Friedrich Hayek

"I visited Chile some time ago and I found that the country is being governed by members of Friedman's seminar! ... The economic system is working marvelously and the recovery is extraordinary. I did not see the system of political control in enough detail to have a serious opinion about it, but I can say that the economy is much freer in comparison to what it had been for a very long time. I also think that the way in which Chile is covered by the international press is scandalous."

"Even in a society in which all the different interests were organized as separate closed groups, this would therefore lead merely to a freezing of the existing structure and as a result, to a gradual decline of the economy as it became progressively less adjusted to the changed conditions. It is therefore not true that such a system is unsatisfactory and unjust only so long as not all groups are equally organized. The belief of such authors as G. Myrdal and J. K. Galbraith that the defects of the existing order are only those of a transitory kind which will be remedied when the process of organization is completed, is therefore erroneous. What makes most Western economies still viable is that the organization of interests is yet only partial and incomplete. If it were complete, we would have a deadlock between these organized interests, producing a wholly rigid economic structure which no agreement between the established interests and only the force of some dictatorial power could break."

"Hayek is an economic (classical) liberal but a social conservative: a believer in respect for throne and altar. Social conservative Hayek can see Pinochet as a good thing: far better to have an authoritarian state that maintains the conservative moral order, if it can be persuaded to adopt laissez-faire economics, than it is to have a democracy that regulates the economy. Friedman, by contrast, hates and fears a government that prohibits use of recreational drugs in your home almost as much as he hates and fears a government that won't let you undersell your politically-powerful competitors. For Friedman, Pinochet is a bad--an aggressive, powerful military dictator--whose evil the Chicago Boys can curb by persuading him to adopt laissez-faire policies."

"In Modern times there have of course been many instances of authoritarian governments under which personal liberty was safer than under democracies. I have never heard anything to the contrary of the early years of Dr Salazar’s early government in Portugal and I doubt whether there is today in any democracy in Eastern Europe or on the continents of Africa, South America or Asia (with the exception of Israel, Singapore and Hongkong), personal liberty as well secured as it was then in Portugal. More recently I have 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. Nor have I heard any sensible person claim that in the principalities of Monaco or Lichtenstein, which I am told are not precisely democratic, personal liberty is smaller than anywhere else! That a limited democracy is probably the best possible known form of government does not mean that we can have it everywhere, or even that it is itself a supreme value rather than the best means to secure peace, a defensor pacis or instrument of peaceful change of government. Indeed our doctrinaire democrats clearly ought to take more seriously the question when democracy is possible."

"As dictators themselves have known best at all times, even the most powerful dictatorship crumbles if the support of opinion is withdrawn. This is the reason why dictators are so concerned to manipulate opinion through that control of information which is in their power."

"If we take Professor Hayek literally, a fascist dictatorship of some kind should be regarded as the necessary pre-condition (along with monetarism) of a ‘free society’."

"In my opinion it is a grand book. We all have the greatest reason to be grateful to you for saying so well what needs so much to be said. You will not expect me to accept quite all the economic dicta in it. But morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement."

"The Austrians place no value on democracy, recognizing that voters can make choices that undermine their notion of "reason," and therefore a liberal republic should not permit popular sovereignty to override the sanctity of private property and the principles of the minimal state. I recall vividly Hayek (who was a great economist but a poor policy analyst) commenting on the Pinochet overthrow of democratic government in Chile (Pinochet brought a gang of Chicago economists into town to implement the principles of laissez-faire markets, torturing and murdering thousands who had different ideas) commenting that he would prefer a [laissez-faire style] liberal dictatorship to an illiberal democracy."

"It was John Maynard Keynes, a man of great intellect but limited knowledge of economic theory, who ultimately succeeded in rehabilitating a view long the preserve of cranks with whom he openly sympathised. He had attempted by a succession of new theories to justify the same, superficially persuasive, intuitive belief that had been held by many practical men before, but that will not withstand rigorous analysis of the price mechanism: just as there cannot be a uniform price for all kinds of labour, an equality of demand and supply for labour in general cannot be secured by managing aggregate demand."

"I cannot help but protest in the strongest possible terms against the cartoon on page 3 of your publication of the 30th of December equating the present governments of Poland and Chile. It can only be explained by complete ignorance of the facts or by the systematically promoted socialist calumnies of the present situation in Chile, which I had not expected the F.A.Z. to fall for. I believe that all the participants in the Mont Pelerin Society conference held a few weeks ago in Chile would agree with me that you owe the Chilean government a humble apology for such twisting of the facts. Any Pole lucky enough to escape to Chile could consider himself fortunate."

