Friedrich Hayek

An ethno-linguistic map of Austria–Hungary, 1910

Friedrich August von Hayek was born in Vienna to August von Hayek and Felicitas Hayek (née von Juraschek). His father, born in 1871 also in Vienna, was a medical doctor employed by the municipal ministry of health. August had a passion for botany, about which he wrote a number of monographs and was also a part-time botany lecturer at the University of Vienna. Felicitas von Juraschek was born in 1875 to a wealthy conservative and land-owning family. As her mother died several years prior to Hayek's birth, Felicitas received a significant inheritance, which provided as much as half of her and her husband's income during the early years of their marriage. Friedrich was the oldest of three brothers, Heinrich (1900–1969) and Erich (1904–1986), who were one-and-a-half and five years younger than he was.[21]

His father's career as a university professor influenced Hayek's goals later in life.[22] Both of his grandfathers, who lived long enough for Hayek to know them, were scholars. Franz von Juraschek was a leading economist in Austria-Hungary and a close friend of Eugen Böhm von Bawerk, one of the founders of the Austrian School of Economics.[23] Hayek's paternal grandfather, Gustav Edler von Hayek, taught natural sciences at the Imperial Realobergymnasium (secondary school) in Vienna. He wrote works in the field of biological systematics, some of which are relatively well known.[24]

On his mother's side, Hayek was second cousin to the philosopher Ludwig Wittgenstein. His mother often played with Wittgenstein's sisters and had known him well. As a result of their family relationship, Hayek became one of the first to read Wittgenstein's Tractatus Logico-Philosophicus when the book was published in its original German edition in 1921. Although he met Wittgenstein on only a few occasions, Hayek said that Wittgenstein's philosophy and methods of analysis had a profound influence on his own life and thought.[25] In his later years, Hayek recalled a discussion of philosophy with Wittgenstein when both were officers during World War I.[26] After Wittgenstein's death, Hayek had intended to write a biography of Wittgenstein and worked on collecting family materials and later assisted biographers of Wittgenstein.[27] He was related to Wittgenstein on the non-Jewish side of the Wittgenstein family. Since his youth, Hayek frequently socialized with Jewish intellectuals and he mentions that people often speculated whether he was also of Jewish ancestry. That made him curious, so he spent some time researching his ancestors and found out that he has no Jewish ancestors within five generations.[28] The surname Hayek uses the German spelling of the Czech surname Hájek.

Hayek displayed an intellectual and academic bent from a very young age. He read fluently and frequently before going to school.[29] However, despite his intelligence and inquisitiveness, he did quite poorly at school, due to lack of interest and problems with teachers, which also forced him to change schools. He was at the bottom of his class in most subjects, and once received three failing grades, in Latin, Greek and mathematics.[30] He was very interested in theater, even attempting to write some tragedies, and biology, regularly helping his father with his botanical work.[31] At his father's suggestion, as a teenager he read the genetic and evolutionary works of Hugo de Vries and August Weismann and the philosophical works of Ludwig Feuerbach.[32] He noted Goethe as the greatest early intellectual influence.[31] In school, Hayek was much taken by one instructor's lectures on Aristotle's ethics.[33] In his unpublished autobiographical notes, Hayek recalled a division between him and his younger brothers who were only a few years younger than him, but he believed that they were somehow of a different generation. He preferred to associate with adults.[29]

Austro-Hungarian artillery unit appearing in The Illustrated London News in 1914

In 1917, Hayek joined an artillery regiment in the Austro-Hungarian Army and fought on the Italian front. Much of Hayek's combat experience was spent as a spotter in an aeroplane. Hayek suffered damage to his hearing in his left ear during the war[34] and was decorated for bravery. During this time, Hayek also survived the 1918 flu pandemic.[35]

Hayek then decided to pursue an academic career, determined to help avoid the mistakes that had led to the war. Hayek said of his experience: "The decisive influence was really World War I. It's bound to draw your attention to the problems of political organization". He vowed to work for a better world.[36]

University of Vienna's main building seen from across the Ringstraße

At the University of Vienna, Hayek initially studied mostly philosophy, psychology and economics. The University allowed students to choose their subjects freely and there wasn't much obligatory written work, or tests except main exams at the end of the study.[37] By the end of his studies Hayek became more interested in economics, mostly for financial and career reasons; he planned to combine law and economics to start a career in diplomatic service.[38] He earned doctorates in law and political science in 1921 and 1923 respectively.

For a short time, when the University of Vienna closed he studied in Constantin von Monakow's Institute of Brain Anatomy, where Hayek spent much of his time staining brain cells. Hayek's time in Monakow's lab and his deep interest in the work of Ernst Mach inspired his first intellectual project, eventually published as The Sensory Order (1952). It located connective learning at the physical and neurological levels, rejecting the "sense data" associationism of the empiricists and logical positivists.[39] Hayek presented his work to the private seminar he had created with Herbert Furth called the Geistkreis.[40]

During Hayek's years at the University of Vienna, Carl Menger's work on the explanatory strategy of social science and Friedrich von Wieser's commanding presence in the classroom left a lasting influence on him.[32] Upon the completion of his examinations, Hayek was hired by Ludwig von Mises on the recommendation of Wieser as a specialist for the Austrian government working on the legal and economic details of the Treaty of Saint Germain. Between 1923 and 1924, Hayek worked as a research assistant to Professor Jeremiah Jenks of New York University, compiling macroeconomic data on the American economy and the operations of the Federal Reserve.[41] He was influenced by Wesley Clair Mitchell and started a doctoral program on problems of monetary stabilization but didn't finish it.[42] His time in America wasn't especially happy. He had very limited social contacts, missed the cultural life of Vienna, and was troubled by his poverty.[43] His family's financial situation deteriorated significantly after the War.

