F. A. Hayek: Classical Liberal: R. Hazlett

Thomas W. ·Hazlett F.A.Hayek: Classical Liberal IF George Will has deemed us ((In mates of the Twentieth Century," and Eric Hoffer has decried our time as ((hectic, soaked with the blood of innocents, irrational and absurd," then it is most fortuitous that we have the writings ofF. A. Hayek as a refreshing oasis of sanity. Now in his 80th season, this 3-letter scholar (Ph.D's in law, political science and economics) has risen to his most commanding position of influence, topped by his receipt of the Nobel Prize in Economics (awarded jointly with Gunnar Myrdal) in 1974. Sym bolically, it is cause for great hope Mr. Hazlett is a doctoral student in economics at the University of California In Los Angeles where he Is on the staff of the International Institute· for Economic Research. This article appears here by permission from his Introduction to an Interview with 'Professor Hayek, being published as a pamphlet by the IIER.

that when the London Times carried Professor Hayek's picture in its May 18,1978 issue, they chose to caption it: ((F. A. Hayek: the greatest economic philosopher of the age." It wasn't always so. Least of all in the eyes of the London Times. As Patrick Cosgrave wrote in the arti cle adjacent to the photo: He [Hayek] has lived long enough to see the twin assumptions he has spent his career attacking begin seriously to fail in their power of convincing. The first assumption was that greater and greater intervention by the state in, and greater and greater control by the state over, the economic process, was a neces sary concomitant of progress, efficiency and equality. The second was--central planning having failed to be efficient that· greater and greater regulation by the state of income and rewards was compatible with individual freedom. 551 552 THE FREEMAN September His Star Ascenc;ls It is in the swirling winds of a turbulent political climate, a cli mate turning cold to socialism, that Hayek's stock is perking up. And as his star ascends, much credit is ex tended to his iconoclastic observa tions from less friendly times. ttThe engine of Hayek's return to favor,"

comments Cosgrave, ttwas inflation, which he had always predicted would be the inevitable consequence of the infiltration of Socialist ideas about social engineering into mod ern democratic government. It re mains to be seen whether his second prediction-that the failures of Socialism and socialistically in clined governments lead inevitably to tyranny-will be allowed to come true." Yet it is coming true-before our eyes, not to ment~on our wallets. Bureaucrats in centralized govern ment offices are today charged with the authority to dictate who may be promoted in their jobs according to certified racial quotas, where chil dren may attend school, what politi cal discussions are engaged in by (private) r"adio and television sta tions, what prices companies may charge and what wages laborers may receive, which artists and so cial scientists may receive tax sub sidies, what parts of the country may receive energy supplies made short by federal price controls, what safety equipment consumers must add to the cost of their automobile, what medicines a heart patient may use in an attempt to save his life, what artificial sweeteners a weight-watcher may add to his diet cola, ad infinitum. What could be more redundant today than a com plaint against arbitrary, unreach able bureaucrats? Citizens increas ingly cry out against ttunresponsive administrators" -always in a tone of helplessness. But, demagogues excluded, who might tell us why it is that ttyou can't fight city hall"?

In his 1944 bestseller, The Road to Serfdom,l Hayek forewarns pre cisely why: When the government has to decide how many pigs are to be raised or how many busses are to be run, which coal mines are to operate, or at what prices shoes are to be sold, these decisions can not be deduced from formal principles or settled for long periods in advance. They depend inevitably on the circumstances of the moment, and, in making such decisions, it will always be necessary to balance one against the other the inter ests of various persons and groups. In the end somebody's views will have to decide whose interests are more important; and these views must become part of the law of the land, a new distinction of rank which the coercive apparatus of govern ment imposes upon the people. (p. 74) Hayek has inhabited the ivory tower for better than 60 years, yet, lUniversity of Chicago Press, 5801 Ellis Ave., Chicago, Ill. 60637.

