by Richard M. Ebeling
Hayek: A Life, 1899–1950 by Bruce Caldwell and Hansjoerg Klausinger, (University of Chicago Press, 2022)
I always found Hayek cheerful, open, and delighted to share his time with a pesky young man imposing himself on his time and patience.[Click to Tweet]People who knew Friedrich A. Hayek before he won the Nobel Prize for Economics in 1974 sometimes said that he went through bouts of depression that interrupted his research and writing. Some also said that he could be aloof and distant when interacting with others. I must say, however, that was not the Friedrich Hayek that I had the good fortune to meet and interact with in the years immediately following his Nobel Prize.
In 1975 and 1977, I was one of a number of young “Austrian” scholars selected for summer research fellowships at the Institute for Humane Studies (IHS) when it was headquartered in Menlo Park, California. Hayek was also at IHS as a senior resident scholar, and, as luck would have it, his office was only one or two doors down from mine.
At the time, I was in my mid-20s just finishing my undergraduate degree in economics and starting my graduate studies. I had become interested in classical-liberal and Austrian economic ideas when I was a teenager, so by the time I met Hayek, I had already read most of his writings on monetary and business cycle theory, his critique of “scientism” in the social sciences, and his works on political and social philosophy. I was not going to miss the opportunity of making regular visits to his office whenever he was around. I was determined to pick his mind about the “old Vienna days” when he worked closely with Ludwig von Mises in the 1920s, or during his years at the London School of Economics in the 1930s and 1940s when he battled with John Maynard Keynes over the causes of and cures for the Great Depression and clashed with advocates of socialist central planning.
Personal impressions of F. A. Hayek
I always found Hayek cheerful, open, and delighted to share his time with a pesky young man imposing himself on his time and patience. Hayek spoke in a careful, deliberative voice that in spite of his long years in Great Britain and the United States still carried a very distinct and pronounced German accent, which at first made it necessary to really concentrate to understand him. He often was self-deprecating in his reminiscences about his conflicts and debates with Keynes or with others, like Arthur C. Pigou or the British socialists of the interwar period. He would sometimes say, “Well, during one of my other famous defeats….”
Hayek had been a lifelong pipe smoker, but his physician finally made him give it up. However, he still needed a nicotine fix, so he took up sniffing snuff. I would sit in his office listening intently to what he was saying, but then he would take out his snuff box and inhale some into his nostrils. I would be terribly distracted by watching to see where on his mustache or tie the snuff residue would fall. I consider the opportunity to spend so many hours in Hayek’s company those two summers to be one of the true high points of my intellectual life.
The last time I saw Hayek was in 1980 in Frieberg, Germany, where he was then living. I was traveling from Vienna to Paris by train, and he most graciously suggested my stopping to see him after I had written to him that I would be passing his way on my journey. We spent a delightful morning in long conversation, after which he insisted upon taking me to lunch. While we were eating, I commented that it seemed that since winning the Nobel Prize in 1974 he had suddenly started publishing a good deal more, especially on economic and monetary-policy issues. Hayek replied, “Well, I tried old age and I did not like it, so I decided to come back.”
When we parted, he wished me well and said that I should come and see him again next time I was in that part of Germany. Alas, there was no next time in the years before his death.
A monumental biography
While it is now more than 30 years since Hayek passed away on March 23, 1992, at the age of 92 (he was born on May 8, 1899), the legacy of his lifework as economic theorist, intellectual historian, and social philosopher lives on. Helping to preserve it is the 19-volume Collected Works of F. A. Hayek that for a good part of the last three decades has been overseen under the outstanding general editorship of Bruce Caldwell, professor at Duke University and director of its Center for History of Political Economy.
Now, Bruce Caldwell has published another monumental 800-page biography, Hayek: A Life, 1899–1950, with coauthor Hansjoerg Klausinger, a distinguished professor emeritus at the Vienna University of Economics and Business. It covers approximately the first half of Hayek’s life, the most fascinating and controversial part, some would say, which includes his career as a leading monetary and business cycle theorist and rival of Keynes in the 1930s through his international recognition as the author of The Road to Serfdom (1944) and his founding of the Mont Pelerin Society in 1947.
Caldwell had earlier published Hayek’s Challenge: An Intellectual Biography of F. A. Hayek (2004), an extremely scholarly and very readable work covering Hayek’s ideas and their significance. But this new volume far exceeds what was already an outstanding contribution by Caldwell for understanding Hayek’s place in the intellectual controversies of the twentieth century.
