Friedrich August von Hayek Biography - Nobel Prize Winner (1974)


Friedrich August von Hayek, CH (May 8, 1899 in Vienna – March 23, 1992 in Freiburg) was an Austrian-born British economist and political philosopher. He is noted primarily for his defense of liberal democracy and free-market capitalism against socialist and collectivist thought in the mid-20th century. Widely regarded as one of the most influential members of the Austrian School of economics, he also made significant contributions in the fields of jurisprudence and cognitive science. He shared the 1974 Nobel Memorial Prize in Economics with ideological rival Gunnar Myrdal "for their pioneering work in the theory of money and economic fluctuations and for their penetrating analysis of the interdependence of economic, social and institutional phenomena." In 1991, Hayek received the U.S. Presidential Medal of Freedom “for a lifetime of looking beyond the horizon.”

Hayek was born in Vienna to a family of prominent intellectuals working in the fields of statics and biology. His father published a major botanical treatise while working as a doctor in the government's social welfare system. On his mother's side, he was second cousin to the philosopher Ludwig Wittgenstein. At the University of Vienna, he earned doctorates in law and political science in 1921 and 1923 respectively, and he also studied psychology and economics with keen interest. Initially sympathetic to socialism, Hayek's economic thinking was transformed during his student years in Vienna through attending Ludwig von Mises' private seminars along with Fritz Machlup and other young students. He was a student of Friedrich von Wieser.

Hayek worked as a research assistant to Prof. Jeremiah Jenks of New York University from 1923 to 1924. He then worked for the Austrian government helping to work out the legal and economic details of the international treaty ending World War I. Hayek then set up and became director of the Austrian Institute for Business Cycle Research before joining the faculty of the London School of Economics at the behest of Lionel Robbins in 1931. Unwilling to return to Austria after its annexation to Nazi Germany, Hayek became a British citizen in 1938, a status he held for the remainder of his life.

In the 1930s, Hayek enjoyed a considerable reputation as a leading economic theorist, but his models were not received well by the followers of John Maynard Keynes. Debate between the two schools of thought continues to this day. Hayek's positions have gained in currency in the US and UK since the late 1970s; support for Hayek grew as right-wing politicians in those countries' governments consolidated power. In 1950, Hayek left the London School of Economics for the University of Chicago, becoming a professor in the Committee on Social Thought (he was barred from entering the Economics department because of his Austrian economic views by one member whom he would not name and many speculate was Frank Knight). He found himself at Chicago amongst other prominent economists, such as Milton Friedman, but, by this time, Hayek had turned his interests towards political philosophy and psychology — although he continued to work on economics issues, and most of his economic notes from this period have yet to be published. From 1962, until his retirement in 1968, he was a professor at the University of Freiburg.

In 1974, he shared the Nobel Memorial Prize in Economics, causing a revival of interest in the Austrian school of economics. In 1984, he was appointed as a member of the Order of the Companions of Honour by Queen Elizabeth II of the United Kingdom on the advice of British Prime Minister Margaret Thatcher for his 'services to the study of economics'. Later, he was a visiting professor at the University of Salzburg. Hayek died in 1992 in Freiburg, Germany.

It has been suggested that Extended order be merged into this article or section. (Discuss)[edit]
The economic calculation problem
Hayek was one of the leading academic critics of collectivism in the 20th century. Hayek believed that all forms of collectivism (even those theoretically based on voluntary cooperation) could only be maintained by a central authority of some kind. In his popular book, The Road to Serfdom (1944) and in subsequent works, Hayek claimed that socialism required central economic planning and that such planning in turn had a risk of leading towards totalitarianism, because the central authority would have to be endowed with powers that would impact social life as well.

Building on the earlier work of Mises and others, Hayek also argued that, in centrally-planned economies, an individual or a select group of individuals must determine the distribution of resources, but that these planners will never have enough information to carry out this allocation reliably. The efficient exchange and use of resources, Hayek claimed, can be maintained only through the price mechanism in free markets (see economic calculation problem). In The Use of Knowledge in Society (1945), Hayek argued that the price mechanism serves to share and synchronize local and personal knowledge, allowing society's members to achieve diverse, complicated ends through a principle of spontaneous self-organization. He coined the term catallaxy to describe a "self-organizing system of voluntary co-operation."

In Hayek's view, the central role of the state should be to maintain the rule of law, with as little arbitrary intervention as possible.

