clearly August von Hayek was a political
economist who had a tremendous influence
upon how people in capitalist societies
understand the concept of Liberty
controversially for Hayek Liberty did
not mean democracy or a commitment to a
set of liberal ideals rather Hayek
believed that Liberty was a policy which
deliberately adopts competition markets
and prices as its ordering principles to
Hayek's way of thinking it was markets
that guaranteed individual liberty and
by contrast it was the interference of
the state in markets which disrupted the
operation of Liberty and started society
down as he famously put it the road to
serfdom Hayek was born to a minor part
of the austro-hungarian aristocracy his
father who came from a line of scholars
was a medical doctor and a part-time
lecturer in botany Hayek's childhood was
filled with considerations of philosophy
and economics after a brief stint in the
austro-hungarian army during the first
world war
Hayek took up studies at the University
of Vienna obtaining doctorates in law
and political science and afterwards he
became an academic economist Hayek's
career can be divided into two periods
the first which ended towards the end of
the 1940s was spent mainly at the London
School of Economics where Hayek
concerned himself with many of the
macroeconomic debates of the day the
second half of Hayek's career was much
more varied from 1945 onwards in first
Chicago and later Freiburg Los Angeles
in Salzburg Hayek wrote and lectured on
a whole range of subjects economics yes
but also politics psychology philosophy
and the philosophy of science and while
he officially retired in 1968 it was
actually in the 1970s and 80s that Hayek
enjoyed his greatest moments of
influence being awarded the Nobel Prize
in Economic Sciences in 1974 and
subsequently being enormous ly
influential upon the governments of
Ronald Reagan and Margaret Thatcher
during Hayek stay at the London School
of Economics which he joined in 1931 he
wrestled with a number of the then
contemporary to
with an economic theory much of this
revolved around the business cycle which
put simply is the way in which economies
grow and contract traditional economic
theory held that over time economies
find themselves in equilibrium in short
glutes and shortages should balance
themselves out via market mechanisms
leading to the optimal distribution of
resources within an economy the problem
was that the economic peaks and troughs
seemed to keep occurring and they also
seemed to be more dramatic than they
should be when the world economy
stagnated and then crashed in the late
1920s and the 1930s fierce debate began
as to why this had occurred coming in
economics from a fairly classical
position Hayek focused on issues of
supply he noticed that when economies
were in recession
central banks often artificially
injected more money into the economy by
printing cash or else or in addition by
holding interest rates low to encourage
investment rather than saving Hayek
argued that this was a mistake when
money was too readily available
entrepreneurs invested in products which
were not necessarily desired by
consumers when these products went
unsold companies would go bankrupt
leaving industrial capacity invested
where it need not be
in addition cheap credit incentivized
long-term capital investment and Hayek
argued that this too was a problem
because it limited the possibility of
entrepreneurs attempting to realize
short-term gains which would actually
kick-start the economy resisting the
temptation to meddle in the money supply
was for Hayek crucial to solving the
problems of the Great Depression
Hayek's colleagues at the London School
of Economics were receptive to his more
classical approach but up the road in
Cambridge a very different set of ideas
was emerging centered on the thought of
John Maynard Keynes Keynes argued that
the problems of the 1930s economy were
located not so much in issues of supply
but rather of demand for Keynes the role
of government was to invest in Public
Works the buildings of roads for example
which would create employment and
therefore give people money to spend
stimulating economic growth for Keynes
full employment was therefore not only a
laudable social goal but vital for the
economy to Keynes's demand led economics
was fundamentally at odds with Hayek's
ideas Hayek felt that Keynes's focus on
full employment would require
governments to keep increasing money
supply this in turn would create severe
inflation of the kind that had wiped out
his family savings when 1920s Austria
had suffered a bout of hyperinflation
throughout the 1930s Hayek and Keynes
correspondent with each other
argued bitterly and found very little
common ground during the Second World
War they even met under bizarre
circumstances because of the German
bombing campaign against London the LSE
had been evacuated to Cambridge one
night Keynes and Hayek were assigned to
fire watch duty together on the roof of
the chapel of King's College sadly we
don't know what it was they talked about
throughout that night the opening of the
second half of Hayek's career is marked
by his first foray out from dry economic
arguments and the publication of what is
probably his most famous work the road
to serfdom Hayek saw the writing of this
book as a form of war work forced upon
him because as a former enemy competent
Hayek was refused official service in
the British war effort against the
backdrop of Keynes's ideas on planning
which had become accepted within British
government circles the road to serfdom
was an attempt to save people from
themselves or more accurately from
central government Hayek put forward
several key arguments firstly that there
was nothing intrinsic to Germans as a
race of people that had caused them to
adopt authoritarian forms of government
