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Happy 110th Birthday F.A Hayek!

Today is F.A. Hayek's 110th birthday. Hayek was perhaps the most influential libertarian thinker of the 20th century. Books such as The Road to Serfdom, The Constitution of Liberty, and Law, Legislation, and Liberty had a major impact on economics, political theory, and legal thought. Hayek also won a Nobel Prize in Economics for his technical work on monetary policy and business cycles. My personal favorite among Hayek's works is his famous 1945 article, "The Use of Knowledge in Society," which explains why private sector institutions generally do a better job of gathering and using information than government.

Last year, I wrote a post explaining why Hayek's central ideas are still relevant today, decades after he wrote his most important works. Hayek's criticism of central planning remains important in an age where governments once again seek to nationalize and restructure large sectors of the economy. His less well-known critique of conservatism also retains a great deal of relevance in our time, for reasons I elaborated here.

UPDATE: It looks like Hayek's birthday is actually May 8, rather than May 5. Sorry about the confusion. However, the silver lining of this particular cloud is that I get to post about Hayek again on Friday!

Splunge:
Influential, huh? I wish it were possible to believe there wasn't a Latin F. A. Hayekii arguing circa 1 AD (quite fluently and persuasively, no doubt, in the eyes of some minority) that ceding all power to the Caesars wasn't quite as bright an idea as it seemed.

Doesn't seem to help. The human wish to believe in God, Big Brother, The Dear Leader, The Party, scientific consensus, the stars, or some like demiurge, as infinitely varied in accidents as infinitismally varied in substance, appears insurmountable.
5.5.2009 4:22am
Steven Horwitz (mail) (www):
Hayek's birthday is, in fact, May 8. But better early than never!
5.5.2009 8:33am
themighthypuck (mail):
I'll raise a glass for the man.
5.5.2009 9:05am
Midnight Rambler:
Многая літа! Happy Birthday! (even if it is early...)
5.5.2009 9:36am
Desiderius:
Splunge,

Then comes the hangover, and, for some, a commitment to sobriety. Hayek, in the tradition of, yes, Cato and, later, Marcus Aurelius provides invaluable support for making such a commitment stick. Maturity has its own appeal.
5.5.2009 9:39am
cathyf:
Long ago when I took Econ 201 from D. Gale Johnson, he told us that when he was a young professor, Hayek was still in the department and used to describe hyperinflation to them. As a young professor in Austria, their salaries were issued on Fridays. Each Friday morning, the professors and their wives would line up at the pay window before it opened. Each couple would collect the pay, and the husband would go off to classes while the wife sprinted off with the money to spend it all as quickly as possible. Because by the end of the day the money was worth much less than it had been worth at the moment they got paid in the morning.

A story that illustrates well that while "...Hayek's central ideas are still relevant today..." even the odd anecdotes are going to be very useful very soon, too.
5.5.2009 10:26am
zuch (mail) (www):
Nice to see that libertarianism is becoming "old school". What's next for the staid school? Passe?

Cheers,
5.5.2009 11:31am
OSU2L (mail):
Of course Hayek had a major impact but it appears we have veered back down that Road to Serfdom...
5.5.2009 11:40am
gab:
"...private sector institutions generally do a better job of gathering and using information than government. "

With the small exception of AIG, B of A, Citigroup, Wells, Lehman, Bear, GM, Chrysler, etc. I'm sure Hayek, had he been alive today, would be extolling the capabilities of these great private sector institutions...
5.5.2009 12:05pm
OSU2L (mail):
gab:

Presumably you suggest the government does a better job of "gathering and using information"? What examples would you like to point us toward? Are the bank regulators particularly adept? The Fed? Congress?
5.5.2009 1:12pm
Splunge:
gab, are you under the impression that "better" means "perfect?" Or that "the private sector" is identical to "one or a few private firms?"

And does it not occur to you that the failure of these institutions is an action by the private sector? It wasn't government that told the people who ran Lehman that they were screw-ups and needed to lose their jobs -- it was the market. And, please notice, it did so months in advance of when the government detected that things were not quite right in banking.

Indeed, the only way government knew things were going wrong in the mortgage business was to take notice of the behavior of private actors. When they started losing confidence in the holders of mortgage securities, only then did the government stop with the Pollyanna don't worry, be happy messages about mortgages and get worried.

Maybe your essential ignorance here is your failure to realize that the wisdom of the free market includes destruction as well as construction. Markets need to pick losers as well as winners. It's necessary to sometimes tell a certain CEO or board of directors that they're idiots, they've made bad decisions, and they need to lose their jobs and free up the capital invested in their operations for use elsewhere. That is exactly what the failure of these financial institutions represents. It is the wisdom of the private sector incarnate.