Spontaneous order
Hayek viewed the free price system, not as a conscious invention (that which is intentionally designed by man), but as spontaneous order, or what is referred to as "that which is the result of human action but not of human design". Thus, Hayek put the price mechanism on the same level as, for example, language. Such thinking led him to speculate on how the human brain could accommodate this evolved behavior. In The Sensory Order (1952), he proposed, independently of Donald Hebb, the connectionist hypothesis that forms the basis of the technology of neural networks and of much of modern neurophysiology.

Hayek attributed the birth of civilization to private property in his book The Fatal Conceit (1988). According to him, price signals are the only possible way to let each economic decision maker communicate tacit knowledge or dispersed knowledge to each other, in order to solve the economic calculation problem.

The business cycle
Hayek's writings on capital, money, and the business cycle are widely regarded as his most important contributions to economics. Mises had earlier explained monetary and banking theory in his Theory of Money and Credit (1912), applying the marginal utility principle to the value of money and then proposing a new theory of industrial fluctuations based on the concepts of the British Currency School and the ideas of the Swedish economist Knut Wicksell. Hayek used this body of work as a starting point for his own interpretation of the business cycle, which defended what later become known as the "Austrian business cycle theory". In his Prices and Production (1931) and The Pure Theory of Capital (1941), he explained the origin of the business cycle in terms of central bank credit expansion and its transmission over time in terms of capital misallocation caused by artificially low interest rates.

The "Austrian business cycle theory" has been criticized by advocates of rational expectations and other components of neoclassical economics, who point to the neutrality of money and to the real business cycle theory as providing a sounder understanding of the phenomenon. Hayek, in his 1939 book Profits, Interest and Investment, distanced himself from other theorists of the Austrian School, such as Mises and Rothbard, in beginning to shun the wholly monetary theory of the business cycle in favor of a more eccentric understanding based more on profits than on interest rates. Hayek explicitly notes that most of the more accurate explanations of the business cycle place more emphasis on real instead of nominal variables. He also notes that this more eccentric explanation model of the business cycle which he proposes cannot be wholly reconciled with any specific Austrian theory.

Social and political philosophy
While known more as an economist than a philosopher, in the latter half of his career Hayek made a number of contributions to social philosophy and political philosophy, derived largely from his views on the limits of human knowledge[2], and the role played by his spontaneous order in social institutions. His arguments in favor of a society organized around a market order (in which the apparatus of state is employed solely to secure the peace necessary for a market of free individuals to function) were informed by a moral philosophy derived from epistemological concerns regarding the inherent limits of human knowledge. In his philosophy of science, Hayek was highly critical of what he termed scientism — a false understanding of the methods of science mistakenly forced upon on the social sciences but actually contrary to the practices of genuine science. Usually this involves combining the philosopher's ancient (and confused) demand for demonstrative justification with an associationist's false view that all scientific explanations are simple two variable linear relationships. Hayek points out that much of science involved the explanation of complex multi-variable and non-linear phenomena, and that the social science of economics and undesigned order compares favorably with such complex sciences as Darwinian biology (see The Counter-Revolution of Science: Studies in the Abuse of Reason, 1952 and some of Hayek's later essays in the philosophy of science such as "Degrees of Explanation" and "The Theory of Complex Phenomena"). In The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology (1952), he independently developed a "Hebbian learning" model of learning and memory — an idea which Hayek first conceived in 1920, prior to his study of economics. Hayek's expansion of the "Hebbian synapse" construction into a global brain theory has received continued attention among the best minds in neuroscience, cognitive science, computer science, behavioral science, and evolutionary psychology.

Hayek and conservatism
Hayek attracted new attention in the 1980s and 1990s with the rise of conservative governments in the United States and the United Kingdom. Margaret Thatcher, the Conservative British prime minister from 1979 to 1990, was an outspoken devotée of Hayek's writings. Shortly after Thatcher became Leader of the party, she "reached into her briefcase and took out a book. It was Friedrich von Hayek's The Constitution of Liberty. Interrupting [the speaker], she held the book up for all of us to see. 'This', she said sternly, 'is what we believe', and banged Hayek down on the table." [1] After winning the 1979 election, Thatcher appointed Keith Joseph, the director of the Hayekian Centre for Policy Studies, as her secretary of state for industry in an effort to redirect parliament’s economic strategies. Likewise, some of Ronald Reagan’s economic advisors were friends of Hayek.