"The responsibility for current world-wide inflation, I am sorry to say, rests wholly and squarely with the economists, or at least with that great majority of my fellow economists who have embraced the teachings of Lord Keynes. What we are experiencing are simply the economic consequences of Lord Keynes. It was on the advice and even urging of his pupils that governments everywhere have financed increasing parts of their expenditure by creating money on a scale which every reputable economist before Keynes would have predicted would cause precisely the sort of inflation we have got. They did this in the erroneous belief that this was both a necessary and a lastingly effective method of securing full employment."

"I come finally to what is really my only serious criticism of the book. You admit here and there that it is a question of knowing where to draw the line. You agree that the line has to be drawn somewhere [between free-enterprise and planning], and that the logical extreme is not possible. But you give us no guidance whatever as to where to draw it. In a sense this is shirking the practical issue. It is true that you and I would probably draw it in different places. I should guess that according to my ideas you greatly underestimate the practicability of the middle course. But as soon as you admit that the extreme is not possible, and that a line has to be drawn, you are, on your own argument, done for since you are trying to persuade us that as soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice."

"Hayek says that the problem with classical liberalism was that it was not pure enough. The government needed to restrict itself to establishing the rule of law and to using antitrust to break up monopolies. It was the overreach of the government beyond those limits, via central banking and social democracy, that caused all the trouble. A democratic government needs to limit itself to rule of law and antitrust–and perhaps soup kitchens and shelters. And what if democracy turns out not to produce a government that limits itself to those activities? Then, Hayek says, so much the worse for democracy. A Pinochet is then called for to, in a Lykourgan moment, minimalize the state."

"It would be a body charged with creating that framework of traditional and moral rules which any Western democracy with a long history possesses as a result of its history. Such a background is lacking in these new states and is needed in order to make government function."

"Curiously enough, I will say, Keynes was rather my type of mind, not the other. He certainly could not have been described as a master of his subject, as I described the other type. He was an intuitive thinker with a very wide knowledge in many fields, who had never felt that economics was weighty enough to — He just took it for granted that Marshall's textbook contained everything one needed to know about this subject. There was a certain arrogance of Cambridge economics about — They thought they were the center of the world,and if you have learned Cambridge economics, you have nothing else worth learning."

"As a man with a great many ideas who knew very little economics. He knew nothing but Marshallian economics; he was completely unaware of what was going on elsewhere; he even knew very little about nineteenth-century economic history. His interests were very largely guided by esthetic appeal. And he hated the nineteenth century, and therefore knew very little about it — even about the scientific literature. But he was a really great expert on the Elizabethan age."

"It would be unfair to blame Lord Keynes too much for the undoubted harm his theories have done, for I am convinced from personal knowledge that had he lived he would have been one of the leaders in the fight against the postwar inflation. Yet he bears in a great measure the responsibility for it."

"It is not surprising that Mr. Keynes finds his views anticipated by the mercantilist writers and gifted amateurs: concern with the surface phenomena has always marked the first stage of the scientific approach to our subject. But it is alarming to see that after we have once gone through the process of developing a systematic account of those forces which in the long run determine prices and production, we are now called upon to scrap it, in order to replace it by the shortsighted philosophy of the business man raised to the dignity of a science."

"Hayek’s opposition to organized labour was expressed through his support for dictatorships. … The contemporary erosion of political democracy can be consistently defended from a Hayekian position as necessary for the protection of individual liberty, i.e. private property and limited interference by government in the use of that property. For those who support greater democracy, perhaps it is necessary first to understand how antithetical free market capitalism is to democracy. Private property under capitalism implies ownership of wealth and control over the production of it. Once the production and ownership of wealth is removed from democratic control, its owners can use it as a weapon against those who have opposing visions about how it may be used."

"Hayek stressed the danger of hubris, of thinking you know more than you do, of imposing your idea of the world on others, and the importance of letting those closest to a problem use their local, tacit knowledge to help resolve it. He should have done the same here: he should have let the Chileans determine the level of their government’s involvement in economic life, using their own democratic means, even if that meant going further along the road towards socialism than he would have preferred."

"In a nation where there is not yet a tradition of compromise, where there is no common conception of the tasks of government, almost any attempt to put upon the government a great many tasks is bound to lead to dictatorial regimes."