1979 F. A. HAYEK: CLASSICAL LIBERAL 553 since he gave up on socialism in his early twenties, has never been taken by collectivism's press re leases. In quoting Tocqueville in The Road to Serfdom, Hayek shares with us the classic analysis of government control: . ctDemocracyextends the sphere of indi vidual freedom," he said in 1848, usocialism restricts it. Democracy at taches all possible value to each man; socialism makes each man a mere agent, a mere number. Democracy and socialism have nothing in common but one word: equality. But notice the differ ence: while democracy seeks equality in liberty, socialism seeks equality in re straint and servitude." (p. 25) While Western nations have, for all intents and purposes, left the idea of Uhot socialism," as Hayek calls it, they still dance with the seductive political notion of state control in Hhigh priority" social problem areas, thus creating a con voluted political compromise perplexing to socialists and capital ists alike, and leading us into slav ery.

Although we have been warned by some of the greatest political thinkers of the nineteenth century, by De Toc queville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism. And now that we have seen a new form of slavery arise before our eyes, we have so com pletely forgotten the warning that it scarcely occurs to us that the two things may be connected. (p. 13) And for the cCused-to-be-liberals" who have come to realize that good intentions are not sufficient to se cure good results, Hayek's most im portant service may be as an ad vance warning system alerting us to what may happen when the heart is in the right place but pumping a bit too fast. cCOnly if we understand," Hayek explains, CCwhy and how cer tain kinds of economic controls tend to paralyze the driving forces of a free society, and which kinds of measures are particularly danger ous in this respect, can we hope that social experimentation will not lead us into situations none of us want."

(Foreword) What we should want, in Hayek's estimation, is a renewed determina tion to set free the unpredictable creative juices of individuals. This requires not anarchy, but rather an extension of the Liberal Order, that tradition of government well defined and clearly limited by the Rule of Law. To Hayek, the chief victory of Western Man has been the removal of much of government's coercive power from the realm of arbitrary whimsical ((public ser vants," and the subsequent ensuring of a healthy, secure area of social activity in which all may take what ever actions they will so long as they are willing to shoulder the as sociated costs. In our ascension from a society of status to one of con tract, Hayek observes the essential 554 THE FREEMAN September ingredient of the ttrule of law" as opposed to Uthe rule of man": The true contrast to a reign of status is the reign of general and equal laws, of the rules which are the same for all, or, we might say, the rules of leges in the original meaning of the Latin word for laws-leges, that is, as opposed to privi leges.

Hence, the legacy of classical liberalism survives with Hayek. Hayek and Keynes "When the definitive history of economic analysis during the nine teen thirties comes to be written, a leading character in the drama (it was quite a drama) will be Professor Hayek . ... It is hardly remembered that there was a time when the new theories of Hayek were the principal rival of the new theories of Keynes. Which was right, Keynes or Hayek?" -Sir John Hicks, 1971 Nobel Laureate, t(The Hayek Story" in Critical Essays in Monetary Theory, Oxford, 1967, p. 203 The 1930s were troublesome, momentous times. For economic thought, they were also a watershed. It was then that the negative connotation which had al ways shrouded the term ((government spending" dissolved, to be re placed by an aroma of high-minded civic virtue. While in 1932 Franklin Roosevelt could swing key precincts by blaming the Depression on President Hoover's profligate federal spending policies, all the successful political job-seekers of a very few years hence were boastfullypromis ing deficit budgets, government employment and ((stimulatory"

policies. This was the Keynesian Revolution. The academic alibi for the Keyne sian Revolution was Lord John Maynard Keynes. In his 1936 treatise, The General Theory of Interest, Employment and Money, he offered theoretical explanations for the idea that depressions were spawned by insufficient consumer demand, and vice versa. That is to say, unemployment is caused by a fall in t( aggregate demand" and (taggregate demand" falls as un employment increases. All of which leads to a vicious circle of poverty and joblessness. It was easy for the masses to be lieve in vicious circles in 1936. Of course, it had always been easy for the governing class to believe in vicious circles (or anything else) that called for them to administer heavy doses of public sector rem edies. Such,· as coincidence would have it,was just the Keynesian bromide. The lasting impact of The General Theory may be viewed as a prescription from the desk of Dr.