Hayek rejected the idea somewhat popular
at the time that there was something
about German culture or indeed inherent
to Germans as a race which predisposed
them to authoritarian and expansionist
forms of government secondly Hayek
argued where Germany and the Soviet
Union - for that matter
had gone wrong was in undertaking state
planning that interfered in the natural
operation of markets for Hayek the
problem with state planning was that it
necessarily involve offering up
responsibility for deciding upon a plan
to a single individual in a bureaucratic
system such as the state Hayek argued
someone had to ultimately decide on what
course of action should be taken and
that person's judgment would necessarily
have to be deferred to and defer to
repeatedly over a given period of time
in this sense planning led societies to
sleepwalk in to dictatorship
thirdly not only did Hayek worry about
the inherent need for planners to defer
to a single individual but also he was
concerned that fundamentally no one
individual could actually make rational
choices in regards to economic problems
due to them not having enough
information to base their decisions upon
to be clear it was not that Hayek
necessarily condemned dictatorship after
all his vision of Liberty was a society
in which markets were the principal
method of economic organization not
necessarily one where society
collectively decided upon governments
via the ballot box to this end Hayek was
comfortable with dictators who adopted
free-market economic policies involving
minimal state intervention in a nation's
economy but dictators who undertook
economic planning were for Hayek the
really great evil Hayek saw it like this
markets are extremely complicated
networks with millions if not billions
of transactions going on all the time
even consideration of some of the basics
of market transactions shows this items
are bought and sold commodities are
invested in and divested from and
famines and bumper crop yields affect
how much there is to eat and how much it
will cost to acquire it in keeping with
the laws of supply and demand when
individuals make choices as to whether
or not to buy a commodity they affect
that commodities price if it becomes
scarce its price increases if it becomes
plentiful its price falls in this sense
the free market acts as a kind of
constant referendum on the value of
goods within an economy for Hayek the
market represented a form of collective
agreement made amongst all of the people
operating in that market as to the value
of particular goods and services and
against the collective wisdom of
hundreds of thousands or millions of
people what could one single planner
hope to offer that represented a
superior form of wisdom Liberty for
Hayek therefore was to be found in
letting the market do its work the road
to serfdom launched Hayek Slater career
instantly it became a best-seller during
the second world war it's print run was
limited due to paper shortages and
obtaining a copy was nigh on impossible
due to sheer demand in the United States
of America a condensed Reader's Digest
version of the book brought the message
to a very large public so too did a
series of lectures
livered by Hayek during 1945 at various
venues in the United States Hayek
cold-shouldered by British policymakers
and economists was delighted at the
reception he received in the US and in
1950 he moved to the University of
Chicago which became the center of
neoliberal economic thinking with which
Hayek was closely associated much as
Cambridge had been the locus for
Keynesian economics but despite the
popular acclaim of the Road to Serfdom
to negative reactions up him first of
all some of his own colleagues normally
sympathetic to the ideas he put forward
saw the Road to Serfdom as a kind of a
lightweight form of journalism rather
than as a form of scholarship Keynes who
read the road to serfdom sent high
Accord was for the most part a
complimentary message about its content
however towards the end and in quick
order Keynes challenged Hayek as to
where he would draw the line on
government planning some planning was
clearly needed Hayek was not an economic
anarchist after all but Keynes
challenged where would the line be drawn
it took Hayek many years to work out his
response to Keynes who died in 1946
where the response eventually came in
1960 in Hayek's book the constitution of
Liberty the book laid out Hayek's
practical vision for where the line
between the state and the market should
be drawn and it was highly influential
among the political right in an anecdote
a story is told that at a meeting with a
conservative research department in 1975
Margaret Thatcher responded to a policy
paper on political philosophy by
reaching into a handbag and withdrawing
a copy of the constitution of Liberty
holding it aloft Thatcher declared this
is what we believe as the 20th century
unfolded Hayek's ideas gained more
common currency the notion that the
state should limit itself to providing a
legal framework within which
entrepreneurs can engage with free
markets is now at the heart of much of
economic thinking many politicians and
large sections of the public too are
skeptical about the ability of the state
to plan and undertake anything but the
most simple of economic tasks and this
as much to Hayek's warnings about the
anti libertarian perils of planning and
the inability of planners to truly
understand the world around them even
when the financial crisis of 2008 hit
the world economy leading to
prolonged recession faith in government
planning was not restored in the popular
imagination this was best testified to
by the Road to Serfdom hitting the
number one spot on the Amazon book
bestseller list in early 2010 despite it
having been written over 60 years ago
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