"Well, I would say that, as long-term institutions, I am totally against dictatorships. But a dictatorship may be a necessary system for a transitional period. At times it is necessary for a country to have, for a time, some form or other of dictatorial power. As you will understand, it is possible for a dictator to govern in a liberal way. And it is also possible for a democracy to govern with a total lack of liberalism. Personally I prefer a liberal dictator to democratic government lacking 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. And during this transition it may be necessary to maintain certain dictatorial powers, not as something permanent, but as a temporary arrangement."

"Hayek saw himself as developing a ‘scientific subjectivism’ and a scientific theory of spontaneous social order. If physical scientists can create the physical conditions for molecules to line up spontaneously to form a crystal, why not support a dictator who seems to be willing to impose the scientifically objective social conditions—i.e., Hayek’s rule of law—that shape a liberal market order, with all its attending benefits? If the task of the political philosopher is ‘to show possibilities and consequences of common action, to offer comprehensive aims of policy as a whole which the majority have not yet thought of’, and if the beneficial possibilities and consequences of free markets are held with reasonable certainty, what barriers should be allowed to stand in the way?"

"Comprehending the role played by the transmission of information (or of factual knowledge) opens the door to understanding the extended order. Yet these issues are highly abstract, and are particularly hard to grasp for those schooled in the mechanistic, scientistic, constructivist canons of rationality that dominate our educational systems - and who consequently tend to be ignorant of biology, economics, and evolution."

"There is the important point that an order arising from the separate decisions of many individuals on the basis of different information cannot be determined by a common scale of the relative importance of different ends. […] Here, however, it is appropriate to discuss in a general way the advantages of the differentiation that an extended order makes possible. Freedom involves freedom to be different – to have one's own ends in one's own domain; yet order everywhere, and not only in human affairs, also presupposes differentiation of its elements. Such differentiation might be confined merely to the local or temporal position of its elements, but an order would hardly be of any interest unless the differences were greater than this. Order is desirable not for keeping everything in place but for generating new powers that would otherwise not exist. The degree of orderliness – the new powers that order creates and confers – depends more on the variety of the elements than on their temporal or local position."

"So far as we know, the extended order is probably the most complex structure in the universe - a structure in which biological organisms that are already highly complex have acquired the capacity to learn, to assimilate, parts of suprapersonal traditions enabling them to adapt themselves from moment to moment into an ever-changing structure possessing an order of a still higher level of complexity."

"It is no accident that many abstract rules, such as those treating individual responsibility and several property, are associated with economics. Economics has from its origins been concerned with how an extended order of human interaction comes into existence through a process of variation, winnowing and sifting far surpassing our vision or our capacity to design."

"To understand our civilisation, one must appreciate that the extended order resulted not from human design or intention but spontaneously: it arose from unintentionally conforming to certain traditional and largely moral practices, many of which men tend to dislike, whose significance they usually fail to understand, whose validity they cannot prove, and which have nonetheless fairly rapidly spread by means of an evolutionary selection — the comparative increase of population and wealth — of those groups that happened to follow them."

"This evolution [of extended order] came about, then, through the spreading of new practices by a process of transmission of acquired habits analogous to, but also in important respects different from, biological evolution. I shall consider some of these analogies and differences below, but we might mention here that biological evolution would have been far too slow to alter or replace man's innate responses in the course of the ten or twenty thousand years during which civilisation has developed - not to speak of being too slow to have influenced the far greater numbers whose ancestors joined the process only a few hundred years ago."

"In brief the Austrian theory of the business cycle was never refuted or even rejected at the London School, but simply forgotten despite the efforts of Hayek and subsequently Lachmann (as noted below) to improve the theory (Hayek, Profits, Interest, and investment [1939; reprint; New York: Augustus M. Kelley, 1969]). With the Keynesian revolution, macroentities had replaced the action of individuals. Subjectivism and individual causation had been superseded by functional relations among objectified aggregates, which had few if any real world referents in the actions of economizing individuals. A whole tradition transplanted to British soil vanished. When Lachmann had arrived in London during the early 1930s, everybody was a Hayekian, but by the beginning of World War II the only consistent and thoroughgoing Hayekians left were Lachmann and Hayek himself."