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Initially sympathetic to Wieser's democratic socialism he found Marxism rigid and unattractive, and his mild socialist phase lasted until he was about 23.[44] Hayek's economic thinking shifted away from socialism and toward the classical liberalism of Carl Menger after reading von Mises' book Socialism. It was sometime after reading Socialism that Hayek began attending von Mises' private seminars, joining several of his university friends, including Fritz Machlup, Alfred Schutz, Felix Kaufmann and Gottfried Haberler, who were also participating in Hayek's own more general and private seminar. It was during this time that he also encountered and befriended noted political philosopher Eric Voegelin, with whom he retained a long-standing relationship.[45]

LSE's Old Building

With the help of Mises, in the late 1920s he founded and served as director of the Austrian Institute for Business Cycle Research before joining the faculty of the London School of Economics (LSE) in 1931 at the behest of Lionel Robbins. Upon his arrival in London, Hayek was quickly recognised as one of the leading economic theorists in the world and his development of the economics of processes in time and the co-ordination function of prices inspired the ground-breaking work of John Hicks, Abba P. Lerner and many others in the development of modern microeconomics.[46]

In 1932, Hayek suggested that private investment in the public markets was a better road to wealth and economic co-ordination in Britain than government spending programs as argued in an exchange of letters with John Maynard Keynes, co-signed with Lionel Robbins and others in The Times.[47][48] The nearly decade long deflationary depression in Britain dating from Winston Churchill's decision in 1925 to return Britain to the gold standard at the old pre-war and pre-inflationary par was the public policy backdrop for Hayek's dissenting engagement with Keynes over British monetary and fiscal policy. Well beyond that single public conflict, regarding the economics of extending the length of production to the economics of labour inputs, Hayek and Keynes disagreed on many essential economics matters. Their economic disagreements were both practical and fundamental in nature. Keynes called Hayek's book Prices and Production "one of the most frightful muddles I have ever read", famously adding: "It is an extraordinary example of how, starting with a mistake, a remorseless logician can end in Bedlam".[49]

Notable economists who studied with Hayek at the LSE in the 1930s and 1940s include Arthur Lewis, Ronald Coase, William Baumol, the aforementioned John Kenneth Galbraith, Leonid Hurwicz, Abba Lerner, Nicholas Kaldor, George Shackle, Thomas Balogh, L. K. Jha, Arthur Seldon, Paul Rosenstein-Rodan and Oskar Lange.[50][51][52] Some were supportive and some were critical of his ideas. Hayek also taught or tutored many other LSE students, including David Rockefeller.[53]

Unwilling to return to Austria after the Anschluss brought it under the control of Nazi Germany in 1938, Hayek remained in Britain. Hayek and his children became British subjects in 1938.[54] He held this status for the remainder of his life, but he did not live in Great Britain after 1950. He lived in the United States from 1950 to 1962 and then mostly in Germany, but also briefly in Austria.[55]

In 1947, Hayek was elected a Fellow of the Econometric Society.[56]

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Hayek was concerned about the general view in Britain's academia that fascism was a capitalist reaction to socialism and The Road to Serfdom arose from those concerns. It was written between 1940 and 1943. The title was inspired by the French classical liberal thinker Alexis de Tocqueville's writings on the "road to servitude".[57] It was first published in Britain by Routledge in March 1944 and was quite popular, leading Hayek to call it "that unobtainable book" also due in part to wartime paper rationing.[58] When it was published in the United States by the University of Chicago in September of that year, it achieved greater popularity than in Britain.[59] At the instigation of editor Max Eastman, the American magazine Reader's Digest also published an abridged version in April 1945, enabling The Road to Serfdom to reach a far wider audience than academics. The book is widely popular among those advocating individualism and classical liberalism.[60]

In 1950, Hayek left the London School of Economics. After spending the 1949–1950 academic year as a visiting professor at the University of Arkansas, Hayek was brought on by the University of Chicago, where he became a professor in the Committee on Social Thought. Hayek's salary was funded not by the university, but by an outside foundation, the William Volker Fund.

Hayek had made contact with many at the University of Chicago in the 1940s, with Hayek's The Road to Serfdom playing a seminal role in transforming how Milton Friedman and others understood how society works.[61] Hayek conducted a number of influential faculty seminars while at the University of Chicago and a number of academics worked on research projects sympathetic to some of Hayek's own, such as Aaron Director, who was active in the Chicago School in helping to fund and establish what became the "Law and Society" program in the University of Chicago Law School.[62] Hayek, Frank Knight, Friedman and George Stigler worked together in forming the Mont Pèlerin Society, an international forum for neoliberals.[63] Hayek and Friedman cooperated in support of the Intercollegiate Society of Individualists, later renamed the Intercollegiate Studies Institute, an American student organisation devoted to libertarian ideas.[55][64]

Although they shared most political beliefs, disagreeing primarily on question of monetary policy,[65] Hayek and Friedman worked in separate university departments with different research interests and never developed a close working relationship. Despite their occasional social interaction they were not personally close. According Alan O. Ebenstein, who wrote biographies of both of them, Hayek probably had a closer friendship with Keynes than with Friedman.[66]

University of Chicago from the Midway Plaisance

Hayek's first class at Chicago was a faculty seminar on the philosophy of science attended by many of the University of Chicago's most notable scientists of the time, including Enrico Fermi, Sewall Wright and Leó Szilárd. During his time at Chicago, he worked on the philosophy of science, economics, political philosophy and the history of ideas. His economics notes from this period have yet to be published. Hayek received a Guggenheim Fellowship in 1954.[67]

Another influential political philosopher and German-speaking exile at the University of Chicago at the time was Leo Strauss, but according to his student Joseph Cropsey who also knew Hayek, there was no contact between the two of them.[68]

After editing a book on John Stuart Mill's letters he planned to publish two books on the liberal order, The Constitution of Liberty and "The Creative Powers of a Free Civilization" (eventually the title for the second chapter of The Constitution of Liberty).[69] He completed The Constitution of Liberty in May 1959, with publication in February 1960. Hayek was concerned that "with that condition of men in which coercion of some by others is reduced as much as is possible in society".[70] Hayek was disappointed that the book did not receive the same enthusiastic general reception as The Road to Serfdom had sixteen years before.[71]

He left Chicago mostly because of financial reasons, being concerned about his pension provisions. His primary source of income was his salary and he received some additional money from book royalties, but avoided other lucrative sources of income for academics such as writing textbooks.[72] He spent a lot on his frequent travels. [72] He regularly spent summers in Austrian Alps, usually in the Tyrolean village Obergurgl where he enjoyed mountain climbing, and also visited Japan four times with additional trips to Tahiti, Fiji, Indonesia, Australia, New Caledonia and Ceylon.[73] Divorce also caused him significant financial burden, and he mentioned that he lost significant money in a financial swindle.[74]

Freiburg around 1900

From 1962 until his retirement in 1968, he was a professor at the University of Freiburg, West Germany, where he began work on his next book, Law, Legislation and Liberty. Hayek regarded his years at Freiburg as "very fruitful".[75] Following his retirement, Hayek spent a year as a visiting professor of philosophy at the University of California, Los Angeles, where he continued work on Law, Legislation and Liberty, teaching a graduate seminar by the same name and another on the philosophy of social science. Preliminary drafts of the book were completed by 1970, but Hayek chose to rework his drafts and finally brought the book to publication in three volumes in 1973, 1976 and 1979.

