Friedrich Hayek

Friedrich August von Hayek (Vienna, May 8, 1899 - Freiburg, March 23, 1992) was an Austrian economist, jurist and philosopher, winner of the Nobel Prize in Economics in 1974.

Exponent of the Austrian School, he was a disciple of Friedrich von Wieser and Ludwig von Mises. He is known mainly for his defense of liberalism and for his criticisms of the planned economy and socialism which, as he argues in The Road to Serfdom , he considers a danger to individual freedom that leads to totalitarianism. Some affirm that he would have defended dictatorships as a means of establishing liberal measures, although there are opinions that maintain the contrary.

His work, which includes some 130 articles and 25 books, is not limited solely to economic science, but deals with everything from political philosophy to legal anthropology or history, epistemology, as well as everything related to the social sciences in general.

Life

Friedrich Von Hayek was born in 1899 into a family of intellectuals in Vienna, then the capital of the Austro-Hungarian Empire. He participated in the First World War and upon returning he began his studies in legal and social sciences at the University of Vienna, he studied philosophy and economics. According to himself, it was the experience of the war that led him to become interested in the social sciences, despite the fact that his family influences could have led him more easily towards the natural sciences. In 1921 and 1923 he received his doctorate in law and in economic policy.

During those years, Hayek, like most of his peers, was a Fabian socialist who believed in state intervention to improve the social order and disliked the anti-socialist and liberal positions of his professor Ludwig von Mises, a leading economist. of the Austrian School. After reading his book Socialism , he became his disciple. For five years he worked under his direction at the Abrechnungsamt (Accounts Office) in charge of unblocking and collecting accounts that other states had with the government of the newborn Austria. In 1927, he became director of the Institute for the Analysis of the Business Cycle, created by the two of them.

In 1931 (and until 1950), thanks to Lionel Robbins, also a student of von Mises, he went to London where he held a professorship at the London School of Economics. There he developed a strong rivalry with Keynes and displayed belligerence against his views. But during the 1930s, it was Keynes's ideas that prevailed and also after the Second World War, social democratic or socialist governments triumphed, with which Hayek lost relevance and much of the fame he had gained as a young man.

The confrontation between the two began when Hayek wrote an unfavorable article on Keynes's book A Treatise on Money and Keynes replied. Later, Keynes took the initiative and asked Piero Sraffa to write a critical report on Hayek's Prices and Production, which he replied to. In 1936, with the publication of General Theory , Keynes changed his position with respect to his previous treatise and proposed a completely new theory. With this he achieved that his thesis were the ones that prevailed. In response to this work, Hayek did not review it, trying to avoid the bitter controversies he had previously raised and assuming Keynes's change in thinking that his new position would not last. Keynes was scathing in commenting on Hayek's book Prices and Output, which he called "one of the most dreadful imbroglioes I have ever read". He ignored the new Keynesian idea of economic aggregates. since it started from premises radically different from his own. He then developed an outline of the Austrian theory of the cycle in a work that would be titled The pure theory of capital where he did not finish developing a dynamic theory of the cycle. Faced with the growing popularity of Keynesianism, Hayek was confident that Keynes's latest objections to his own theory would influence his heirs and that his ideas would not lead to anti-liberal policies because he himself was socially and politically liberal, thus leaving the cycle problem. Austrian economic model (which would imply a revision of the Keynesian macroeconomic paradigm) to be solved by other economists, which would not happen during their lifetime and would only begin to be considered much later (see Roger Garrison and Adrián Ravier's attempted ordinal resolution)..

After this, Hayek left the technical issues of economics to pursue more philosophical or social issues.

In 1949, he divorced his wife to marry an old love from his youth, which caused many of his English friends, like Robbins, to leave him (although years later they reconciled). This fact decided him to emigrate to the United States, to the University of Chicago, where he was not very well received by the Department of Economics, due to the great methodological differences between the Anglo-Saxon School and the Austrian School from which he came.. During these years, he began to have health problems, deafness, and also depression that kept him from public life.