Keynes, written permission from the economic establishment to sup port the addiction which the politi cal community had been so long try1979 F. A. HAYEK: CLASSICAL LIBERAL 555 ing to acquire. The General Theory turned a bad habit into ttmedicine." The treatment? When consumers ttdemanded" too little, the govern ment should demand more. Trans lated into political jive: tax, tax, tax, spend, spend, spend, elect, elect, elect. "The New Economics" The governing class received Keynes' doctrine with an en thusiasm reserved for great wars and holy crusades. So completely was the Keynes ttsolution" to un employment embraced by the academic and political worlds that their master, Lord Keynes himself, was unable to deter the march. As Professor Axel Leijonhufvud has re cently demonstrated, much of what passed for ttKeynesianism" was in conflict with the actual economics of Keynes. Yet Hayek kept his head while all about were gasping over the New Economics. Where magical Keyne sian potions guaranteed prosperity by paying a million workers to dig trenches and another million to fill them back in, Hayek never flinched.

The world had not been turned on its head by Lord Keynes or the traumat ic 1930s, there remained a world of scarcity, there was no free lunch. If Hayek appeared crazy to the point of irrelevance in maintaining these be liefs thirty years ago, he seems quite the prophet to have had such a track record today. For in our post-New Economics era, where are those martyrs who will still boast of gov ernment mega-spending to bring us economic bliss? As the fashionable designer labels have fallen from the Keynesian em peror, those disillusioned with the panaceas of nfine-tuning," ttpump _ priming," and ttgovernment stabili zation policy" have discovered Hayek anew. The simultaneous ap pearance of inflation and unem ployment-which the crude Keyne sian model specifically ruled out has turned virgin utopianism into pregnant reality. Today people are ready to listen when Hayek says, as he wrote in 1975: The present unemployment is the di rect result of the shortsighted ufull employment policies" we have been pur suing during the last 25 years. This is the sad truth we must grasp if we are not to be led into measures that would make matters only worse. The sooner we can tear ourselves out of the fool's paradise in which we have been living the better will be the chance that we can keep the period of suffering short. (Full Employ ment at Any Price?, p. 11)2 Hayek does not, moreover, simply dispense competing panaceas: I find myself in an unpleasant situa tion. I had preached for forty years that the time to prevent the coming of a depression was in the boom. During the 2Transatlantic Arts, Inc., N. Village Green, Levittown, N.Y. 11756.

556 THE FREEMAN September boom nobody listened to me. Now people again turn to me and ask how the conse quences of a policy of which I had con stantly warned can be avoided. I must witness the heads of the governments of all the Western industrial countries promising their people that they will stop the inflation and preserve full employment. But I know that they can not do this. (p. 15). The Hayek solution, not in favor with advisors to political candidates, is straightforward: What we must now be clear about is that our aim must be, not the maximum of employment which can be achieved in the short run, but a Uhigh and stable" (i.e. continuing) level of employment, as one of the wartime British White Papers phrased it. This however we can achieve only through the re-establishment of a properly functioning market which, by the free play of prices and wages, estab lishes for each sector the correspondence of supply and demand.

Though it must remain one of the chief tasks of monetary policy to prevent wide fluctuations in the quantity of money or the volume of the income stream, the effect on employment must not be the dominating consideration guiding it. The primary aim must again become the sta bility of the value of money. (p. 27) Hayek vs. PseudoScience Any discussion of Hayek must in clude his brilliant attack on the methods of social scientists in gen eral. As a witness to the mush rooming arrogance of fellow economists, sociologists, and psychologists to direct human be havior and to control personal choices and relationships, Hayek has emerged (along with his close friend and convert Sir Karl Popper) as a superb critic of the academic prejudice known as cCscientism." As an unparalleled student of his tory, the evolution of political ideas and the emergence of social institu tions, a fully-armed Hayek has gone to battle for the free will of individ uals in their struggle against the tyranny of today's white-coated to talitarians. While B. F. Skinner may talk about a world CCbeyond freedom and dignity," where all is planned to be CCrational"and CCopti_ mal" by those who know what those words really mean, Hayek under stands that nothing can be known to be either of these things outside of the context of free human behavior.

((Rational" and ((optimal" are no less subjective to Hayek than is ((happi ness"; and all attempts to make the human experience an objective prob lem of mere technical equation solving is at once an intellectual error and a moral crime. The crux is that contemporary so cial thinkers often tend to see lib erty as a nuisance. It foils their calculations and botches their ex periments. Hayek is relentless in his appreciation of human liberty as the inimitable innovator which creates the very progress which social scien tists seek to duplicate and supplant.