University of Salzburg (below, foreground) since the mid 1980s as seen from city center

Hayek became a professor at the University of Salzburg from 1969 to 1977 and then returned to Freiburg, where he spent the rest of his days. When Hayek left Salzburg in 1977, he wrote: "I made a mistake in moving to Salzburg". The economics department was small and the library facilities were inadequate.[76]

Hayek suffered from poor health and severe depression from 1969, with some improvement after 1974. He had two heart attacks (one of them already in 1960) which were discovered only in retrospect and was later misdiagnosed and treated for diabetes which reduced his blood sugar level. He also took medication for depression. His hearing declined and that affected his social life and forced him to give up his enjoyment of theatre. His work also suffered, he spent years unable to do any demanding work, and was occasionally so unwell that he could not get out of bed. He would continue to work on Law, Legislation and Liberty in periods when he was feeling better.[77]

On 9 October 1974, it was announced that Hayek would be awarded the Nobel Memorial Prize in Economics along with Swedish economist Gunnar Myrdal. The reasons for the two of them winning the prize are described in the Nobel committee's press release.[78] He was surprised at being given the award and believed that he was given it with Myrdal to balance the award with someone from the opposite side of the political spectrum.[79] Nobel Prize in Economics was established only in 1968 and Hayek was the first free-market, non-Keynesian economist to win it.

During the Nobel ceremony in December 1974, Hayek met the Russian dissident Aleksandr Solzhenitsyn. Hayek later sent him a Russian translation of The Road to Serfdom.[79] He spoke with apprehension at his award speech about the danger the authority of the prize would lend to an economist,[80] but the prize brought much greater public awareness to the then controversial ideas of Hayek and has been described by his biographer as "the great rejuvenating event in his life".[81]

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In February 1975, Margaret Thatcher was elected leader of the British Conservative Party. The Institute of Economic Affairs arranged a meeting between Hayek and Thatcher in London soon after.[82] During Thatcher's only visit to the Conservative Research Department in the summer of 1975, a speaker had prepared a paper on why the "middle way" was the pragmatic path the Conservative Party should take, avoiding the extremes of left and right. Before he had finished, Thatcher "reached into her briefcase and took out a book. It was Hayek's The Constitution of Liberty. Interrupting our pragmatist, she held the book up for all of us to see. 'This', she said sternly, 'is what we believe', and banged Hayek down on the table".[83]

Despite the media depictions of him as Thatcher's guru and power behind the throne, the communication between him and the Prime Minister was not very regular, they were in contact only once or twice a year.[84] Besides Thatcher, Hayek also made a significant influence on Enoch Powell, Keith Joseph, Nigel Lawson, Geoffrey Howe and John Biffen.[85]

Hayek gained some controversy in 1978 by praising Thatcher's anti-immigration policy proposal in an article which ignited numerous accusations of anti-Semitism and racism because of his reflections on the inability of assimilation of Eastern European Jews in the Vienna of his youth.[85] He defended himself by explaining that he made no racial judgements, only highlighted the problems of acculturation.[86]

In 1977, Hayek was critical of the Lib–Lab pact in which the British Liberal Party agreed to keep the British Labour government in office. Writing to The Times, Hayek said: "May one who has devoted a large part of his life to the study of the history and the principles of liberalism point out that a party that keeps a socialist government in power has lost all title to the name 'Liberal'. Certainly no liberal can in future vote 'Liberal'".[87] Hayek was criticised by Liberal politicians Gladwyn Jebb and Andrew Phillips, who both claimed that the purpose of the pact was to discourage socialist legislation.

Lord Gladwyn pointed out that the German Free Democrats were in coalition with the German Social Democrats.[88] However, Hayek was defended by Professor Antony Flew, who stated that—unlike the British Labour Party—the German Social Democrats had since the late 1950s abandoned public ownership of the means of production, distribution and exchange and had instead embraced the social market economy.[89]

In 1978, Hayek came into conflict with Liberal Party leader David Steel, who claimed that liberty was possible only with "social justice and an equitable distribution of wealth and power, which in turn require a degree of active government intervention" and that the Conservative Party were more concerned with the connection between liberty and private enterprise than between liberty and democracy. Hayek claimed that a limited democracy might be better than other forms of limited government at protecting liberty, but that an unlimited democracy was worse than other forms of unlimited government because "its government loses the power even to do what it thinks right if any group on which its majority depends thinks otherwise".

Hayek stated that if the Conservative leader had said "that free choice is to be exercised more in the market place than in the ballot box, she has merely uttered the truism that the first is indispensable for individual freedom while the second is not: free choice can at least exist under a dictatorship that can limit itself but not under the government of an unlimited democracy which cannot".[90]

Hayek supported Britain in the Falklands War, writing that it would be justified to attack Argentinian territory instead of just defending the islands, which earned him a lot of criticism in Argentina, a country which he also visited several times. He was also displeased by the weak response of the United States to the Iran hostage crisis, claiming that an ultimatum should be issued and Iran bombed if they do not comply. He supported Ronald Reagan's decision to keep high defence spending, believing that a strong US military is a guarantee of world peace and necessary to keep the Soviet Union under control.[91] President Reagan listed Hayek as among the two or three people who most influenced his philosophy and welcomed him to the White House as a special guest.[92] Senator Barry Goldwater listed Hayek as his favourite political philosopher and congressman Jack Kemp named him an inspiration for his political career.[93]

In 1980, Hayek, a non-practicing Catholic,[94] was one of twelve Nobel laureates to meet with Pope John Paul II "to dialogue, discuss views in their fields, communicate regarding the relationship between Catholicism and science, and 'bring to the Pontiff's attention the problems which the Nobel Prize Winners, in their respective fields of study, consider to be the most urgent for contemporary man'".[95]

Hayek was appointed a Companion of Honour (CH) in the 1984 Birthday Honours by Elizabeth II on the advice of British Prime Minister Margaret Thatcher for his "services to the study of economics".[15][16] Hayek had hoped to receive a baronetcy and after being awarded the CH sent a letter to his friends requesting that he be called the English version of Friedrich (i.e. Frederick) from now on. After his twenty-minute audience with the Queen, he was "absolutely besotted" with her according to his daughter-in-law Esca Hayek. Hayek said a year later that he was "amazed by her. That ease and skill, as if she'd known me all my life". The audience with the Queen was followed by a dinner with family and friends at the Institute of Economic Affairs. When later that evening Hayek was dropped off at the Reform Club, he commented: "I've just had the happiest day of my life".[96]

In 1991, President George H.W. Bush awarded Hayek the Presidential Medal of Freedom, one of the two highest civilian awards in the United States, for a "lifetime of looking beyond the horizon".

