics and Business

And I thank the Austrian Economists website for the tip. I had no idea.

He would be 109 today. Wiki entry here. An influential economist, he was a contemporary, intellectual adversary and friend of Keynes and gained notoriety for his famous book, The Road to Serfdom, which warned of the gradual decent toward fascism via idealistic and flawed socialism. In his later years, he turned more to social philosophy and received a Nobel Prize in Economics.

Few people have had as profound an effect on my thinking as Hayek. I suppose I could say that the single biggest effect is the frame of mind he puts the reader in the The Fatal Conceit, one of my favorite books...the theme of the "Fatal Conceit" is a more in depth version, IMO, of his famous paper The Use of Knowledge in Society, the basis for his Nobel Prize. The influence on one's thinking upon internalizing the message is one of humility and caution when faced with the complexity of society and possible "solutions". Ironic, when one considers the distorted assumption of arrogance that is placed at the feet of many of people of a Hayekian/libertarian persuasion.

I suppose the best and briefest way to convey the Fatal Conceit is a choice quote used Horwitz in the above link:

"The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design." (The Fatal Conceit, p. 76)

and here is another along the same lines:

"The problem [of the economy] is precisely how to extend the span of our utilization of resources beyond the span of the control of any one mind; and therefore, how to dispense with the need of conscious control, and how to provide inducements which will make the individuals do the desirable things without anyone having to tell them what to do."

The effect is similar to change in perspective one gets when they realize the earth's true place in the universe as opposed to the flawed idea that it lies at the center.

This is all based on the nature of knowledge and customs according to Hayek, which are developed spontaneously from experience, customs and evolution and not rational or deliberate design. The implications of this, and they are many, are huge and form the bedrock of Hayek's contribution to social science as well as many of the obstacles economists have tried to grapple with since (whether they realize it or not). Indeed, last year's Nobel Prize winner received it for ground breaking work in trying to show it was possible to do or know something that Hayek claimed was impossible. Many Hayekians dispute the true value of the research and say it's so rudimentary as to be almost useless. Nevertheless, and ironically, if anyone ever does definitely prove Hayek wrong on these matters, it will be a great day because man will have truly leaped forward...not just in his mind but in reality. But I'm not holding my breath. :)

And Horwitz shares a wish for the approach and conduct of future debate...an approach which Hayek lived by:

We need more people willing to start with the assumption that those who disagree with them are only guilty of intellectual error rather than maliciousness or stupidity.

Indeed and Amen. Seeing thinkers harshly criticized and having their general view scorned to the core is something we see everyday. I take exception to seeing it done to Hayek more than almost any other because to negatively question his intent, where he was coming from and why is to totally miss the spirit of his life's work, what he thought and what drove him. He was a true liberal in the purest and truest sense of the word.

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While there's no arguing with Hayek's contributions (#93249)

by BlaiseP on Thu, 05/08/2008 - 4:03pm

to our current views of free markets, he exhibits one signal flaw: now quite obvious to everyone since Hayek. Free markets are free, only if they aren't free. Risk markets require ever more regulation, both internal and external, to identify winners and losers.

If Hayek is only seen in light of his opposition to the then-popular ideas of Marx, the Communists/Socialists and various other nasty Statist entities, he makes perfect sense. We must remember when he was writing, in the 1930s, Orwell was also attacking many of the same entities, from the other end of the political spectrum.

Hayek's rather like Freud insofar as he sets forth some important principles, but like Freud, he comes to some awkward and ultimately futile conclusions. Others in the Austrian School would take his work further, as Jung did with Freud's original thesis of the unconscious. The comparison is better than might be supposed, for Hayek was also a psychologist of sorts, and made important contributions to what would come to be known as socioeconomics. Hayek swept away many dumb ideas, but he didn't really have anything to replace them. Others would build on the ground he cleared, and we ought to be grateful for what he did.

