Friedrich Hayek

Friedrich August von Hayek (May 8, 1899 in Vienna – March 23, 1992 in Freiburg) was an economist and social scientist of the Austrian School, noted for his defense of liberal democracy and free-market capitalism against a rising tide of socialist and collectivist thought in the mid-20th century. He also made important contributions to the fields of jurisprudence and cognitive science. He shared the 1974 Nobel Memorial Prize in Economics with ideological rival Gunnar Myrdal.

Work

The economic calculation problem

Hayek was one of the leading academic critics of collectivism in the 20th century. Hayek believed that all forms of collectivism (even those theoretically based on voluntary cooperation) could only be maintained by a central authority of some kind. In his popular book, The Road to Serfdom (1944) and in subsequent works, Hayek claimed that socialism would require central planning, and such planning in turn had a strong probability of leading towards totalitarianism, because, in his view, it could not be restricted to the economic sector and would eventually affect social life as well. Building on the earlier work of Mises and others, Hayek also contended that in centrally-planned economies an individual or a select group of individuals must determine the allocation of resources, but that these planners will never have enough information to carry out this allocation reliably. The efficient exchange and use of resources, Hayek claimed, can be maintained only through the price mechanism in free markets (see economic calculation problem).

Related Topics:
The Road to Serfdom - 1944 - Totalitarianism - Price - Economic calculation problem

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In The Use of Knowledge in Society (1945), Hayek argued that the price mechanism serves to share and synchronize local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization. He coined the term catallaxy to describe a "self-organizing system of voluntary co-operation."

Related Topics:
1945 - Self-organization - Catallaxy

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Spontaneous order

Hayek viewed the price mechanism, not as a conscious invention (that which is intentionally designed by man), but as spontaneous order, or what is referred to as "that which is the result of human action but not of human design". Thus, Hayek put the price mechanism on the same level as, for example, language. Such thinking led him to speculate on how the human brain could accommodate this evolved behavior. In The Sensory Order (1952), he proposed, independently of Donald Hebb, the connectionist hypothesis that forms the basis of the technology of neural networks and of much of modern neurophysiology.

Related Topics:
Price - Language - Human - Brain - 1952 - Donald Hebb - Connectionist - Neural networks - Neurophysiology

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In a typically bold insight, Hayek attributed the birth of civilization to private property in his book The Fatal Conceit (1988). According to him, price signals are the only possible way to let each economic decision maker communicate tacit knowledge or dispersed knowledge to each other, in order to solve the economic calculation problem.

Related Topics:
Private property - The Fatal Conceit - 1988 - Tacit knowledge - Dispersed knowledge - Economic calculation problem

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The business cycle

Hayek's writings on capital, money, and the business cycle are widely regarded as his most important contributions to economics. Mises had earlier explained monetary and banking theory in his Theory of Money and Credit (1912), applying the marginal utility principle to the value of money and then proposing a new theory of industrial fluctuations based on the concepts of the British Currency School and the ideas of the Swedish economist Knut Wicksell. Hayek used this body of work as a starting point for his own interpretation of the business cycle, which defended what later become known as the "Austrian business cycle theory". In his Prices and Production (1931) and The Pure Theory of Capital (1941) he explained the origin of the business cycle in terms of central bank credit expansion and its transmission over time in terms of capital misallocation caused by artificially low interest rates.

Related Topics:
Capital - Money - Business cycle - Mises - Marginal utility - Knut Wicksell - Austrian business cycle theory - Central bank - Credit expansion - Interest rate

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The "Austrian business cycle theory" has been criticized by advocates of rational expectations and other components of neoclassical economics, who point to the neutrality of money and to the real business cycle theory as providing a sounder understanding of the phenomenon. Hayek, in his 1939 book Profits, Interest and Investment, distanced himself from other theorists of the Austrian School, such as Mises and Rothbard, in beginning to shun the wholly monetary theory of the business cycle in favor of a more eccentric understanding based more on profits than on interest rates. Hayek explicitly notes that most of the more accurate explanations of the business cycle place more emphasis on real instead of nominal variables. He also notes that this more eccentric explanation model of the business cycle which he proposes cannot be wholly reconciled with any specific Austrian theory.

Related Topics:
Rational expectations - Neoclassical economics - Neutrality of money - Real business cycle - 1939 - Austrian School - Rothbard

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Social and political philosophy

While known more as an economist than a philosopher, in the latter half of his career Hayek made a number of contributions to social and political philosophy, derived largely from his views on the limits of human knowledge, and the role played by his spontaneous order in social institutions. His arguments in favor of a society organized around a market order (in which the apparatus of state is employed solely to secure the peace necessary for a market of free individuals to function) were informed by a moral philosophy derived from epistemological concerns regarding the inherent limits of human knowledge. In his philosophy of science, Hayek was highly critical of what he termed scientism—abuses of the methods of science in the attempt to justify inherently unknowable propositions, particularly in the fields of social science, economics and economic history (see The Counter-Revolution of Science: Studies in the Abuse of Reason, 1952). In The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952), he develops his social theory of spontaneous order into a bold philosophy of mind which has recently become the focus of a renewed level of interest within the fields of cognitive science and evolutionary psychology.

Related Topics:
Social - Political philosophy - Moral philosophy - Epistemological - Philosophy of science - Scientism - Social science - Economics - Economic history - 1952 - Social theory - Philosophy of mind - Cognitive science - Evolutionary psychology

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