"For Hayek, the causes of the Depression lay in earlier central bank policies of cheap money, which resulted in large-scale misallocation of capital. Because no central authority could grasp the shifting pattern of relative scarcities and prices, only the market could determine the right allocation. Accordingly, believing that misguided investments had to be liquidated, Hayek argued in the 1930s for policies that were more contractionary than those that were actually pursued. The task of government was to get out of the way and let the process of adjustment run its course. If they had been adopted while the crash was under way, Hayek’s prescriptions would have made the Depression even worse than it proved to be – a fact he later admitted. But he never accepted Keynes’s core insight that large-scale economic discoordination could be the result of the workings of the market itself. For him it was always government intervention that accounted for market disequilibrium. More sceptical as well as more radical in his turn of mind, Keynes questioned the self-regulating powers of the market. His work on the theory of probability disclosed insuperable gaps in our knowledge of the future; all investment was a gamble, and markets could not be relied on to allocate capital rightly. There were booms and busts long before the emergence of modern central banking. Left to its own devices, the free market can easily end up in a dead end like that of the 1930s."

"Very few people these days know the works of the Mises-Hayek school; unfortunately, I am old enough to have been an early follower of Professor Hayek, and even translated one of his books, and there is nothing like having to translate a book, particularly from the German language, to force you to come to grips with an argument."

"A few weeks ago, a journalist devoted a substantial part of a profile of yours truly to my failure to pay due attention to the "Austrian theory" of the business cycle—a theory that I regard as being about as worthy of serious study as the phlogiston theory of fire."

"The question of the value of Hayek’s work in technical economic theory from the middle 1920s through early 1940s is one over which there is considerable dispute in the academic economic community. Some, such as contemporary Austrian economists Roger Garrison, Mark Skousen, and Gene Callahan, consider this work to be of vital, continuing relevance. Others, such as Nobel Prize winners Milton Friedman, James Buchanan, and Ronald Coase, while they have the highest opinion of Hayek, do not consider his work in technical economic theory to be of much worth."

"Professor Mises and Dr. Hayek have advanced theories which, though they fall into the general category of monetary explanations, yet seem altogether free from those deficiencies which have marked monetary explanations in general. They explain the effects of fluctuations in the supply of money not so much in terms of fluctuations of the general price level as in terms of fluctuations of relative prices and the consequent effects on what may be called the ‘time-structure’ of production."

"Knowledge is one of the scarcest of all resources. Glib generalities abound, but specific hard facts about particular places and particular things at particular times that are relevant to economic decisions are something entirely different and much more scarce. In some respects, governments are better able to assemble vast amounts of knowledge, but the kind of knowledge involved is often in the form of statistical or verbal generalities known as “expertise,” which is no substitute for the kind of concrete knowledge that someone in the middle of a particular economic situation has. Just picking the right location for a particular business in a particular community can be the difference between profits and bankruptcy, even though that kind of knowledge may not be exciting from an intellectual standpoint. Experts may indeed have far more knowledge than the average amount of knowledge among individuals in the general population but the total amount of knowledge among millions of people in the general population vastly exceeds the total knowledge that any group of experts can assemble."

"Knowledge and insight need not be technological or scientific for it to be economically valuable and decisive for the material well-being of the society as a whole. Something as mundane as retailing changed radically during the course of the twentieth century, revolutionizing both department stores and grocery stores— and raising the standard of living of millions of people by lowering the costs of delivering goods to them."

"Knowledge is one of the most scarce of all resources and a pricing system economizes on its use by forcing those with the most knowledge of their own particular situation to make bids for goods and resources based on that knowledge, rather than on their ability to influence other people in planning commissions, legislatures, or royal palaces."

"The dilemma of a socialized system is that the information flow overwhelms a centralized system if it is open to new ideas and data, that closing the system and forcing the plan to work forecloses alternatives and risks unhedged mistakes, and that decentralizing without real markets poses the problems discussed by Hayek. These information problems permeate virtually all economic processes."

"Knowledge is one of the most scarce of all resources, so that one of the most important differences among alternative ways of organizing an economy is in how effectively they use what knowledge exists. In a market economy, it is not necessary that the innumerable decision-makers understand the costs entailed by their decisions. It is only necessary that they be confronted with those costs in the prices charged. In a “planned” economy, however, those who plan the production and distribution have to be able to understand and quantify the costs their decisions entail— a far more formidable task, if actually done, but a task that can be evaded with rhetoric or with estimates whose validity the public is usually unable to judge at the time, and which will usually be forgotten by the time the real costs become clear, often years later."

"[Hayek] thought that much knowledge is not verbally or explicitly known to the individual. This idea—of tacit (as opposed to explicit) knowledge—is difficult but important. It underlies to a considerable extent the idea of the entrepreneur—the individual who can make a profit but who cannot necessarily say how he does it."