Hayek died on 23 March 1992 in Freiburg, Germany and was buried on 4 April in the Neustift am Walde cemetery in the northern outskirts of Vienna according to the Catholic rite.[97] In 2011, his article "The Use of Knowledge in Society" was selected as one of the top 20 articles published in The American Economic Review during its first 100 years.[19]

The New York University Journal of Law and Liberty holds an annual lecture in his honor.[98]

Parts of a business cycle

Actual business cycle

Hayek's principal investigations in economics concerned capital, money and the business cycle. Ludwig von Mises had earlier applied the concept of marginal utility to the value of money in his Theory of Money and Credit (1912) in which he also proposed an explanation for "industrial fluctuations" based on the ideas of the old British Currency School and of Swedish economist Knut Wicksell. Hayek used this body of work as a starting point for his own interpretation of the business cycle, elaborating what later became known as the Austrian theory of the business cycle. Hayek spelled out the Austrian approach in more detail in his book, published in 1929, an English translation of which appeared in 1933 as Monetary Theory and the Trade Cycle. There, Hayek argued for a monetary approach to the origins of the cycle. In his Prices and Production (1931), Hayek argued that the business cycle resulted from the central bank's inflationary credit expansion and its transmission over time, leading to a capital misallocation caused by the artificially low interest rates. Hayek claimed that "the past instability of the market economy is the consequence of the exclusion of the most important regulator of the market mechanism, money, from itself being regulated by the market process".

Hayek's analysis was based on Eugen Böhm von Bawerk's concept of the "average period of production"[99] and on the effects that monetary policy could have upon it. In accordance with the reasoning later outlined in his essay "The Use of Knowledge in Society" (1945), Hayek argued that a monopolistic governmental agency like a central bank can neither possess the relevant information which should govern supply of money, nor have the ability to use it correctly.[100]

In 1929, Lionel Robbins assumed the helm of the London School of Economics (LSE). Eager to promote alternatives to what he regarded as the narrow approach of the school of economic thought that then dominated the English-speaking academic world (centred at the University of Cambridge and deriving largely from the work of Alfred Marshall), Robbins invited Hayek to join the faculty at LSE, which he did in 1931. According to Nicholas Kaldor, Hayek's theory of the time-structure of capital and of the business cycle initially "fascinated the academic world" and appeared to offer a less "facile and superficial" understanding of macroeconomics than the Cambridge school's.[101]

Also in 1931, Hayek critiqued John Maynard Keynes's Treatise on Money (1930) in his "Reflections on the pure theory of Mr. J.M. Keynes"[102] and published his lectures at the LSE in book form as Prices and Production.[103] For Keynes, unemployment and idle resources are caused by a lack of effective demand, but for Hayek they stem from a previous unsustainable episode of easy money and artificially low interest rates. Keynes asked his friend Piero Sraffa to respond. Sraffa elaborated on the effect of inflation-induced "forced savings" on the capital sector and about the definition of a "natural" interest rate in a growing economy (see Sraffa–Hayek debate).[104] Others who responded negatively to Hayek's work on the business cycle included John Hicks, Frank Knight and Gunnar Myrdal.[105] Kaldor later wrote that Hayek's Prices and Production had produced "a remarkable crop of critics" and that the total number of pages in British and American journals dedicated to the resulting debate "could rarely have been equalled in the economic controversies of the past".[101]

Hayek continued his research on monetary and capital theory, revising his theories of the relations between credit cycles and capital structure in Profits, Interest and Investment (1939) and The Pure Theory of Capital (1941), but his reputation as an economic theorist had by then fallen so much that those works were largely ignored, except for scathing critiques by Nicholas Kaldor.[101][106] Lionel Robbins himself, who had embraced the Austrian theory of the business cycle in The Great Depression (1934), later regretted having written the book and accepted many of the Keynesian counter-arguments.[107]

Hayek never produced the book-length treatment of "the dynamics of capital" that he had promised in the Pure Theory of Capital. After 1941, he continued to publish works on the economics of information, political philosophy, the theory of law and psychology, but seldom on macroeconomics. At the University of Chicago, Hayek was not part of the economics department and did not influence the rebirth of neoclassical theory that took place there (see Chicago school of economics). When in 1974 he shared the Nobel Memorial Prize in Economics with Myrdal, the latter complained about being paired with an "ideologue". Milton Friedman declared himself "an enormous admirer of Hayek, but not for his economics. I think Prices and Production is a very flawed book. I think his [Pure Theory of Capital] is unreadable. On the other hand, The Road to Serfdom is one of the great books of our time".[107]

Building on the earlier work of Mises and others, Hayek also argued that while in centrally planned economies an individual or a select group of individuals must determine the distribution of resources, these planners will never have enough information to carry out this allocation reliably. This argument, first proposed by Max Weber, says that the efficient exchange and use of resources can be maintained only through the price mechanism in free markets (see economic calculation problem).

In 1935, Hayek published Collectivist Economic Planning, a collection of essays from an earlier debate that had been initiated by Mises. Hayek included Mises's essay in which Mises argued that rational planning was impossible under socialism.

Some socialists such as H. D. Dickinson and Oskar Lange responded by invoking general equilibrium theory, which they argued disproved Mises's thesis. They noted that the difference between a planned and a free market system lay in who was responsible for solving the equations. They argued that if some of the prices chosen by socialist managers were wrong, gluts or shortages would appear, signalling them to adjust the prices up or down, just as in a free market. Through such a trial and error, a socialist economy could mimic the efficiency of a free market system while avoiding its many problems.

Hayek challenged this vision in a series of contributions. In "Economics and Knowledge" (1937), he pointed out that the standard equilibrium theory assumed that all agents have full and correct information. However, in the real world different individuals have different bits of knowledge and furthermore some of what they believe is wrong.

In "The Use of Knowledge in Society" (1945), Hayek argued that the price mechanism serves to share and synchronise local and personal knowledge, allowing society's members to achieve diverse and complicated ends through a principle of spontaneous self-organization. He contrasted the use of the price mechanism with central planning, arguing that the former allows for more rapid adaptation to changes in particular circumstances of time and place.[108] Thus, Hayek set the stage for Oliver Williamson's later contrast between markets and hierarchies as alternative co-ordination mechanisms for economic transactions.[109] He used the term catallaxy to describe a "self-organizing system of voluntary co-operation". Hayek's research into this argument was specifically cited by the Nobel Committee in its press release awarding Hayek the Nobel prize.[78]

Front cover art for Hayek's book Individualism and Economic Order, 1948

Hayek was one of the leading academic critics of collectivism in the 20th century. Hayek argued that all forms of collectivism (even those theoretically based on voluntary co-operation) could only be maintained by a central authority of some kind. In Hayek's view, the central role of the state should be to maintain the rule of law, with as little arbitrary intervention as possible. In his popular book The Road to Serfdom (1944) and in subsequent academic works, Hayek argued that socialism required central economic planning and that such planning in turn leads towards totalitarianism.[110]

In The Road to Serfdom, Hayek wrote:

Although our modern socialists' promise of greater freedom is genuine and sincere, in recent years observer after observer has been impressed by the unforeseen consequences of socialism, the extraordinary similarity in many respects of the conditions under "communism" and "fascism".[111]

Hayek posited that a central planning authority would have to be endowed with powers that would impact and ultimately control social life because the knowledge required for centrally planning an economy is inherently decentralised, and would need to be brought under control.

