Hayek 12: Friedrich Hayek's 20th Death Anniversary

After a long hiatus, I am resuming my discussion series on Friedrich Hayek. I used to have a separate blog called "Hayek Reader" to focus on the writings and discussions about him, but I could not sustain it, so I reposted those papers and moved them in this blog, and closed that blog.

Here are those papers, posted here last May 19, 2009:

Hayek 1: Liberty and liberties
Hayek 2: Freedom, spontaneity and accidents
Hayek 3: Inequality and progress
Hayek 4: Freedom and responsibility
Hayek 5: Merit vs. value
Hayek 6: Dangers of majority rule
Hayek 7: Rule of law means no exception
Hayek 8: Safeguards of individual liberty
Hayek 9: Hayek and Easterly
Hayek 10: Hayek and Keynes
Hayek 11: Rule of law and rule of the lawless

Three days ago was Hayek's 20th death anniversary. I am reposting here a paper from the Austrian Economics Conference, about a brief biography of Hayek. I know that he has written several dozen books plus several hundred scholarly articles, but I have read only two of them, The Road to Serfdom and The Constitution of Liberty. Most of the papers I wrote above were taken from several chapters of the latter.

I remain a fan of the man, definitely one of the brightest minds of the last century.
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FRIEDRICH A. von HAYEK (1899 -1992)
A Short Appreciation 20 Years after his Death
by
Kurt R. Leube*

“Before we explain why people commit mistakes, we must first explain why they should ever be right." F.A. von Hayek

I

It is 2012, and lest we forget one of the most seminal minds of our times, we should recall the important work of Friedrich A. von Hayek who died 20 years ago, on March 23, 1992.

F.A.von Hayek grew up in a typical Austrian family that could lay claim to an academic tradition of well over three generations. At the age of 18, to avoid his failing at several schools in Vienna he voluntarily joined the Austro-Hungarian Army and served as an artillery officer until the end of WW I. Immediately after his return from the Italian front, Hayek enrolled in the University of Vienna and, only three years later obtained his law degree (Dr. jur.). While Hayek studied for his second doctoral degree in Political Science (Dr. rer. pol.) which he earned in 1923, he began to work under Ludwig von Mises’ directorship in the “Abrechnungsamt”, a Vienna based office for the settlement of pre-war debts. As the most eminent scholar of the third generation of the Austrian School of Economics, Mises (1881-1973), soon became Hayek’s mentor and in 1927 they succeeded in founding the “Austrian Institute for Business Cycle Research” which soon gained high academic reputation under Hayek’s and later Oskar Morgenstern’s leadership.

II

The culturally vibrating climate of interwar Vienna provided the stimulating background for many scholarly circles and schools, such as the “Vienna Circle of Philosophy”, the “Vienna School of Psychoanalysis”, or the “Mises Private Seminar”. This famous “Seminar” which between 1921-1934 von Mises conducted off campus in his Chamber of Commerce office was the nucleus of the fourth generation of the Austrian School, the most important representative of which was Hayek. It is remarkable that far more than half of its participants later became world-famous in their respective academic fields. Yet, with the Nazi terror on the rise and almost no prospects of ever gaining access to an adequate academic position, all but a very few of these uniquely talented scholars left Austria for good. Schumpeter and Hayek were the first, many others were soon to follow. This “brain drain” lead to devastating consequences in the intellectual life in Austria and Germany which still can be felt.

Hayek’s first book Monetary Theory and the Trade Cycle (1929) at once set a standard in modern business cycle theory and is still valid. One of the most striking characteristics of the “Austrian” business cycle theory is Hayek’s insight that any shortage of capital immediately causes a crises. While classical economic theory never elucidated what causes such a shortage, Hayek made it clear that any overinvestment leads to “scarcity of capital”, unavoidably compelling a decline in investment and hence leading to the loss of a part of the real capital, produced because of the excessive investment rate.

Impressed by Hayek’s new business cycle theory, Lord Robbins invited him to lecture at the London School of Economics in the winter of 1931. The lectures where so successful that he was offered the position of “Tooke Professor of Economic Science” almost immediately thereafter and he accepted almost without hesitation. At this time, when J.M. Keynes’ new theories began to dominate academic and political life it was unavoidable for Hayek not to be immediately drawn into a fundamental debate with Keynes. Due to their inflationary character Hayek opposed these theories vigorously and thus became the leading intellectual force against Keynes and his followers. However, in view of a recession with huge unemployment rates it became politically obvious that Hayek’s approach of “waiting out the crisis“ was doomed to be overshadowed by the theoretically seriously flawed yet politically attractive “Keynesian Revolution” with easy “solutions” and massive government interventions. It is a regrettable but undeniable fact that economics much more than any other academic discipline is liable to the periodical reintroduction of popular fades and irrepressible superstitions.

While being deeply involved in these heated debates, Hayek at the same time opened yet another intellectual front and published the three famous essays which forever shattered the foundations of socialism. These essays were later collected in his Individualism and Economic Order (1948). The painful collapse of socialism as a viable political system in 1989 is the belated empirical proof of Mises’ as well as Hayek’s insights. Hayek’s interest in technical economics culminated in his The Pure Theory of Capital (1942) which must be rated as one of the most penetrating books ever published in this complex field.