Hayek wrote an essay entitled Why I Am Not a Conservative [3], (included as an appendix to The Constitution of Liberty) in which he disparaged conservatism for its inability to adapt to changing human realities or to offer a positive political program. His criticism was aimed primarily at European-style conservatism, which has often opposed capitalism as a threat to social stability and traditional values. Hayek identified himself as a classical liberal, but noted that in the United States it had become almost impossible to use "liberal" in the older sense that he gave to the term. In the U.S., Hayek is usually described as a "libertarian", but the denomination that he preferred was "Old Whig" (a phrase borrowed from Edmund Burke).

Politics Portal
By 1947, Hayek was an organizer of the Mont Pelerin Society, a group of classical liberals who sought to oppose what they saw as "socialism" in various areas. In his speech at the 1974 Nobel Prize banquet, Hayek, whose work emphasized the fallibility of individual knowledge about economic and social arrangements, expressed his misgivings about promoting the perception of economics as a strict science on par with physics, chemistry, or medicine (the academic disciplines recognized by the original Nobel Prizes).

While there is some dispute as to the matter of influence, Hayek had a long standing and close friendship with philosopher of science Karl Popper, also from Vienna. In a letter to Hayek in 1944, Popper stated, "I think I have learnt more from you than from any other living thinker, except perhaps Alfred Tarski." (See Hacohen, 2000). Popper dedicated his Conjectures and Refutations to Hayek. For his part, Hayek dedicated a collection of papers, Studies in Philosophy, Politics, and Economics, to Popper, and in 1982 said, "...ever since his Logik der Forschung first came out in 1934, I have been a complete adherent to his general theory of methodology." (See Weimer and Palermo, 1982). Popper also participated in the inaugural meeting of the Mont Pelerin Society. Their friendship and mutual admiration, however, do not change the fact that there are important differences between their ideas (See Birner, 2001).

Having heavily influenced Margaret Thatcher's economic approach, and some of Ronald Reagan's economic advisors, in the 1990's Hayek became one of the most-respected economists in Eastern Europe. There is a general consensus that his analyses of socialist as well as non-socialist societies were proven prescient by the breakup of communist Eastern Europe.

Hayek's greatest intellectual debt was to Carl Menger, who pioneered an approach to social explanation similar to that developed in Britain by Bernard Mandeville and the Scottish moral philosophers. He had a wide-reaching influence on contemporary economics, politics, philosophy, sociology, psychology and anthropology. For example, Hayek's discussion in The Road to Serfdom (1944) about truth and falsehood in totalitarian systems influenced some later opponents of postmodernism (e.g., Wolin 2004).

Even after his death, Hayek's intellectual presence was noticeable, especially in the universities where he had taught: the London School of Economics, the University of Chicago, and the University of Freiburg. A number of tributes resulted, many posthumous. A student-run group at the LSE Hayek Society, was established in his honor. At Oxford University, there is also a Hayek Society. The Cato Institute, one of Washington, D.C.'s leading think tanks, named its lower level auditorium after Hayek, who had been a Distinguished Senior Fellow at Cato during his later years. Also, the auditorium of the school of economics in Universidad Francisco Marroquín in Guatemala is named after him.

Akerlof, George A.
Allais, Maurice
Arrow, Kenneth J.
Aumann, Robert J.
Becker, Gary S.
Buchanan, James M., Jr.
Coase, Ronald H.
Debreu, Gerard
Engle, Robert F.
Fogel, Robert W.
Friedman, Milton
Frisch, Ragnar
Granger, Clive W. J.
Haavelmo, Trygve
Harsanyi, John C.
Heckman, James J.
Hayek, Friedrich August Von
Hicks, Sir John R.
Kahneman, Daniel
Kantorovich, Leonid Vitaliyevich
Klein, Lawrence R.
Koopmans, Tjalling C.
Kuznets, Simon
Kydland, Finn E.
Leontief, Wassily
Lewis, Sir Arthur
Lucas, Robert
Markowitz, Harry M.
McFadden, Daniel L.
Meade, James E.
Merton, Robert C.
Miller, Merton M.
Mirrlees, James A.
Modigliani, Franco
Mundell, Robert A.
Myrdal, Gunnar
Nash, John F.
North, Douglass C.
Ohlin, Bertil
Prescott, Edward C.
Samuelson, Paul A.
Schelling, Thomas C.
Scholes, Myron S.
Schultz, Theodore W.
Selten, Reinhard
Sen, Amartya
Sharpe, William F.
Simon, Herbert A.
Smith, Vernon L.
Solow, Robert M.
Spence, A. Michael
Stigler, George J.
Stiglitz, Joseph E.
Stone, Sir Richard
Tinbergen, Jan
Tobin, James
Vickrey, William

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