The Enduring Value of Hayek

The Nobel economist and social theorist Friedrich Hayek — whom Robert Skidelsky called “the dominant intellectual influence of the last quarter of the twentieth century” — was born on this day in 1899. 

Almost single-handedly, Hayek kept alive the spirit of personal and economic freedom that had been crushed by the Second World War and the Keynesian economic interventionism that followed it. Such interventionism, Hayek argued, was based on the ‘fatal conceit’ that we knew far more about society’s workings than we really did. Government planners simply could not collect and process all the information needed to run a functioning economy, because that information is dispersed, diffuse, incomplete and essentially personal. The socialist dream would always be frustrated by reality; and as socialists struggled to control things, we would be drawn down a road to serfdom.

Hayek showed how unplanned societies were highly rational and collaborative, their customs containing a ‘wisdom’ that we cannot even understand, never mind control. The price system, for example, allocated resources to their most urgent uses, with a speed and efficiency that defied central planners. Such ‘spontaneous orders’ (including not just markets but language, justice and much else) were, said Hayek, products of social evolution, not rational thought. Replacing them with some planned ‘rational’ alternative would inevitably end in disaster. 

Hayek influenced a generation of economists, including many others who would win the Nobel Prize, such as Milton Friedman, George Stigler, Maurice Allais, James Buchanan, Vernon Smith, Gary Becker, Ronald Coase and Elinor Ostrom. His ideas also enthused intellectuals who in turn disseminated his ideas even more widely. Among them were Henry Hazlitt, journalist and co-founder of the Foundation for Economic Education; Ralph (later Lord) Harris and Arthur Seldon who ran the Institute of Economic Affairs; F A (“Baldy”) Harper who founded the Institute for Humane Studies, Eamonn Butler and Madsen Pirie of the Adam Smith Institute.

This gave his ideas a real political effect – something unimaginable in the post-war years. Margaret Thatcher and Ronald Reagan owed much to his thinking, as did Mart Laar and Vaclav Klaus, who became political leaders in Eastern Europe after the fall of the Soviet system. “No person,” concluded Milton Friedman, “had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek.”

Hayek remains an inspiration to lovers of individual freedom all over the world. Think tanks promote his view; student groups name themselves after him; college programmes take his name; economists and journalists cite him; his views are analysed in books, papers and blogs. Millions of ordinary people owe to Hayek their enjoyment of the fruits of economic and personal freedom, even though they may not realise it; but then as Hayek pointed out, knowledge is not always obvious.

Eamonn Butler is author of Friedrich Hayek: The Ideas and Influence of the Libertarian Economist (Harriman Economics Essentials).