Though Hayek did argue that the state should provide law centrally, others have pointed out that this contradicts his arguments about the role of judges in "discovering" the law, suggesting that Hayek would have supported decentralized provision of legal services.[112]

Hayek also wrote that the state can play a role in the economy, specifically in creating a safety net, saying:

There is no reason why, in a society which has reached the general level of wealth ours has, the first kind of security should not be guaranteed to all without endangering general freedom; that is: some minimum of food, shelter and clothing, sufficient to preserve health. Nor is there any reason why the state should not help to organize a comprehensive system of social insurance in providing for those common hazards of life against which few can make adequate provision.[113]

"The Denationalization of Money" is one of his literary works, in which he advocated the establishment of competitions in issuing moneys.

Perhaps more fully than any other economist, Hayek investigated the choice theory of investment. He examined the inter-relations between non-permanent production goods and "latent" or potentially economic permanent resources, building on the choice theoretical insight that "processes that take more time will evidently not be adopted unless they yield a greater return than those that take less time".[114]

Hayek's work on the microeconomics of the choice theoretics of investment, non-permanent goods, potential permanent resources and economically-adapted permanent resources mark a central dividing point between his work in areas of macroeconomics and that of almost all other economists. Hayek's work on the macroeconomic subjects of central planning, trade cycle theory, the division of knowledge and entrepreneurial adaptation especially, differ greatly from the opinions of macroeconomic "Marshallian" economists who follow the tradition of John Maynard Keynes and the microeconomic "Walrasian" economists who follow the tradition of Abba Lerner.

During World War II, Hayek began the Abuse of Reason project. His goal was to show how a number of then-popular doctrines and beliefs had a common origin in some fundamental misconceptions about the social science.[115] In his philosophy of science, which has much in common with that of his good friend Karl Popper, Hayek was highly critical of what he termed "scientism", a false understanding of the methods of science that has been mistakenly forced upon the social sciences, but that is contrary to the practices of genuine science. Usually, scientism involves combining the philosophers' ancient demand for demonstrative justification with the associationists' false view that all scientific explanations are simple two-variable linear relationships.

Hayek points out that much of science involves the explanation of complex multivariable and nonlinear phenomena and the social science of economics and undesigned order compares favourably with such complex sciences as Darwinian biology. These ideas were developed in The Counter-Revolution of Science in 1952 and in some of Hayek's later essays in the philosophy of science such as "Degrees of Explanation" (1955) and "The Theory of Complex Phenomena" (1964).

In Counter-Revolution, for example, Hayek observed that the hard sciences attempt to remove the "human factor" to obtain objective and strictly controlled results:

[T]he persistent effort of modern Science has been to get down to "objective facts," to cease studying what men thought about nature or regarding the given concepts as true images of the real world, and, above all, to discard all theories which pretended to explain phenomena by imputing to them a directing mind like our own. Instead, its main task became to revise and reconstruct the concepts formed from ordinary experience on the basis of a systematic testing of the phenomena, so as to be better able to recognize the particular as an instance of a general rule.

— Friedrich Hayek, The Counter-Revolution of Science (Chapter II, "The Problem and the Method of the Natural Sciences")

Meanwhile, the soft sciences are attempting to measure human action itself:[116]

The social sciences in the narrower sense, i.e., those which used to be described as the moral sciences, are concerned with man's conscious or reflected action, actions where a person can be said to choose between various courses open to him, and here the situation is essentially different. The external stimulus which may be said to cause or occasion such actions can of course also be defined in purely physical terms. But if we tried to do so for the purposes of explaining human action, we would confine ourselves to less than we know about the situation.

— Friedrich Hayek, The Counter-Revolution of Science (Chapter III, "The Subjective Character of the Data of the Social Sciences")

He notes that these are mutually exclusive and that social sciences should not attempt to impose positivist methodology, nor to claim objective or definite results:[117]

In The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952), Hayek independently developed a "Hebbian learning" model of learning and memory—an idea he first conceived in 1920 prior to his study of economics. Hayek's expansion of the "Hebbian synapse" construction into a global brain theory has received attention in neuroscience, cognitive science, computer science, behavioural science and evolutionary psychology by scientists such as Gerald Edelman and Joaquin Fuster.[118][119][120]

The Sensory Order can be viewed as a development of his attack on scientism. Hayek posited two orders, namely the sensory order that we experience and the natural order that natural science has revealed. Hayek thought that the sensory order actually is a product of the brain. He described the brain as a very complex yet self-ordering hierarchical classification system, a huge network of connections. Because of the nature of the classifier system, richness of our sensory experience can exist. Hayek's description posed problems to behaviorism, whose proponents took the sensory order as fundamental.[115]

In the latter half of his career, Hayek made a number of contributions to social and political philosophy which he based on his views on the limits of human knowledge[121] and the idea of spontaneous order in social institutions. He argues in favour of a society organised around a market order in which the apparatus of state is employed almost (though not entirely) exclusively to enforce the legal order (consisting of abstract rules and not particular commands) necessary for a market of free individuals to function. These ideas were informed by a moral philosophy derived from epistemological concerns regarding the inherent limits of human knowledge. Hayek argued that his ideal individualistic and free-market polity would be self-regulating to such a degree that it would be "a society which does not depend for its functioning on our finding good men for running it".[122]

Although Hayek believed in a society governed by laws, he disapproved of the notion of "social justice". He compared the market to a game in which "there is no point in calling the outcome just or unjust"[123] and argued that "social justice is an empty phrase with no determinable content".[124] Likewise, "the results of the individual's efforts are necessarily unpredictable, and the question as to whether the resulting distribution of incomes is just has no meaning".[125] He generally regarded government redistribution of income or capital as an unacceptable intrusion upon individual freedom, saying that "the principle of distributive justice, once introduced, would not be fulfilled until the whole of society was organized in accordance with it. This would produce a kind of society which in all essential respects would be the opposite of a free society".[124]

Hayek viewed the free price system not as a conscious invention (that which is intentionally designed by man), but as spontaneous order or what Scottish philosopher Adam Ferguson referred to as "the result of human action but not of human design".[126] For instance, Hayek put the price mechanism on the same level as language.