But I don't view Hayek as relevant today, for the same reasons I don't think Freud has relevance today. Markets are still routinely perverted by governments and governments by markets. Look at the cheap feel-good rhetoric about repealing gasoline taxes put forward by people who should know better. Look at the war profiteering still endemic in our system. Monopolies develop, regulatory agencies are destroyed, and the very people who once praised Hayek's magnificent theories of the business cycle now choke it to death.

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though I must say, Blaise (#93257)

by John on Thu, 05/08/2008 - 4:40pm

I find this reaction to Hayek and others like him from people who's sensibilities are more left of center to be fascinating.

And I'm zeroing in people economists and others who at least know enough about him in an undistorted way to comment on him.

What I find fascinating is the sense that we've somehow moved beyond this class of economists and social thinkers and that their work is somehow outdated and that we've moved on from there. I don't see it all.

If anything, advances have perhaps allowed economists or emboldened them to nip at the edges but not replace it or prove it defunct. Hayek remains an 800lb gorilla in a room of overconfidence in artificial or oversimplified "break throughs" in economics. Modern seems more to struggle to cope with Hayek, among others, rather than having moved on from him.

OTOH, the Keynesian revolution, IMO, actually substituted for much of what Hayek said....meaning Hayek left politicians wanting while Keynes was just the remedy they WANTED to hear.

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There are no Breakthroughs in economics. (#93262)

by BlaiseP on Thu, 05/08/2008 - 5:00pm

It's not called the Dismal Science or the Great Predictor of the Past for nothing. Economics is hermeneutics, a process of interpretation. Hayek has not lost all relevance, any more than Freud's Unconscious has lost relevance. I do not damn either man completely.

Free markets are a contradiction in terms. Even the most spittle-flecked ranting Objectivist admits there is a place for government in the suppression of force and fraud, both of which will not go away. The Free Marketeers forget, in their haste to undo Onerous Regulation, that these laws, like the laws governing aircraft safety, were written in blood.

FDR inoculated the USA with a homeopathic dose of Socialism to save Capitalism, and none screamed louder than the Austrians when he did. We do not know just how things might have worked out had WW2 not come along to reinvigorate the American economy, but this much is clear: unfettered Free Markets are not an undiluted panacea. They are as dangerous in their own way as Statist Economies. There is an old joke from the days of the USSR: Marx told the truth about capitalism but his every word about Communism was a lie. The same is true of Hayek: he was and is the Anti-Marx, and was seen to be so in his own time.

Hayek is no 800 lb gorilla. He is a great statue, a colossus before whom the Austrian School bows in veneration. Let the Enron and Savings & Loans debacles stand in mute evidence to the unparalleled idiocy of Unfettered Free Markets.

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Again, Blaise, (#93267)

by John on Thu, 05/08/2008 - 5:26pm

I appreciate your comments and interest but I have to say that this:

Even the most spittle-flecked ranting Objectivist admits there is a place for government in the suppression of force and fraud, both of which will not go away.

misses the real point of discussion and goes all straw man "meta" when the topic is more precise and nuanced.

Real Objectivists are few and far between and are the more dogmatic free market advocates...perhaps almost as much as anarcho-capitalists (another dogmatic small group)...so when you say "EVEN the objectivists", you're actually going to the intellectual fringes and finding agreement for the rule of law against force and fraud. These are basic precepts that are part of the concept of free markets and that are not in dispute by virtually anyone...least of all Hayek who never, to my knowledge, even debated such matters. His concepts went much deeper and left all that basic stuff as a given.

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Well of course. (#93275)

by BlaiseP on Thu, 05/08/2008 - 6:15pm

I would not pin any labels or cheap summations on Hayek. For one, he covers so much ground, and he's far more than an economist.

Perhaps this is a fairer summation: Hayek's followers went to extremes Hayek himself would not have, I think of Margaret Thatcher pounding her desk with Constitution of Liberty, shouting "This is what we believe!" Hayek, as everyone who has actually read Constitution of Liberty, would probably respond, "but believe what, Madam Prime Minister? The stupid are betrayed by their own dogmatism. The wise seek understanding of things as they are, and operate on that basis, knowing they do not know all things."