Now, if it were purely up to government, then what would happen is these screw-up institutions would just go on and on, because government pays no attention to a lack of confidence of investors, until their distortions and mistakes engulfed the entire economy and everything crashed.
5.5.2009 1:33pm
Hadur:

Of course Hayek had a major impact but it appears we have veered back down that Road to Serfdom...


Road to Serfdom, or Road to Stagnation? I think that Hayek's most famous work was colored by the fact that he was writing it during/after WWII. If we accept that non-market actors are inefficient, I think it follows that they will be somewhat unable to set up a truly totalitarian state. Rather, the result would be a degenerate welfare state that might be bankrupt, might be constantly bedeviled by supply crises, but probably isn't going to go around shooting people.
5.5.2009 1:35pm
gab:
Splunge, does it not occur to you that the failure of all of the firms mentioned would have caused the failure of virtually every large bank and brokerage firm? That the market "failed?" That had the "market" been allowed to do what markets do, we wouldn't have any banks or brokerage firms to speak of today? That the credit markets would no longer exist and even the soundest corporations would have gone bankrupt because their access to funding would have been cut off?

The "essential wisdom" of the free markets didn't work in this case. Had you been paying attention, you'd have realized it.
5.5.2009 1:49pm
OSU2L (mail):
gab:

So what does the government do well?
5.5.2009 1:56pm
Javert:

"...private sector institutions generally do a better job of gathering and using information than government. "

With the small exception of AIG, B of A, Citigroup, Wells, Lehman, Bear, GM, Chrysler, etc. I'm sure Hayek, had he been alive today, would be extolling the capabilities of these great private sector institutions...
Which companies were forced to depend for financial information on market-destroying, government institutions such as: the Federal Reserve, the FDIC, the SEC, Fannie and Freddie, the Treasury, HUD, Barney Frank . . .
5.5.2009 2:45pm
gab:
"Which companies were forced to depend for financial information on market-destroying, government institutions such as: the Federal Reserve, the FDIC, the SEC, Fannie and Freddie, the Treasury, HUD, Barney Frank . . ."

Tell me just how AIG Financial Products group "depended" on financial info from any of those sources in writing $500 billion of CDS? CDS that they were sure they were never going to have to pay a penny on. And, explain to me how, if their "gathering and using information" is so superb, did they not realize the information was faulty?

The point is, AIG, and the rest of the above, plus others not mentioned, did a terrible job of gathering information and putting it to use. And in doing so, undermined the US and world financial systems and almost brought down the entire US economy.

And blaming the government, or asking if the gov't can do it better, entirely misses the point.
5.5.2009 3:29pm
Javert:

Tell me just how AIG Financial Products group "depended" on financial info from any of those sources in writing $500 billion of CDS?
A CDS insures financial instruments. The viability of those instruments was completely corrupted by, among others, the government institutions I already named. You don't seem to realize that finance is the most regulated industry in the economy.
5.5.2009 3:38pm
gab:
Yet, you fail to explain how, if their information gathering was so good, they failed to gather or understand that "the viability of those instruments was completely corrrupted..." You knew the instruments were corrupted ... but those wizards of finance that dealt in these instruments every day, did it for a living and were paid gazillions, failed to know?

Your argument proves my point - they didn't know. They thought they did, and yet, you, who were miles away and had nowhere near the information gathering capability that AIG had.. you knew. But they didn't? Doesn't make sense does it?
5.5.2009 4:50pm
Javert:

Your argument proves my point - they didn't know. They thought they did, and yet, you, who were miles away and had nowhere near the information gathering capability that AIG had.. you knew. But they didn't? Doesn't make sense does it?
No, it doesn't -- if one ignores the factor of time.
5.5.2009 5:16pm
yisroel (mail):
a double bonus since may 8 is ve day and may 9 would be great patriotic war victory day!
5.5.2009 8:17pm
Hal O'Brien (mail) (www):
Reading "The Use of Knowledge in Society," it strikes me that Hayek is (knowingly or not) largely echoing Leopold Kohr.

That is, it isn't a question of public sector vs. private sector -- it's one of sheer size, and of removal from "where the action is," as it were.

"Fundamentally, in a system in which the knowledge of the relevant facts is dispersed among many people, prices can act to coördinate the separate actions of different people in the same way as subjective values help the individual to coördinate the parts of his plan."


It follows that if knowledge is concentrated -- regardless of who is doing the concentrating -- this coordination gets frustrated.

But then, hey, he acknowledges at the outset that he's pursuing "a rational economic order." Since that has as much of a tie to reality as a snark hunt... {shrug}
5.6.2009 5:47am

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