In 1947, Hayek actively participated in the founding of the Mont Pelerin Society, financed by the Swiss businessman Albert Hunold. It brings together Swiss industrialists and bankers to finance the think tank. The international meetings are financed, initially, by the Relm and Earhart foundations, this society will bring together monetarists such as Milton Friedman, members of the Public Choice school such as James M. Buchanan, as well as personalities associated with the neo-Austrian current..

In 1962 he returned to Europe, to the University of Freiburg, where he would stay until, upon retiring in 1969, he returned to his native Austria, to the University of Salzburg until he retired in 1977.

In 1974 he was awarded the Bank of Sweden Prize in Economic Sciences in memory of Alfred Nobel, shared with Gunnar Myrdal, for his work in the field of monetary theory and economic fluctuations and analyzes of the interdependence of the economy, society and institutions. From then on his health improved and he began a great activity that would take him to travel all over the world exposing his ideas. In the 1980s his ideas would play an important role during the government of Margaret Thatcher. In this regard Hayek said that "freedom of choice should be more practiced in the market instead of the ballot box, free choice can at least exist under a regime of dictatorship but not under a democracy without limits that cannot be limited&# 3. 4;.

He also opposed the neoclassical (also known as neoclassical-Walrasian) paradigm, which still defines academic mainstream today. He is also contrary to the liberal economists who are supporters of the theory of general equilibrium (TEG) like Debreu. He defended the thesis according to which a planning calculation was impossible without a market (which assigns prices) and that an economic system that is not based on the free market and free competition will never be optimal from the point of view of the distribution of resources. The Francisco Marroquín University honored him in 1977 with an Honoris Causa doctorate for his contribution to individual freedom.

He died in 1992 in Freiburg, and was buried in Vienna.

Recurring themes in his work

Theories on the Business Cycle

Hayek's contributions on business cycles are considered his most important contribution to economics, made during his youth. He took the foundations of his theory from Mises's Theory of Money and Credit and made his own interpretation of the business cycle, which became known as the Austrian Business Cycle Theory. We can consider as the most important works of this stage Prices and production of 1931, which was a compendium of the lectures he had given at the London School of Economics, Profits, interest and investment from 1939 and The Pure Theory of Capital from 1941. Jeffrey Sachs concludes that Hayek's claim that high taxes and a large welfare state are contrary to dynamic economic development, the central thesis of his book way of serfdom, was empirically untenable. Giving as an example that despite high taxes and social spending, Scandinavian countries performed better on most indicators, including per capita income, than states with relatively low taxes and social spending like Somalia or Haiti.

Hayek said that the origin of the economic cycle occurred from the credit granted by the central bank and the artificially low interest rates. The expansion of credit due to low interest rates makes businessmen invest in very risky projects and in which they would never have invested with higher interest rates, and causes poor coordination between production, consumption, and inflation. First there is a big expansion, but then a big recession until the economy adjusts again.^{[citation needed]} The process would be as follows: the rise in prices resulting from a Expansion leads to a fall in real wages, which induces the substitution of labor for machines and a general reduction in production periods, and consequently interest rates rise, investment falls and the economy suffers a collapse; conversely, in a depression the rise in real wages reactivates investment and labor is replaced by machinery and production periods are lengthened. According to this argument, a rising level of consumption after a certain point reduces investment rather than increasing it, and vice versa for a falling level of consumption.

Impossibility of socialism due to lack of market prices

Friedrich Hayek in 1981

The formulator of the idea that socialism is not possible due to the non-existence of market prices was Mises in an article from 1920, which he later expanded in 1922 with the book Socialism, an Economic and Sociological Analysis , a book that made a strong impression on Hayek, still a student. Hayek, from the beginning, took a great deal of interest in this topic and developed Mises's arguments in various articles during the 1930s. These articles were brought together in a book published in 1935 entitled Collectivist Economic Planning: Critical Studies on the Possibilities of socialism One can also highlight The use of knowledge in society from 1945 and Individualism and economic order, which includes essays published in 1948.