Hayek attributed the birth of civilisation to private property in his book The Fatal Conceit (1988). He explained that price signals are the only means of enabling each economic decision maker to communicate tacit knowledge or dispersed knowledge to each other to solve the economic calculation problem. Alain de Benoist of the Nouvelle Droite (New Right) produced a highly critical essay on Hayek's work in an issue of Telos, citing the flawed assumptions behind Hayek's idea of "spontaneous order" and the authoritarian and totalising implications of his free-market ideology.[127]

Hayek's concept of the market as a spontaneous order has been recently applied to ecosystems to defend a broadly non-interventionist policy.[128] Like the market, ecosystems contain complex networks of information, involve an ongoing dynamic process, contain orders within orders and the entire system operates without being directed by a conscious mind.[129] On this analysis, species takes the place of price as a visible element of the system formed by a complex set of largely unknowable elements. Human ignorance about the countless interactions between the organisms of an ecosystem limits our ability to manipulate nature.[130] Since humans rely on the ecosystem to sustain themselves, we have a prima facie obligation to not disrupt such systems. This analysis of ecosystems as spontaneous orders does not rely on markets qualifying as spontaneous orders. As such, one need not endorse Hayek's analysis of markets to endorse ecosystems as spontaneous orders.

With regard to a social safety net, Hayek advocated "some provision for those threatened by the extremes of indigence or starvation due to circumstances beyond their control" and argued that the "necessity of some such arrangement in an industrial society is unquestioned—be it only in the interest of those who require protection against acts of desperation on the part of the needy".[131] Summarizing Hayek's views on the topic, journalist Nicholas Wapshott has argued that "[Hayek] advocated mandatory universal health care and unemployment insurance, enforced, if not directly provided, by the state".[132] Critical theorist Bernard Harcourt has argued further that "Hayek was adamant about this".[133] In 1944, Hayek wrote in The Road to Serfdom:

There is no reason why in a society which has reached the general level of wealth which ours has attained [that security against severe physical privation, the certainty of a given minimum of sustenance for all; or more briefly, the security of a minimum income] should not be guaranteed to all without endangering general freedom. There are difficult questions about the precise standard which should thus be assured... but there can be no doubt that some minimum of food, shelter, and clothing, sufficient to preserve health and the capacity to work, can be assured to everybody. ... Nor is there any reason why the state should not assist... individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance – where, in short, we deal with genuinely insurable risks – the case for the state's helping to organize a comprehensive system of social insurance is very strong. There are many points of detail where those wishing to preserve the competitive system and those wishing to supersede it by something different will disagree on the details of such schemes; and it is possible under the name of social insurance to introduce measures which tend to make competition more or less effective. But there is no incompatibility in principle between the state's providing greater security in this way and the preservation of individual freedom. Wherever communal action can mitigate disasters against which the individual can neither attempt to guard himself nor make the provision for the consequences, such communal action should undoubtedly be taken.[134]

In 1973, Hayek reiterated in Law, Legislation and Liberty:

There is no reason why in a free society government should not assure to all, protection against severe deprivation in the form of an assured minimum income, or a floor below which nobody need to descend. To enter into such an insurance against extreme misfortune may well be in the interest of all; or it may be felt to be a clear moral duty of all to assist, within the organised community, those who cannot help themselves. So long as such a uniform minimum income is provided outside the market to all those who, for any reason, are unable to earn in the market an adequate maintenance, this need not lead to a restriction of freedom, or conflict with the Rule of law.[135]

Arthur M. Diamond argues Hayek's problems arise when he goes beyond claims that can be evaluated within economic science. Diamond argued:

The human mind, Hayek says, is not just limited in its ability to synthesize a vast array of concrete facts, it is also limited in its ability to give a deductively sound ground to ethics. Here is where the tension develops, for he also wants to give a reasoned moral defense of the free market. He is an intellectual skeptic who wants to give political philosophy a secure intellectual foundation. It is thus not too surprising that what results is confused and contradictory.[136]

Chandran Kukathas argues that Hayek's defence of liberalism is unsuccessful because it rests on presuppositions that are incompatible. The unresolved dilemma of his political philosophy is how to mount a systematic defence of liberalism if one emphasizes the limited capacity of reason.[137] Norman P. Barry similarly notes that the "critical rationalism" in Hayek's writings appears incompatible with "a certain kind of fatalism, that we must wait for evolution to pronounce its verdict".[138] Milton Friedman and Anna Schwartz argue that the element of paradox exists in the views of Hayek. Noting Hayek's vigorous defense of "invisible hand" evolution that Hayek claimed has created better economic institutions than could be created by rational design, Friedman pointed out the irony that Hayek was then proposing to replace the monetary system thus created with a deliberate construct of his own design.[139] John N. Gray summarized this view as "his scheme for an ultra-liberal constitution was a prototypical version of the philosophy he had attacked".[140] Bruce Caldwell wrote that "[i]f one is judging his work against the standard of whether he provided a finished political philosophy, Hayek clearly did not succeed", although he thinks that "economists may find Hayek's political writings useful".[141]

Wikiquote has quotations related to: Friedrich Hayek and dictatorship

Hayek sent António de Oliveira Salazar a copy of The Constitution of Liberty (1960) in 1962. Hayek hoped that his book—this "preliminary sketch of new constitutional principles"—"may assist" Salazar "in his endeavour to design a constitution which is proof against the abuses of democracy".[142]

Hayek visited Chile in the 1970s and 1980s during the Government Junta of general Augusto Pinochet and accepted being appointed Honorary Chairman of the Centro de Estudios Públicos, the think tank formed by the economists who transformed Chile into a free market economy.[142]

Asked about the military dictatorship of Chile by a Chilean interviewer, Hayek is translated from German to Spanish to English as having said the following:

As long term institutions, I am totally against dictatorships. But a dictatorship may be a necessary system for a transitional period. [...] Personally I prefer a liberal dictatorship to democratic government devoid of liberalism. My personal impression – and this is valid for South America – is that in Chile, for example, we will witness a transition from a dictatorial government to a liberal government.[143]

In a letter to the London Times, he defended the Pinochet regime and said that he had "not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende".[144][145] Hayek admitted that "it is not very likely that this will succeed, even if, at a particular point in time, it may be the only hope there is", but he explained that "[i]t is not certain hope, because it will always depend on the goodwill of an individual, and there are very few individuals one can trust. But if it is the sole opportunity which exists at a particular moment it may be the best solution despite this. And only if and when the dictatorial government is visibly directing its steps towards limited democracy".

For Hayek, the distinction between authoritarianism and totalitarianism has much importance and he was at pains to emphasise his opposition to totalitarianism, noting that the concept of transitional dictatorship which he defended was characterised by authoritarianism, not totalitarianism. For example, when Hayek visited Venezuela in May 1981, he was asked to comment on the prevalence of totalitarian regimes in Latin America. In reply, Hayek warned against confusing "totalitarianism with authoritarianism" and said that he was unaware of "any totalitarian governments in Latin America. The only one was Chile under Allende". For Hayek, the word "totalitarian" signifies something very specific, namely the intention to "organize the whole of society" to attain a "definite social goal" which is stark in contrast to "liberalism and individualism".[146] He claimed that democracy can also be repressive and totalitarian; in The Constitution of Liberty he often refers to Jacob Talmon's concept of totalitarian democracy.

