Hayek the Great and the invisible hand 5

Today is the 116th anniversary of the birth of F. A. Hayek. (Friedrich August von Hayek.) 

He is one of the greatest defenders of liberty in the history of the enlightened West.

His work as an economist is enormously important.

Milton Friedman said of him:

No person had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market editions, read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union.

An article at Townhall by David Boaz lists some of the plaudits and honors he received:

Who was Hayek? He was an economist born and educated in Vienna. After the Nazi conquest of Austria, he became a British citizen and taught there [in Britain] and at the University of Chicago for most of his career.

He was awarded the Nobel Prize in Economics in 1974.

President Ronald Reagan called him one of the two or three people who had most influenced him

President George H. W. Bush awarded him the Medal of Freedom.

Margaret Thatcher banged his great book The Constitution of Liberty on the table at Conservative Party headquarters and declared “This is what we believe.” …

He is the hero of The Commanding Heights, the book and PBS series on the battle of economic ideas in the 20th century.

His most popular book, The Road to Serfdom, has never gone out of print and saw its sales explode during the financial crisis and Wall Street bailouts.

John Cassidy wrote in the New Yorker that “on the biggest issue of all, the vitality of capitalism, he was vindicated to such an extent that it is hardly an exaggeration to refer to the 20th century as the Hayek century”. 

If only! No Western country, even under leaders that held him in the highest esteem, put his theory into practice. Every one of them is a welfare state to some degree. In all of them government is an agency that redistributes wealth. Hayek believed the business of the state is to protect liberty with the rule of law, not to plan the economy, or intervene in the working of the free market. He taught that only the free market can provide the signals that make for the most efficient use of resources. Central planning is socialism – and socialism, Hayek explained, tends towards totalitarianism.

Here is Hayek, champion of free market capitalism, talking about Maynard Keynes, advocate of government intervention in markets and the economist whom Western states have preferred to follow:

In The Wealth of Nations, Adam Smith wrote:

“Every individual necessarily labours to render the annual revenue of the society as great as he can. He generally neither intends to promote the public interest, nor knows how much he is promoting it … He intends only his own gain, and he is in this, as in many other cases, led by an invisible hand to promote an end which was no part of his intention. Nor is it always the worse for society that it was no part of his intention. By pursuing his own interest he frequently promotes that of the society more effectually than when he really intends to promote it. I have never known much good done by those who affected to trade for the public good.”

Hayek (we quote from here) “called the free market system a ‘marvel’ because just one indicator, the market price of a commodity, spontaneously carries so much information that it guides buyers and sellers to make decisions that help both obtain what they want. The market price of a product, a component of the invisible hand, reflects thousands, even millions, of decisions made around the world by people who don’t know each other or what the others are doing”.

Hayek’s most popular and least technical books The Road to Serfdom and The Constitution of Liberty ought to be prescribed reading in every high school and every university in the world.

We doubt they will be. The socialists have won. The decline of the West may be irreversible.

Arguments for liberty 4

This video of Friedrich Hayek talking to students gets to be most interesting – we think – round about the 16 minute mark, when he explains why the monopoly power of government to issue money should be taken away from it.  He goes on to argue against the idea of “social justice”. Justice applies to individuals, not “a state of affairs”. Most interesting of all, perhaps, is the case he makes against the idea that individuals who “do good” directly to other individuals are the great benefactors of society. On the contrary, the “selfish” people who produce goods for profit do far more good to far more people, indirectly.  Towards the end he makes the point that the more complex a society is, the less able government is to understand its needs and plan for them.