The arguments of his theories are that the objectives of socialism are to replace the free market with a planned economy. This type of economy needs an institution that elaborates a central plan that determines everything that must be produced, an institution that Hayek called the Central Planning Board. This board should have broad powers to intervene in economic matters, but the problem would be that when this board began to draw up the production plan, it would find that it had no guide or reference to indicate what production possibilities were economically feasible, since there would be no market prices and without these prices there is no guide or way of knowing what should be produced. Although later this argument had to be refined before the Lange-Lerner solution that proposed an iterative procedure of two rules, by which a planned economy could reach the same solution as the free market, from the intervention of a Central Planning Board.

According to Hayek, market prices are the transmitters of a quantity of dispersed economic information and would serve to share and synchronize a lot of personal knowledge; therefore, trying to manipulate the market entails a problem of lack of information. An efficient exchange and use of resources would only be achieved through the price mechanism.

Milton Friedman described himself as "a big fan of Hayek, but not because of his finances." «I think that 'Prices and production' is a very flawed book and 'Pure Theory of Capital' it was riddled with contradictions".

According to David Held, Hayek argued for restricting government activities to the bare minimum of an "ultraliberal" "The Constitution of Liberty," which was a request for a minimal State. Economist John Kenneth Galbraith sees this as an anachronistic throwback of Hayek to the world of ideas of 20th century laissez-faire liberalism XIX.

Contradiction between planned economy and individual freedom

Hayek not only thought that socialism and communist collectivization implemented by the State were unfeasible due to the lack of market prices, but also, on a more philosophical and political plane, they were incompatible with individual freedom and necessarily led to the establishment of totalitarian regimes, since those who would come to power would always be the worst elements of society.

Regarding individual freedom Hayek in a letter to The Times in 1978, would say that there have been many cases of authoritarian governments in which personal freedom is more secure than it is in many democracies. Going so far as to put Portugal under the Salazar regime as an example of individual freedom: "I doubt that there is today in any democracy in Europe or in the continents of Africa, South America and Asia (with the exception of Israel, Singapore and Hong Kong) a personal freedom so well protected than it was then in Portugal -under the Salazar dictatorship-.

Hayek's criticisms were not directed only towards planned economy systems, but in general towards any state intervention in the economy, which for him meant progressive socialism. Hayek developed this in The Road to Serfdom , a book published in 1944, which he wrote to counter the opinions that Nazism was the sole consequence of the German people, and that "Germanism" was to blame.

In The Fundamentals of Liberty of 1960, he laid out his philosophical agenda: deregulate, privatize, cut unemployment programs, eliminate housing subsidies and rent control, reduce social security expenses and finally limit union power. The State must not ensure any type of redistribution, especially based on a criterion of "social justice"

Hayek visited Chile in the 1970s and 1980s during the military regime of General Augusto Pinochet and received the title of honorary president of the Center for Public Studies. According to Hayek's colleague Corey Robin: “Hayek admired Pinochet's Chile so much that we decided to hold the Mont Pelerin Society meeting in Viña del Mar, a coastal town where the coup against Allende was planned. In 1978 he went so far as to affirm in The New York Times that "personal liberties were more extensive under Pinochet than under Allende".

Hayek argued that without private property, a dependence on the State is created so great that it practically turns us into slaves. The state should have so many powers that it would necessarily have an impact on society. In a planned society, there must be someone who exercises power, who controls the state. To impose common objectives on a society, even if you want to do it in a well-intentioned way, it is necessary to impose these objectives on people who will not agree. To impose it, coercion and repressive measures must be taken in case they do not accept the central authority, therefore the leader will be forced to make "unpleasant" decisions such as arrest or murder. Consequently, those who would come to power would be those who were willing to take these measures. French philosopher Alain de Benoist, founder of the "new right" (Nouvelle Droite) wrote a harsh critique of Hayek's work. In it he argues that Hayek's cases of the idea of & # 34;spontaneous order & # 34; they are flawed and free market ideology has, as Hayek put it, authoritarian and totalitarian implications.