1979 F. A. HAYEK: CLASSICAL LIBERAL 557 Freedom to Hayek is far from an unmanageable, intractable, trouble some variable, but the pervasive de terminant for advancement in each and every compartment of our social life. Freedom and the Spontaneous Order of Society So it is that Hayek champions c<the spontaneous order." This stands in contradistinction to the human laboratory of B. F. Skinner and his numerous accomplices. The spontaneous order is what motivates the development of the common law, of language, of manners and cus toms, of liberal constitutional gov ernment, of the competitive market economy. In short, it is the un planned, unplannable genius of men and women just getting along. It is the fabled uinvisible hand" of social progress; it is not reproducible in the social alchemist's test tube, no mat ter the contempt with which he might regard individual enterprise, creativity and adaptability.

As Arthur Shenfield elaborates: Scientism is the uncritical application of the methods, or of the supposed methods, of the natural sciences to prob lems for which they are not apt. In the present context it is their application to problems of human society. Thus it is in its very nature unscientific-an idolatry, not an understanding, of science. As Hayek says, UThe scientistic as distin guished from the scientific view is not an unprejudiced but a very prejudiced ap proach which, before it has considered its subject, claims to know what is the most appropriate way of investigating it." And what is claimed to be the most appropriate way turns out to be inappro priate. (Essays on Hayek, p. 63)3 Hayek's intimate contact with this part of society that His the product of human action but not of human design" led him to his greatest insights in theoretical eco nomics. Take the idea of a market, for instance. A market sets a price equating supply and demand for a commodity, and thereby tells the whole system how much that par ticular good is worth relative to other scarce resources. This allows everyone to make their plans ac cordingly. They can determine how important it is to economize on this good, or to produce it, or to switch to substitute goods. By looking at the price-determined by the market the allocation problem of any good, be it gold, hockey games or Gatorade, is solved. Every single person may discover how much he should produce, and how much he should consume. That, unquestion ably, is a paramount advance for society.

But the astonishing fact is that no one invented a market. Markets are not made, they just happen. 3Essayson Hayek by various authors, edited by Fritz Machlup. Hillsdale College, Hillsdale, Mich. 49242.

558 THE FREEMAN September They are the spontaneous organic result when individuals who, acting only in their narrow self-interest, cooperate with each other to satisfy their diverse needs and aspirations. Freedom allows trial and error to test whatever plans innovators are willing to chance; self-interest pushes all the rest to imitate the innovations that work. In precisely the same manner does the institu tion of language spring up from the free flow of individuals just trying to communicate for their own pur poses; nobody ttbuilds" a language. The ttmacro" conclusion of this ((micro" process is· an innovation enormously beneficial to all social creatures. Of similar shock value is the realization that this key illstitution runs on its own energy source. No one creates a market, and no one administers it after creation. No central agency takes responsibility for issuing orders to make sure that prices equate supply and demand; no one tells consumers or producers what their buying and spending plans should be. From spare parts to watermelons, the irrepressible forces of supply and demand set prices that automatically create the proper incentives so that the amount demanded will approximate the amount supplied-without any one person knowing the whole rea son (or anything close to the whole reason) why.

The Socialist Controversy In thus digging to the roots of our institutions, economic and other wise, Hayek extracted his most con sequential theoretical discovery: uThe Use of Knowledge in Society." In his famous 1945 paper by this title, he demonstrated that the basic economic problem in society was to make the best use of all the informa tion available for satisfying our wants. The unique, over-riding fea ture of this economic information, however, is that ttthe knowledge of the circumstances of which we must make use never exists in concen trated or integrated form but solely as the dispersed bits of incomplete and frequently contradictory knowl edge which all the separate individ uals possess." (Individualism and Economic Order, p. 77)4 While people are accustomed to thinking of uinformation" in a tech nical sense, like how to get oil out of the ground or how to manufacture steel, such scientific know ledge is actually closer to background music for purposes of enhancing our mate rial wellbeing. If prosperity simply required proper engineering, after all, Soviet Russia (or the U.S. Post Office) would work. Hayek showed that the most essential economic ttfacts" are tiny bits of information uof time and place."