Hayek’s personal life and his return from the war
As is the case with many notable and thorough biographies, the authors detail his personal and family life, as well as his professional career. Growing up in the Vienna before the First World War, Hayek lived in the twilight years of the pre-World War I era of a still generally political and economic liberal world order. Hayek’s family surroundings were that of a cultured Viennese environment. His father was a medical doctor and noted botanist, and his home life was one of literature, music, and scientific ideas. One chapter discusses the embarrassing circ*mstances in the 1930s when, while Hayek was an uncompromising classical liberal and antitotalitarian residing in London, many members of his immediate family living in Vienna before and after the Nazi annexation of Austria in 1938 were strongly pro-Hitler. There are also the details of his first marriage and his two children and his divorce and remarriage to an earlier love from the 1920s that led him to leave the London School of Economics and take up a position at the University of Chicago at the end of the 1940s.
But, of course, the general focus throughout the book is on the evolution and development of Hayek’s ideas, their impact and controversies in the context of the times, and how the historical circ*mstances through which Hayek was living influenced and shaped the forms and directions of his scholarly writings. Hayek served in the Austrian army, seeing action on the Italian front during the First World War. Returning to Vienna in November 1918, he entered the University of Vienna and earned two advanced degrees, one in law in 1921 and another in political science in 1923. Those interested in economics did so through the law faculty at the University of Vienna, during which he studied with one of the earlier leading members of the Austrian School of Economics, Friedrich von Wieser, who Hayek once referred to as his “revered teacher.”
Ludwig von Mises’s influence on Hayek
But the most important and lasting intellectual influence on Hayek as an economist was Ludwig von Mises, who was already famous as a prominent monetary theorist, the author of The Theory of Money and Credit (1912). Mises had also served in the Austrian army during the war, mostly on the Russian front. At the end of the war, Mises returned to his duties as a senior economic analyst at the Vienna Chamber of Commerce and the head of a temporary office charged with sorting out prewar debt obligations left over from the Austro-Hungarian Empire. Needing a job after leaving the university, Hayek approached Mises with a letter of recommendation from Wieser. Given that Wieser spoke so highly of him, Mises asked why he had never seen him in his seminar at the university. In later years, Hayek would say that he had sat in one of Mises’s lectures but had not found his style appealing.
Nonetheless, Mises’s influence not only shaped Hayek’s theoretical orientation on monetary and business cycle theory, upon which Hayek constructed his own “Austrian” contributions in this field in the late 1920s and 1930s. It was while Hayek was working on a day-to-day basis with Mises that there appeared Mises’s second important work, Socialism: An Economic and Sociological Analysis (1922). Mises’s critique of socialist central planning and the impossibility for a rational economic order without private ownership of the means of production, free markets, and a competitively based price system, was the starting point for all of Hayek’s later own writings on the limits, contradictions, and impossibilities of a centrally planned economy. As Hayek would sometimes say it, starting from Mises’s premises, he would usually reach the same conclusions as his mentor, only by a slightly different chain of reasoning.
Austrian Institute for Business Cycle Research
After a 15-month visit to America in 1923–1924, during which he acquired knowledge of the then cutting-edge statistical methods used in business cycle research, Hayek returned to Vienna. With academic positions few and far between in postwar Austria, Mises helped arrange and finance the establishment of the Austrian Institute for Business Cycle Research, which opened in January 1927, with a 28-year-old Friedrich Hayek as its director and Mises as acting vice-president. Within a short period of time, Hayek’s institute publications and collaborations with the economic research department of the League of Nations in Geneva, Switzerland, had won the Austrian Institute wide and respected recognition.
While a chapter is devoted to Hayek’s time as director of the institute from 1927 to 1931, I found it peculiar that there wasn’t more detail on the institute’s internal workings or multiple activities under Hayek’s watch. Having personally gone through the Austrian Institute’s archives in Vienna, the board meeting minutes offer a fuller understanding than the chapter presents. Also seemingly unreferenced are materials about the Austrian Institute’s activities during this period that may be found in the archives of the old League of Nations in Geneva. This includes summary minutes of league-sponsored conferences at which Hayek was in attendance and at which he sometimes delivered reports about the economic situation in Austria during the early part of the Great Depression.
Also, I found it rather amusing, going through the internal documents, that under Hayek’s leadership all the institute’s daily and monthly records and accounts were kept in blissful “spontaneous” disorder. Only when Oskar Morgenstern took over as director with Hayek’s departure for the London School of Economics in late summer 1931 did all the institute’s files and paperwork demonstrate strictly “planned” and meticulous order and arrangement; this continued until 1938, when, following the Nazi occupation and annexation of Austria, the institute was absorbed as a branch of the German Institute for Business Cycle Research headquartered in Berlin. Morgenstern, who was on a lecture tour in America at the time of Hitler’s takeover of Austria, found himself exiled in the United States, ending up with a teaching position at Princeton University.