Hayek was skeptical about international immigration and supported Thatcher's anti-immigration policies.[85] In Law, Legislation and Liberty he elaborated:

Freedom of migration is one of the widely accepted and wholly admirable principles of liberalism. But should this generally give the stranger a right to settle down in a community in which he is not welcome? Has he a claim to be given a job or be sold a house if no resident is willing to do so? He clearly should be entitled to accept a job or buy a house if offered to him. But have the individual inhabitants a duty to offer either to him? Or ought it to be an offence if they voluntarily agree not to do so? Swiss and Tyrolese villages have a way of keeping out strangers which neither infringe nor rely on any law. Is this anti-liberal or morally justified? For established old communities I have no certain answers to these questions.[147]

He was mainly preoccupied with practical problems concerning immigration:

There exist, of course, other reasons why such restrictions appear unavoidable so long as certain differences in national or ethnic traditions (especially differences in the rate of propagation) exist-which in turn are not likely to disappear so long as restrictions on migration continue. We must face the fact that we here encounter a limit to the universal application of those liberal principles of policy which the existing facts of the present world make unavoidable.[148]

He was not sympathetic to nationalist ideas and was afraid that mass immigration might revive nationalist sentiment among domestic population and ruin the postwar progress that was made among Western nations.[149] He additionally explained:

However far modern man accepts in principle the ideal that the same rules should apply to all men, in fact he does concede it only to those whom he regards as similar to himself, and only slowly learns to extend the range of those he does accept as his likes. There is little legislation can do to speed up this process and much it may do to reverse it by re-awakening sentiments that are already on the wane.[149]

Despite his opposition to nationalism, Hayek made numerous controversial and inflammatory comments about specific ethnic groups. Answering an interview question about people he cannot deal with he mentioned his dislike of Middle Eastern populations, claiming they were dishonest, and also expressed "profound dislike" of Indian students at London School of Economics, saying that were usually "detestable sons of Bengali moneylenders".[150] However, he claimed that his attitude is not based on any racial feeling.[150] During World War II he discussed the possibility of sending his children to the United States, but was concerned that they might be placed with a "coloured family".[151] In a later interview, questioned about his attitude towards Black people, he said laconically that he "did not like dancing Negroes"[152] and on another occasion he ridiculed the decision to award the Nobel Peace Prize to Martin Luther King Jr..[153] He also made negative comments about awarding the Prize to Ralph Bunche, Albert Luthuli, and his LSE colleague W. Arthur Lewis who he described as an "unusually able West Indian negro".[153] In 1978 Hayek made a month-long visit to South Africa (his third) where he gave numerous lectures, interviews, and met prominent politicians and business leaders, unconcerned about possible propagandistic effect of his tour for Apartheid regime. He expressed his opposition to some of the government policies, believing that publicly funded institutions should treat all citizens equally, but also claimed that private institutions have the right to discriminate. Additionally, he condemned the "scandalous" hostility and interference of the international community in South African internal affairs.[154] He further explained his attitude:

People in South Africa have to deal with their own problems, and the idea that you can use external pressure to change people, who after all have built up a civilization of a kind, seems to me morally a very doubtful belief.[155]

Hayek claimed that the idea that "all men are born equal" is untrue because evolution and genetic differences have created "boundless variety of human nature". He emphasized the importance of nature, complaining that it became too fashionable to ascribe all human differences to environment.[156] Hayek defended economic inequality, believing that the existence of wealthy class is important not only for economic reasons – accumulating capital and directing investments – but also for political, cultural, scientific and conservationist goals which are often financed and promoted by philanthropists. Since the market mechanism cannot provide for all societal needs, some of which are outside of economic calculation, existence of wealthy individuals guarantees the efficiency and pluralism in their development and realization, which could not be guaranteed in the case of state monopoly.[157] Individual wealth offers independence and can create intellectual, moral, political and artistic leaders which are not employed and influenced by the state.[158] According to Hayek the society benefits from having a hereditary wealthy class because individuals born in it don't have to devote their energy to earning a living and can devote themselves to other purposes such as experimenting with different ideas, hobbies and lifestyles which can later be adopted by broader society.[159] In The Constitution of Liberty he wrote:

Yet is it really so obvious that the tennis or golf professional is a more useful member of society than the wealthy amateurs who devoted their time to perfecting these games? Or that the paid curator of a public museum is more useful than a private collector? Before the reader answers these questions too hastily, I would ask him to consider whether there would ever have been golf or tennis professionals or museum curators if wealthy amateurs had not preceded them. Can we not hope that other new interests will still arise from the playful explorations of those who can indulge in them for the short span of a human life? It is only natural that the development of the art of living and of the non-materialistic values should have profited most from the activities of those who had no material worries.[160]

He contrasted individuals who inherited wealth, along with upper class values and education, with the nouveau riche who often use their wealth in more vulgar ways.[159] He decried the disappearance of such leisured aristocratic class, claiming that contemporary Western elites are usually business groups that lack intellectual leadership and coherent "philosophy of life" and use their wealth mostly for economic purposes.[161]

Hayek was against high taxes on inheritance, believing that it is natural function of the family to transmit standards, traditions and material goods. Without transmission of property, parents might try to secure the future of their children by placing them in prestigious and high-paying positions, as was customary in socialist countries, which creates even worse injustices.[162] He was also strongly against progressive taxation, noting that in most countries additional taxes paid by the rich amount to insignificantly small amount of total tax revenue and that the only major result of the policy is "gratification of the envy of the less-well-off".[163] He also claimed that it is contrary to idea of equality under law and against democratic principle that majority should not impose discriminatory rules against minority.[164][165]

Hayek received new attention in the 1980s and 1990s with the rise of conservative governments in the United States, United Kingdom and Canada. After winning the 1979 United Kingdom general election, Margaret Thatcher appointed Keith Joseph, the director of the Hayekian Centre for Policy Studies, as her secretary of state for industry in an effort to redirect parliament's economic strategies. Likewise, David Stockman, Ronald Reagan's most influential financial official in 1981, was an acknowledged follower of Hayek.[186]