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Well, I'm no expert on Thatcher's record (#93281)

by John on Thu, 05/08/2008 - 7:02pm

I was a young pup during the 80s...but I do know that she and Reagan both claimed to be inspired by Hayek in terms of economic policy.

Some ideas did shine through...albeit through the murky filter of the democratic process. But both Reagan and Thatcher kind of left a bit to be desired in terms of thorough economic policy and also when taken as a whole in terms of policy with respect to Hayek.

Hayek does not stop at the water's edge....for starters.

But getting back to more liberal economists, I still do tend to see some whistling and tippy-toeing (while staring off into the heavens) around Hayek. They seem to be to enamored with special case theories and math that obscure a larger truth or alternate models that seem to discount his principles all together.

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What you're pointing out isn't really a flaw in Hayek's (#93255)

by John on Thu, 05/08/2008 - 4:29pm

work since he never argues the contrary of what you're saying as you mean it when you say this:

Free markets are free, only if they aren't free.

It's almost a tautology...unless you're an extreme Rothbardian.

Not sure what he would say about risk markets...but I think that second quote I posted in the diary might give some indication.

If you're then talking about his socio-political points in "Road to Serfdom" when you say he only makes in the Marxist/Fascist/Leninist Statist context of the 30s and 40s, I'd say that's only partly true...maybe. I think his long view on this matter is right and if you ever see sneaking hints of it in the world today or in the US, it only shows that he was perhaps exaggerating its speed but not the process.

I wouldn't say he didn't have anything to replace the dumb ideas he swept away, I would say his ideas, indofar as he fleshed them out, weren't politically palatable at the time and perhaps still are not because they leave the aspiring "leaders" with unsatisfying parameters within which to work.

In a way, he made a rebuttal to that idea many years ago when he asserted and warned against the limitations of mathematical economics and their danger in obscuring the larger truer picture and being over-relied upon to find answers.

As far as your criticisms of the modern world are concerned are concerned, I don't think he would disagree, though he would probably disagree with your interpretation of and conclusions to it all in terms of the relevance of his work...and the work of others who built on his.

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Well, I am no Austrian, by any stretch. (#93256)

by BlaiseP on Thu, 05/08/2008 - 4:39pm

The Austrians don't get it. They were right, insofar as the government should stay out of price fixing and Five Year Plans and all that. But Laissez-Faire Capitalism is complete bunk. Want to see the terminal endpoint of laissez-faire capitalism? Go to Guatemala. Everything's owned by a handful of people, and they live behind barbed wire. Their kids need bodyguards to go to school.

Capital tends to obey the laws of gravity, and like planetary systems, the planets sweep up the dust and comets, growing larger and larger. Sure, capitalism is a fine thing, workers get paid, but markets require regulation, or we get Enrons and suchlike. The more risk, the more regulation a market requires. Hayek never got that, and none of the other Austrians did, either.

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Hayek is more than just Austrian (#93258)

by John on Thu, 05/08/2008 - 4:48pm

In fact, if you go to Mises.org and read the material there, Hayek is far less admired than the likes of Rothbard.

But speaking generally about the Austrian School and loosely labeled fellow travelers, they get it all too well.

As for the rest, you seem to be wanting to burst out the precise discussion and get to a more meta-critique of laissez-faire....a route that detracts from the ideas that Hayek spent a life time working on and got him a Nobel Prize. Some of what you say there seems a little broad brushed if not wrong.

That would be like me holding Keynes responsible for everything I see wrong in our economy. It would be easy but not entirely accurate.

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Curiously, Hayek was also related to Wittgenstein. n/t (#93269)

by mmghosh on Thu, 05/08/2008 - 5:25pm

Manish Ghosh

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