Hayek at the London School of Economics
Hayek had published “Intertemporal Price Equilibrium and Movements in the Value of Money” (1928) and Monetary Theory and the Trade Cycle (1929), but his opening to the international stage of professional recognition emerged out of a series of lectures that he was invited to deliver at the London School of Economics in early 1931, and which were published later that year as Prices and Production. This slender volume of less than 115 pages, and a lengthy two-part review essay by Hayek that appeared in late 1931 and early 1932 that critically dissected John Maynard Keynes’s recently published two-volume work, A Treatise on Money, turned this 31-year-old Austrian economist into a “player” on the stage of monetary and business cycle theory and policy.
On the basis of those lectures, Hayek was offered a visiting position at the London School of Economics that soon became a permanent one that he held until the late 1940s. With his “Austrian”-oriented colleague at the LSE, Lionel Robbins, the school soon became a center of higher learning not only with diverse economic perspectives but with a strong dose of Austrian economics as a counterweight to both the budding Keynesian economics at Cambridge University and the general intellectual drift toward socialism.
Caldwell and Klausinger tell well the stories and events of Hayek’s debates and seeming defeats at the hands of those who challenged his attempt to defend the Austrian theory of the business cycle on the basis of the “Austrian” capital theory of Eugen von Böhm-Bawerk, with its emphasis on a series of time-stages through a period of production. As critics raised points on the logic of Austrian capital theory or the greater complexity of production processes than Hayek first approximated in Prices and Production, he was driven to devote nearly a decade of time and writing in an attempt to successfully recast Austrian capital theory that culminated in his The Pure Theory of Capital (1941). But the upshot was that reviewers, even those sympathetic to Hayek’s purpose, were dissatisfied and unconvinced by his final product. And neither was Hayek, who gave up any further serious work on the topic.
Hayek’s turn to economics and knowledge
Instead, Hayek followed other strands of thought that had emerged out of his work on business-cycle theory, the first important product of which was his 1937 article, “Economics and Knowledge.” In fact, in later years, Hayek stated that this essay was the starting point for virtually all his later thinking and writings on both economics and the wider questions of social and political philosophy and institutional order.
Again, the authors of the book under review do an exceptional job in tracing out in detail how Hayek had come to the ideas first expressed in a particular way in “Economics and Knowledge.” Basically, Hayek asked, what if we assume that market participants do not initially possess full or sufficient knowledge to always correctly buy and sell at market-clearing or equilibrium prices? What if, instead, we assume, as is the case in the real world, knowledge is imperfect and divided and dispersed with limited and different content in the minds of each person in the system of division of labor? How could it ever come about that the actions of all these multitudes of suppliers and demanders on the two sides of the market would or could ever come to know what they needed to know to coordinate what they, respectively, did with all the others in a world of constantly changing circ*mstances?
Hayek and socialist central planning
In the 1930s, Hayek was also drawn into the debates then current in Great Britain and many other parts of the world that with the coming of the Great Depression, the “failure of capitalism” had been demonstrated. It was now time to transform society into socialist planned economies, under which scientific methods of engineering and technology could be brought to bear for successful, centralized direction of the social order through “expert”-guided government command and control.
In 1935, Hayek edited Collectivist Economic Planning, a collection of essays, including a seminal one on economic calculation under socialism by Ludwig von Mises. The book also contained introductory and concluding chapters by Hayek summarizing and extending the discussion on the limits and impossibilities of socialist centralized planning. Part of the socialist response to all this was the proposal for a form of “market socialism,” under which a central planning agency would set and periodically change prices for inputs and outputs in a socialist economy that would be used by the government managers in state-owned enterprises to guide their internal production decisions. In 1940, Hayek responded to these proposals with a devastating critique of the idea of a socialism playing with markets and prices.
Hayek and The Road to Serfdom
These were preludes to what became the idea for a far wider project in which Hayek would discuss the intellectual history, the reasoning behind, and the fundamental errors and impossibilities in the idea of a centrally designed, planned, and directed society, supposedly far superior to the random and chaotic development of market societies under which individuals pursued their own purposes in voluntary associations and trades with others. Part of this project appeared as published essays eventually put together in Hayek’s The Counter-Revolution of Science (1952).
Another part of the project was published in a form that became Hayek’s most famous “popular” work, The Road to Serfdom (1944). As an Austrian by birth, though a British citizen since 1938, Hayek was not accepted for any active role in the war against Nazi Germany by the British government. So, instead, he decided that his contribution to the defeat of totalitarianism would be a book that demonstrated how and why government control and planning of economic activities necessarily carried with it the danger of loss of personal, civil, and political freedom in its many facets.