Hayek wrote an essay, "Why I Am Not a Conservative" (included as an appendix to The Constitution of Liberty).[187] In it he disparaged conservatism for its inability to adapt to changing human realities or to offer a positive political program, remarking: "Conservatism is only as good as what it conserves". Although he noted that modern day American and British conservatism share many opinions on economics with classical liberals, particularly a belief in the free market, he believed it is because conservatism wants to "stand still" whereas liberalism embraces the free market because it "wants to go somewhere". He was much more critical of conservativism in continental Europe which he saw as more similar to socialism. European conservatives, according to Hayek, are similar to socialists in their belief that social and political problems can be solved by placing right people in governmental positions and giving them the opportunity to rule without much restrictions. Both are less concerned with limiting state power and more concerned with arbitrarily using that power to promote their own goals and force their values on other people.[188] Hayek also disliked conservative tendency to obscurantism, such as rejection of theory of evolution and naturalistic explanations of life because of supposedly problematic moral consequences that follow from them.[189] He opposed conservatism for "its hostility to internationalism and its proneness to a strident nationalism", with its frequent association with imperialism.[190] He also criticized the intolerance and lack of pluralism:

What I mean is that he [conservative] has no political principles which enable him to work with people whose moral values differ from his own for a political order in which both can obey their convictions. It is the recognition of such principles that permits the coexistence of different sets of values that makes it possible to build a peaceful society with a minimum of force. The acceptance of such principles means that we agree to tolerate much that we dislike. There are many values of the conservative which appeal to me more than those of the socialists; yet for a liberal the importance he personally attaches to specific goals is no sufficient justification for forcing others to serve them.[191]

Hayek identified himself as a classical liberal, but noted that in the United States it had become almost impossible to use "liberal" in its original definition and the term "libertarian" has been used instead. He also found libertarianism a term "singularly unattractive" and offered the term "Old Whig" (a phrase borrowed from Edmund Burke) instead. In his later life, he said: "I am becoming a Burkean Whig". However, Whiggery as a political doctrine had little affinity for classical political economy, the tabernacle of the Manchester School and William Gladstone.[192] His essay has served as an inspiration to other liberal-minded economists wishing to distinguish themselves from conservative thinkers, for example James M. Buchanan's essay "Why I, Too, Am Not a Conservative: The Normative Vision of Classical Liberalism".

His opponents have attacked Hayek as a leading promoter of neoliberalism. A British journalist, Samuel Brittan, concluded in 2010 that "Hayek's book [The Constitution of Liberty] is still probably the most comprehensive statement of the underlying ideas of the moderate free market philosophy espoused by neoliberals".[193] Brittan adds that although Raymond Plant (2009) comes out in the end against Hayek's doctrines, Plant gives The Constitution of Liberty a "more thorough and fair-minded analysis than it has received even from its professed adherents".[193]

In Why F A Hayek is a Conservative, British policy analyst Madsen Pirie claims Hayek mistakes the nature of the conservative outlook. Conservatives, he says, are not averse to change, but like Hayek they are highly averse to change being imposed on the social order by people in authority who think they know how to run things better. They wish to allow the market to function smoothly and give it the freedom to change and develop. It is an outlook, according to Pirie, that Hayek and conservatives both share.[194]

Hayek's ideas on spontaneous order and the importance of prices in dealing with the knowledge problem has inspired a debate on economic development and transition economies after the fall of the Berlin wall. For instance, economist Peter Boettke elaborated in detail on why reforming socialism failed and the Soviet Union broke down.[195] Economist Ronald McKinnon uses Hayekian ideas to describe the challenges of transition from a centralized state and planned economy to a market economy.[196] Former World Bank Chief Economist William Easterly emphasizes why foreign aid tends to have no effect at best in books such as The White Man's Burden: Why the West's Efforts to Aid the Rest Have Done So Much Ill and So Little Good.[197]

Since the 2007–2008 financial crisis, there is a renewed interest in Hayek's core explanation of boom-and-bust cycles, which serves as an alternative explanation to that of the savings glut as launched by economist and former Federal Reserve Chair Ben Bernanke. Economists at the Bank for International Settlements, e.g. William R. White, emphasize the importance of Hayekian insights and the impact of monetary policies and credit growth as root causes of financial cycles.[198] Andreas Hoffmann and Gunther Schnabl provide an international perspective and explain recurring financial cycles in the world economy as consequence of gradual interest rate cuts led by the central banks in the large advanced economies since the 1980s.[199][200] Nicolas Cachanosky outlines the impact of American monetary policy on the production structure in Latin America.[201]

In line with Hayek, an increasing number of contemporary researchers sees expansionary monetary policies and too low interest rates as mal-incentives and main drivers of financial crises in general and the subprime market crisis in particular.[202][203] To prevent problems caused by monetary policy, Hayekian and Austrian economists discuss alternatives to current policies and organizations. For instance, Lawrence H. White has argued in favor of free banking in the spirit of Hayek's "Denationalization of Money".[204] Along with market monetarist economist Scott Sumner,[205] White has also noted that the monetary policy norm that Hayek prescribed, first in Prices and Production (1931) and as late as the 1970s,[206][207] was the stabilization of nominal income.[208]

Hayek's ideas find their way into the discussion of the post-Great Recession issues of secular stagnation. Monetary policy and mounting regulation are argued to have undermined the innovative forces of the market economies. Quantitative easing following the financial crises is argued to have not only conserved structural distortions in the economy, leading to a fall in trend-growth. It also created new distortions and contributes to distributional conflicts.[209]

In the 1970s and 1980s, the writings of Hayek were a major influence on some of the future postsocialist economic and political elites in Central and Eastern Europe. Supporting examples include the following:

There is no figure who had more of an influence, no person had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market editions, read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union.[210]

— Milton Friedman (Hoover Institution)

The most interesting among the courageous dissenters of the 1980s were the classical liberals, disciples of F.A. Hayek, from whom they had learned about the crucial importance of economic freedom and about the often-ignored conceptual difference between liberalism and democracy.[211]

— Andrzej Walicki (History, Notre Dame)

Estonian Prime Minister Mart Laar came to my office the other day to recount his country's remarkable transformation. He described a nation of people who are harder-working, more virtuous – yes, more virtuous, because the market punishes immorality – and more hopeful about the future than they've ever been in their history. I asked Mr. Laar where his government got the idea for these reforms. Do you know what he replied? He said, "We read Milton Friedman and F.A. Hayek."[212]

— United States Representative Dick Armey

I was 25 years old and pursuing my doctorate in economics when I was allowed to spend six months of post-graduate studies in Naples, Italy. I read the Western economic textbooks and also the more general work of people like Hayek. By the time I returned to Czechoslovakia, I had an understanding of the principles of the market. In 1968, I was glad at the political liberalism of the Dubcek Prague Spring, but was very critical of the Third Way they pursued in economics.[213]

— Václav Klaus (former President of the Czech Republic)

• Hayek, Friedrich. The Collected Works of F.A. Hayek, ed. W.W. Bartley, III and others (University of Chicago Press, 1988–); "Plan of the Collected Works of F.A. Hayek" for 19 volumes; vol 2 excerpt and text search; vol 7 2012 excerpt.