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1979 F. A. HAYEK: CLASSICAL LIBERAL 559 Central administration of economic activity must lose this spe cial, individualized information. Bureaucratic offices have tremen dous resources to obtain general in formation such as statistics, opinion polls, and econometric models as well as technical, scientific data. But bureaucrats are helpless to make the best use of all this pre cisely because they have no way to capture specifzc bits of information as to what individuals may do to contribute. And it is the individual consumer, producer, worker or entrepreneur who must actually make choices and perform the work. The result is that if central plan ners make economic decisions from ((above"without the contributions of these individuals directly involved, the system has lost an incredible sum of knowledge. The attempt to Ucontrol"economic affairs by central planning ends up creating a system wherein less knowledge is utilized, precisely the opposite we had uplanned." Centralized directioning, in addition to transferring power over decisions from individuals to bureaucrats, creates a loss of effi ciency and thereby a wealth reduc tion for the society as a whole.

Hayek details: Today it is almost heresy to suggest that scientific knowledge is not the sum of all knowledge. But a little reflection will show that there is beyond question a body of very important but unorganized knowledge of general rules: the knowl edge of time and place. It is with respect to this that practically every individual has some advantage over all others be cause he possesses unique information of which beneficial use might be made, but of which use can be made only if the decisions depending on it are left to him or are made with his active cooperation. We need to remember only how much we have to learn in any occupation after we have completed our theoretical training, how big a part of our working life we spend learning particular jobs, and how valuable an asset in all walks of life is knowledge of people, or local conditions, and of special circumstances. To know of and put to use a machine not fully employed, or somebody's skill which could be better utilized, or to be aware. of a surplus stock which can be drawn upon during an interruption of supplies, is socially quite as useful as the knowledge of better alternative techniques. The shipper who earns his living from using otherwise empty or half-filled tramp steamers, or the estate agent whose whole knowledge is almost exclusively one of temporary opportunities, or the arbitrageur who gains from local differ ences of commodity prices-are all per forming eminently useful functions based on special knowledge of circum stances of the fleeting moment not known to others. (Individualism and Economic Order, p. BO) And so we see the ultimate wis dom of human beings acting freely with no direction save self-interest in what might naively appear as useless, wasteful activities. This brings us full circle on the Hayek 560 THE FREEMAN September globe, for in understanding the value of individual knowledge and enterprise in the economic sphere, Hayek is able to blend the interests of both our material wants and spiritual yearnings. Liberty doesn't trade for prosperity. On the con trary: Freedom works. This became Hayek's enduring contribution, still in effect, to the so-called ((Socialist Controversy."

Social Philosophy at Its Best What remains to be reported, happily, is that there is more to Hayek than brilliant scholarship and an admirable attachment to human freedom. Here is a moving, delightful expositor of the tide of man's affairs; a writer who may burst an explosive social theory without the simultaneous bursting of your patience. Hayek's forte is clarity. His gift is an awesome grasp of logic. So powerfully does he thrust his reader from premise to conclusion that the inevitable desti nation is accompanied with an irre pressible passion for ideas. It is the way social· philosophy should be done. Arthur Shenfield writes of his reaction to three of Hayek's articles in Economica (1942-44) introducing him to the author by way of the dry topic of UScientism and the Study of Society." When I read them I became stout Cor tez (or Balboa) on his peak in Darien. To this day I remember the tingling excite ment which they evoked in me. Since then, the roll call of Hayek's works on the fundamental problems of society arouses in those who grasp their message a peak of admiration which is now familiar.

This striking sort of impression is witnessed in scores of cases. Lord Keynes was Udeeply moved" by Hayek's Road to Serfdom. And Pat rick Cosgrave couldn't avoid noting that ((there is an Arctic ruthlessness about his brilliant logic which seems, most of the time, to refuse houseroom to the ... warm-hearted schemes for human improvement by government action which have paraded themselves in dazzling suc cession before our bewildered eyes." A Scholar in Many Fields of Knowledge Hayek's tremendous breadth as a scholar is surely a factor in his per suasiveness. He has indeed lived up to his impersonal observation that ((he who is only an economist cannot be a good economist." His academic writings grace every topic from law to sociology to philosophy, not to mention economics, history, or poli tics. One of his great thrills, he claims, was to recently learn that a well regarded college in Pennsylva nia was assigning his 1950 The Sen sory Order in a psychology class.