Furthermore, he would show how and why Nazism was not a wicked and dictatorial form of capitalism but rather had its origins in the wider idea of political, social, and economic collectivism that had emerged and gained dominance in Imperial Germany in the decades before the First World War. Thus, he entitled one of the chapters in The Road to Serfdom, “The Socialist Roots of Nazism.”
In a devastating chapter, he answered the question, “Why the Worst Get on Top” in collectivist societies. In essence, the determination to impose, implement, and attempt to bring about the desired outcome of “the Plan” requires government agents who increasingly have few or no scruples in seeing that what those above them in the centralized planning authority command want to be done is done, including the how and when and by whom. The planned society needs enforcers who end up viewing the ordinary citizens as expendable cogs in the wheel in pursuit of the planning goals.
The book was an almost immediate success, not only in Great Britain but even more so in the United States once an American edition appeared. This was helped by a condensed version that appeared in Reader’s Digest and a cartoon version that was published in the pages of Look magazine. After the war ended in 1945, Hayek went on a grand book tour around the United States. The book was viewed as one of the most important and trenchant demonstrations on the inescapable dangers from following a socialist road that could lead to the type of tyranny that the Allies had been fighting against in the Second World War. His public addresses and interviews around America only reinforced this.
The use of knowledge in society
That same year there also appeared one of Hayek’s most famous articles, “The Use of Knowledge in Society.” Here Hayek answered his question from 1937 concerning how the decentralized and different knowledge existing in dispersed fragments in different people’s minds can be successfully coordinated for interpersonal betterment and efficiency. The answer is the competitive market price system.
It is not necessary for everyone to know everyone else in society or what all those others know in their corners of the marketplace. It is sufficient for market prices to serve as the requisite shorthand to inform anyone, anywhere, what consumers want, and the value they place on being able to buy them. And the same applies on the supply-side of the market. Prices inform competing and rival entrepreneurs what values other potential employers place on the various means of production for the manufacture of alternative goods and services that consumers want as expressed in the prices for the finished items those inputs can assist in producing. No central planners could ever succeed in discovering or utilizing all that decentralized knowledge in the world, but the market price system effectively organizes and integrates this knowledge for the mutual benefit of all of humanity.
The Mont Pelerin Society
Through his long-established intellectual associations with like-minded, market-oriented liberals in Western and Central Europe, plus the additional contacts with similar thinking people in America, Hayek developed the idea of an international association of those concerned with the drift toward various forms of collectivism. The authors offer an excellent and
detailed account of how Hayek arranged the funding and the organizational structure and the invitations to the interested participants that finally culminated in the first meeting of what came to be called the Mont Pelerin Society in April 1947 at a hotel atop Mont Pelerin in Switzerland.
Bruce Caldwell recently edited for publication the transcripts of that first meeting. Brought together were many of the leading free-market-oriented economists, journalists, and interested businessman from both sides of the Atlantic. It was a far more eclectic group than has often been suggested, from consistent advocates of laissez faire (Ludwig von Mises) to proponents of various forms of interventionism and redistribution.
What they all shared in common, nonetheless, was a strong belief that a free and prosperous society had to be based on the institutions and protection of private property, open competition, and wide freedom of choice in people’s roles as consumers and producers. They may have differed on what and how far some forms of intervention might be introduced into a market system without threatening its foundations. But they all opposed the free market’s opposite: the centrally planned society. (See my review, “At the Beginning: The Mont Pelerin Society, 1947,” Future of Freedom, May 2022.)
Hayek’s divorce and move to Chicago
Most of the remainder of the biography revolves around the disruptive events surrounding Hayek’s decision to divorce his wife. Not long after the end of the war, Hayek had made a trip to Vienna, and made contact again with his earlier love from the 1920s; they had kept in touch over the years. They concluded they wanted to be together, but this necessitated divorces by both of them. The sequence of events, as the authors recount them, were difficult, acrimonious, and bitter. It resulted in many of Hayek’s long-time English friends, including Lionel Robbins, turning against him due to their interpretation of his behavior toward his wife.
It finally came to a head with Hayek arranging a new position for himself at the University of Chicago, not in the economics department, but with the Committee on Social Thought. But before taking up that position, Hayek spent the 1949–1950 academic year teaching at the University of Arkansas, due to the more liberal divorce laws in Arkansas that freed him up to remarry.
Friedrich Hayek lived until 1992. The rest of his story and his role in classical-liberal and free-market ideas in the second half of the twentieth century will be the subject of volume two of this amazing and monumental biography of one of the great voices for liberty in the last 100 years. The reader waits for it with impatient anticipation.
This article was originally published in the February 2023 edition of Future of Freedom.