"Hayek had his greatest impact in the area of the division of knowledge. He first put forward his concept of the division of knowledge in his November 10, 1936, presidential address to the London Economic Club, “Economics and Knowledge.” Here he drew attention to the fact that knowledge is divided among the minds of all humanity. Economic systems that build on divided knowledge prosper. Those that attempt to centralize decision-making, on the assumption of centralized knowledge, falter. Decentralized knowledge implies decentralized decision-making."

"When I look back, it seems so have all begun, nearly thirty years ago, with an essay on “Economics and Knowledge” in which I examined what seemed to me some of the central difficulties of pure economic theory, Its main conclusion was that the task of economic theory was to explain how an overall order of economic activity was achieved which utilized a large amount of knowledge which was not concentrated in any one mind but existed only as the separate knowledge of different individuals. But it was still a long way from this to an adequate insight into the relations between the abstract rules which the individual follows in his actions and the abstract overall order which is [thereby] formed....It was only through a reexamination of the age-old concept of freedom under the law, the basic conception of traditional liberalism, and of the problems of the philosophy of the law which this raises, that I have reached a tolerably clear picture of the nature of the spontaneous order of which liberal economists have so long been talking."

"Knowledge is one of the scarcest of all resources in any economy, and the insight distilled from knowledge is even more scarce. An economy based on prices, profits, and losses gives decisive advantages to those with greater knowledge and insight. Put differently, knowledge and insight can guide the allocation of resources, even if most people, including the country’s political leaders, do not share that knowledge or do not have the insight to understand what is happening. Clearly this is not true in the kind of economic system where political leaders control economic decisions, for then the limited knowledge and insights of those leaders become decisive barriers to the progress of the whole economy. Even when leaders have more knowledge and insight than the average member of the society, they are unlikely to have nearly as much knowledge and insight as exists scattered among the millions of people subject to their governance."

"Friedrich Hayek is the twentieth-century social theorist who, probably more than any other, found himself vindicated by events — if not wholly, then at least in his central contention. He is also the one who, more than any other, himself exercised a significant political influence."

"In the 20th century, three world wars facilitated a Communist revolution, a Fascist backlash and the subsequent collapse of both. The weakness of bureaucratic information flows (relative to market-based competitors) undermined Communist economies – a point emphasized by Frederick Hayek, the co-leader (with Murray Rothbard) of the fourth generation Austrian School of Economics. Flows of information and disinformation played pivotal roles in the First, Second and Third (that is, Cold) World Wars."

"Although he is very probably unaware of this book and of my work in general, I want to express a very belated thanks to Friedrich A. Hayek. His work had much more of an influence on me than I realized during the writing of the First Edition [of The End of Liberalism] I neither began nor ended as a Hayekist but instead found myself confirming, by process of elimination and discovery, many of his fears about the modern liberal state."

"Hayek is by no means as rational and irrefutable as the right would have it. Indeed, he is often eccentric. He is a romantic, a serious deficit in a social theorist. Many of his arguments rest on a reductionist idea of socialism, and his conception of the sources of law can only be called mystical. But Hayek is not merely an eccentric mystic. In Road [to Serfdom], first published in 1944, he makes a powerful and far-ranging critique of state control of economic life. At least as far as he takes the argument in this book, there isn’t much that thoughtful modern liberals or even democratic socialists who understand the power of markets would necessarily object to—although they might feel that there is more to the story than Hayek acknowledges."

"Roughly speaking, Lundberg argued that Gunnar Myrdal's work has been enormously important, and noted that there was local pressure on the Nobel Prize Committee to recognize him, but wondered how it would be received abroad if this was done. (Remember that the Prize was then rather new, and Lundberg had to be careful about its reputation.) Giersch's reply was that the quality of the work surely merited the award, but maybe the politics of it would be easier if there was a joint recipient who was neither Swedish nor shared Myrdal's views – what about Hayek? That's it – is this where Hayek's prize came from, or was he already high on the list, or what?"

"Hayek doesn’t seem to grasp that human beings can exist both as individuals and as members of a society, without necessarily subordinating them to the needs of an imposed social plan (although he acknowledges that the state can legitimately serve social needs, he contradictorily views collective benefits as incompatible with individual freedom). He rejects the very concept of social justice, for much the same reasons that he rejects the arbitrary valuation of labor: in Hayek’s view there is no way to put an objective value on a grievance or to weigh it against other claims. And because he locates all responsibility and agency only at the level of the individual, he sees no way in which any claim can be generalized to society. Hayek’s political philosophy recognizes only negative rights. Positive fulfillment beyond the most basic needs is a matter of individual striving."