Content provided in partnership with

The road from serfdom: F.A. Hayek spent years in the wilderness for arguing that socialism was the road, not to prosperity and justice, but to tyranny

National Review, April 27, 1992 by John Gray, Erik von Kuehnelt-Leddihn, Ralph Harris, Milton Friedman, William F. Buckley, Jr.

F. A. Hayek spent years in the wilderness for arguing that socialism was the road, not to prosperity and justice, but to tyranny. He is a prophet now honored.

LONG REGARDED by his colleagues in the economics profession as a doctrinaire or even a crank, Friedrich von Hayek was vindicated in his chief contribution to economic theory, the critique of socialist central planning--vindicated, not by the Nobel Prize in Economics which he received in 1974, but by history itself. Hayek had always argued that socialist central planning would issue in malinvestment and poverty, because the planners face a problem of knowledge about the resources available to them and the costs of their various uses that, in the absence of market pricing, is insoluble. During decades in the wilderness, when his colleagues consistently exaggerated the productivity of Communist economies, Hayek insistently argued that they were bound by their very nature to be wasteful and chaotic. The revelations of glasnost and the evidence emerging from German reunification are dramatic corroboration of a truth that Hayek argued for in purely theoretical terms.

Most Popular Articles in News: The Ten Best Laptop bags; Tata plans cheapest-ever car for Indian market; GLOBALIZATION AND THE DEVELOPMENT OF UNDERDEVELOPMENT OF THE THIRD WORLD; Corn is good for you; Corn is not only a tasty treat, but also a cereal that ...; THE 50 BEST STYLISH HANDBAGS TO CARRY; More »

Hayek's work in several disciplines amounts to a theory of government, the market economy, and history that is, in its way, as systematic and as ambitious as that of Karl Marx. One of the most central and most original elements in Hayek's system of ideas is his conception of economics itself, and his related conception of the function of market institutions. For Hayek, economics is not a scheme of wealth creation, or plutology. Rather, economics is the study of the unplanned coordination of human activities by market processes, whose function is not to allocate scarce resources such as capital or physical plant, but instead to economize on the scarcest resource of all--human knowledge. For Hayek, market institutions are epistemic devices--means whereby information that is scattered about society and known in its totality by no one can be used by all by being embodied in prices. It is from this conception of the role of markets that Hayek derives his most powerful argument for the impossibility of successful central planning. Even if the planners are wholly disinterested, they will be unable to collect centrally the information--often ephemeral and local, and sometimes embodied in traditional skills and entrepreneurial perceptions--that they would need to allocate resources and coordinate activities effectively.

Hayek's insight here is truly profound. He grasps that the problem that central-planning institutions cannot solve is not (as his mentor, Ludwig von Mises, supposed) merely a problem of calculation but rather a problem of knowledge. Because the planner cannot know relative costs and scarcities, the planned economy will in fact be chaotic and vastly wasteful. This is the real explanation for the poverty of all socialist and command economies. Their poverty does not flow from the cultural traditions, or lack of work ethic, of their subject peoples; it flows from the fact that planning institutions cannot possess the dispersed information that is expressed in market prices, and so cannot know how to achieve their goals effectively. When centrally planned economies do achieve their goals, as they did at least partly in the Soviet strategic military sector, it is at massive unnecessary cost, or else by the introduction of institutions that simulate market competition. It was Hayek's great achievement to show, against socialist economists such as Oscar Lange and A. P. Lerner, that attempts to simulate market institutions across entire economies were bound to fail, because of insoluble problems of knowledge--even if he did not go on to show that concentration or guidance of market institutions (as in Japan or South Korea) was bound to be similarly beset by insoluble problems of knowledge.

Hayek's general conception of economic science and his view of markets as epistemic devices are, in all probability, more important and enduring than his contributions to technical economic theory, though the latter have considerable interest in themselves. Perhaps his most important work in technical economics was in the theory of the business cycle, in which recessions were accounted for, not in terms of deficiencies in macroeconomic demand, but by reference to discoordinations at the microeconomic level produced by inflationary monetary policy. Hayek developed this view in lectures given at the London School of Economics, and he turned the lectures into a book, Prices and Production, which at once established him as a major economic thinker. His account of recessions as the inevitable aftermath of inflation-induced discoordination had obvious relevance to public policy at the time in Britain, since it implied that measures aimed at restarting the economy, such as public works or deficit financing, could not be expected to work, and government should simply allow the deflationary forces to run their course. This was, of course, the very opposite of the view then being advocated by J. M. Keynes, Hayek's personal friend and intellectual antagonist. When Keynes published his General Theory in 1934, it would have been natural for Hayek to subject it to systematic criticism, but on finding that Keynes had altered some of his more technical views, Hayek refrained from attacking it--a serious error of judgment, as he later admitted, since it helped to assure the dominance of Keynesian economics in Britain for decades afterward.

The road from serfdom: F.A. Hayek spent years in the wilderness for arguing that socialism was the road, not to prosperity and justice, but to tyranny

National Review, April 27, 1992 by John Gray, Erik von Kuehnelt-Leddihn, Ralph Harris, Milton Friedman, William F. Buckley, Jr.

Find Research Guides for:

Find Featured Titles for: Business

Most Popular Articles in News

Most Popular Publications in News