When he taught at the University of Chicago (1950-1962) one of his duties as Professor of Social and 1979 F. A. HAYEK: CLASSICAL LIBERAL 561 Moral Science was to conduct a weekly seminar of Ustaggering catholicity," according to Shirley Robin Letwin. The group included two nuclear physicists, one a Nobel Prize winner; ttan Irish classicist, completely master of Shakespeare, Gibbon or Tolstoy, as of Sophocles, Plato and Thucydides;" a French Thomist; the two most eminent Chicago School economists, both world-famous; tt a classical ar cheologist ... the author of The Gothic Cathedral and the author of The Lonely Crowd as well as the inventor of the tfolk society.' " As Dr. Letwin describes: Hayek presided over this remarkable company with a gentle rectitude that made his seminar an exercise in the liberal virtues. Every remark, however fatuous, no matter how obscure or young the speaker, was heard to the very end with a respect that the weaker members found· maddening. The general subject was liberalism and no one was in any doubt about Hayek's convictions. But students who hoped to shine by discover ing apostasy to an official creed learned to seek other paths to glory. Hunting for the holy grail was definitely out of order.

The seminar was a conversation with the living and the dead, ancient and modern; the only obligation was to enter into the thoughts of others with fidelity and to accept questions and dissent gracefully. <Essays on Hayek, p. 148) As history remembers Hayek it will be told that his great quest was to ask why liberty is so slippery to our grasp. While other current so cial scientists have devoted their re search to discovering programs to replace free and spontaneous human interactions by imposed ttscientific" solutions, Hayek has prowled about to find why classical liberalism, which has given Western Man so very much, is being cashed in for a statism which promises neither peace nor freedom. Nor, most obvi ously, prosperity. In fact, socialist, real-world experience has been so bitterly painful that those contem porary reformers who clamor for in creased state intervention have given up the pretense that such controls can give us more than free markets and free men. Instead they argue that material wellbeing and economic improvement are mem ories gone by and that the future holds a more modest portfolio. That the government will be in charge of choosing this portfolio helps to guar antee the claim, so that the confi dent prophecy is self-fulfilling and recyclable.

Yet, for those who would rather look to a future which offers liberty for the oppressed and progress for the poor, there can be no better resource guide than the writings of F. A. Hayek. His fine and sensitive touch with the subtlest workings of human (and humane) civilization will sprinkle us with understanding for millennia to come. It is, of course, juvenile to debate 562 THE FREEMAN any scholar's place in history's ar chives, particularly when we are still blessed to have him among us. Yet, what can safely be claimed is that if the generations to follow are lucky-very lucky-it will come to pass that our Twentieth Century was not the age of the Hitlers, the Stalins and Mao Tse-tungs; but rather the time of the Einsteins, the Solzhenitsyns, and the Friedrich von Hayeks. li WHAT is threatened by our present political trends is not just economic prosperity, not just our comfort, or the rate of economic growth. It is very much more. It is what I mean by the phrase "our civilization." Modern man prides himself that he has built that civilization as if in doing so he had carried out a plan which he had before formed in his mind. The fact is, of course, that if at any point of the past man had mapped out his future on the basis of the then-existing knowledge and then followed this plan, we would not be where we are. We would not only be much poorer, we would not only be less wise, but we would also be less gentle, less moral; in fact we would still have brutally to fight each other for our very lives. We owe the fact that not only our knowledge has grown, but also our mor als have improved-and I think they have improved, and especially that the concern for our neighbor has increased----notto anybody plan ning for such a development, but to the fact that in an essentially free society certain trends have prevailed because they made for a peaceful, orderly, and progressive society.

This process of growth to which we owe the emergence of what we now most value, including the growth of the very values we now hold, is today often presented as if it were something not worthy of a reasonable being, because it was not guided by a clear design of what men were aiming at. But our civilization is indeed largely an unforeseen and unintended outcome of our submitting to moral and legal rules which were never "invented" with such a result in mind, but which grew because those societies which developed them piecemeal prevailed at every step over other groups which followed different rules, less conducive to the growth of civilization. F. A. HAYEK, remarks in What's Past Is Prologue, 1968 The Tiller, the Van, and the Typewriter Ruth B. Alford WHEN the union moved into the university where I worked (moved in, may I say, by hook and by crook), I looked down the road and foresaw a collision course. So, on the side, I made plans.