Interest in Hayek's work was revived in the 1980s and 1990s with the rise of Conservative governments in the United States under Ronald Reagan, and in the United Kingdom under Margaret Thatcher.

Spontaneous order of the market, law and morality

According to Hayek, the institutions of society, such as laws, markets or the Government, even the price system or language, are not an invention or human design to respond to certain needs, but are the result of a spontaneous order that he considered a result of human action, but not of his design. That is why he defended that there should be no interference in spontaneous individual action and considered that the idea of rationalism of trying to consciously design the world was a threat to civilization, since it was precisely born from the spontaneous order. In this regard it has been criticized by some authors, including Karl Polanyi, as a utopian vision due to the suggestion, among others, that "in the past, it has been submission to the impersonal forces of the market that has made possible the development of civilization." According to Polanyi, the development of civilization happens, on the contrary, when the social forces, including the functioning of the economy, are organized according to common interests.

Hayek concluded that the emergence and development of the moral norms that allowed the emergence and growth of extensive societies was the product of evolutionary chance still in progress, and considered, then, the somewhat spontaneous order that allows such societies, something unattainable for human reason, not in the sense of not understanding its operation, but in that of controlling its direction, for which reason he rejected all constructivist rationalism that claimed to guide or rationally and completely remake such natural evolution of the social order.

It would be necessary, for Hayek, the coexistence of the primitive collectivist moral characteristic of the small and very cohesive groups that survive within the extensive society, with its individualistic evolutionary moral opposite that "guarantees" the successful functioning and growth of society extensive human. He defined socialism as an attempt to impose the first over the second, and deduced from this that the search for such a social order would express an involutive or retrograde aspiration, and its achievement would imply the impossibility of sustaining the large and growing human population.

On this subject we could highlight the books El orden sensorial from 1952, a psychological book in which he defends that the human mind, like the market or society, are phenomena so complex that they cannot be explain or predict its operation; Law, Legislation and Freedom, which appeared in three volumes in 1973, 1976 and 1979, where it addresses the issue of the spontaneous appearance of legal and moral norms, and Fatal arrogance from 1988, in which he attributes the birth of civilization to private property.^{[citation needed]}

Hayek has been criticized for his support for dictatorial regimes, in this regard he would declare to the Chilean newspaper El Mercurio on April 12, 1981, in support of the Pinochet regime: "My personal preference is in favor of a liberal dictatorship and not to a democratic government where all liberalism is absent”. In this interview in the newspaper El Mercurio, Hayek defined himself as an enemy of the welfare state and social justice and expressed concern about the discretionary powers of the State.

Support for authoritarian regimes and dictatorships would be a constant in Hayek, who maintained very clear positions regarding the justification of authoritarian governments. In 1962, he sent the dictator Antonio de Oliveira Salazar in Portugal a letter expressing his confidence that his book The Constitution of Liberty could be useful for the elaboration of a Constitution that could prevent the abuses of democracy. Later, he also expressed public support for the racist South African regime. In 1977, Hayek visited Argentina and Chile. Hayek would meet with the dictator Jorge Rafael Videla and with the member of the Military Government Junta, and with the future dictator Leopoldo F. Galtieri. In 1981, Hayek returned to Pinochet's Chile, granting two reports to the newspaper El Mercurio , where he deepened his analysis of democracies and dictatorships. “A dictatorship can be a necessary system for a transition period. Sometimes it is necessary for a country to have, for a time, one or another form of dictatorial power. As you will understand, it is possible for a dictator to rule liberally." And in the second interview, Hayek maintained that he "would prefer to temporarily sacrifice democracy when it could not guarantee freedom"..

Works