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

John Gray

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.

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.

Instead Hayek worked on monetary theory and policy, publishing Monetary Nationalism and International Stability in 1937, in which he argued against the regime of freely floating fiat currencies later advocated by Milton Friedman and other members of the Chicago School and in favor of a replacement of the gold standard--whether in the form of fixed exchange rates or an international commodity standard. Hayek's differences with the Chicago School, both methodological and philosophical, were deep, since he rejected the Quantity Theory of Money (except perhaps as a convenient fiction) and held that money could not be adequately measured or controlled. Hayek's skepticism about macroeconomic theory and about econometrics pervades what is perhaps his masterpiece in economics, The Pure Theory of Capital, which was published and went virtually unnoticed in 1941. This book marks the end of Hayek's work in pure economic theory and (at least until the late Seventies and early Eighties) the end of his influence as an economist.

It was after its publication that Hayek began the second phase in his long intellectual career, which culminated in the development of his distinctive ideas of spontaneous social order and cultural evolution. During the Second World War, however, he published the book that at once made him famous (though not, alas, wealthy) and guaranteed that he would spend decades in the wilderness--The Road to Serfdom. This small volume (described by the great conservative philosopher Michael Oakeshott as "a brilliant pamphlet") could not have gone further against the spirit of the age, since it argued that government intervention in the market economy, together with welfarist measures such as those proposed in the Beveridge Report, were inherently injurious to individual liberty and, indeed, incipiently totalitarian. Hayek argued powerfully that the freedoms of the market and the classical personal liberties were both factually and logically inseparable, so that the democratic socialist conviction that the economy could be planned without the loss of personal liberties was incoherent, utopian, and dangerous. The effect of the book--praised by Keynes and reviewed not altogether unfavorably by George Orwell--was that Hayek was branded an atavistic reactionary, and his work in social philosophy neglected and derided for decades. It was partly the reaction to his book in Britain that led Hayek to move to the University of Chicago in 1950, and to take up there a chair, not in economics but in social thought--one that was funded not by the university but by a private conservative foundation.

Hayek's years in Chicago were ones of extraordinary creativity. In 1952 he published his treatise on philosophical psychology, The Sensory Order, in which the British empiricist view that our knowledge of the world comes from information we receive via the senses is rejected in favor of a modified Kantian view in which order is imposed on our sensations by innate (but for Hayek alterable by evolution) mental categories. Again in Chicago, Hayek published his masterpiece in political philosophy, The Constitution of Liberty (1960), probably the most important statement of liberal doctrine since J. S. Mill's On Liberty just over a century earlier.

It is in The Constitution of Liberty that intimations first appear of the ideas of spontaneous social order and cultural evolution that were to occupy him for the rest of his life, though in 1952 he had published a book, The Counter-Revolution of Science, in which he had criticized the "constructivist rationalism" of positivistic science. By constructivism Hayek meant that form of rationalism, inaugurated by Descartes and identified by Hayek with the French Enlightenment and the French Revolution, which stigmatizes as irrational all beliefs and practices that cannot be demonstratively justified, and which aims at a comprehensive reconstruction of social life. As against this rationalism Hayek posits another, that of the Scottish Enlightenment, which takes a humbler view of human reason and acknowledges the wisdom embodied in inherited traditions.

Though he always denied that he was a philosophical conservative, Hayek's view of traditions as repositories of knowledge has much in common with that of Edmund Burke. However, if in Burke this view has a basis in a Christian providentialist interpretation of human history, it is in Hayek given a secular Darwinian statement. It is in The Constitution of Liberty that Hayek first gives systematic and unequivocal voice to this cultural Darwinism. His thesis was that groups or traditions engage in a competition in which those with practices and beliefs which have Darwinian superiority come to prevail over others. Accordingly--as Hayek put it in his last work, The Fatal Conceit--there is a kind of natural selection of religions in which those that favor private property and the family, and thereby promote fertility, will supplant those that do not. At times, in The Constitution of Liberty and more explicitly in his later works such as the three-volume Law, Legislation, and Liberty, Hayek comes close to suggesting that market institutions have an analogous evolutionary advantage over socialist institutions, such that economic freedom is bound to prevail.

It is in The Constitution of Liberty, also, that Hayek adumbrates the idea of a spontaneous order in society. This is not only the idea that undesigned institutions and traditions may be bearers of knowledge which their practitioners may not have theorized, but which is available to them for use. It is also the idea that, unless it is stifled by government, human society contains coordinating and equilibrating mechanisms that, left to themselves, will produce an order subtler and stabler than any we can even conceive, let alone impose. Hayek cites the development of the common law and the evolution of language as examples of orders that are products of human action, but not of human design.

Hayek synthesized the central ideas of his thought--of markets as epistemic devices, of cultural evolution, and of a spontaneous social order--to provide a comprehensive theoretical foundation for his ideal of government under the rule of law, devoted to the protection of individual liberty in both the personal and the economic spheres. It is in this attempted synthesis that weaknesses appear. The idea of cultural evolution, or the natural selection of groups by their practices, is very obscure: what is the unit of cultural evolution, and what is its mechanism? Like Marxism, Hayek's theory of cultural evolution neglects historical contingency. (Religions often die out, not because they are at a Darwinian disadvantage to their rivals, but because state power is deployed to persecute them.) The idea of a spontaneous social order is no less difficult. What are the mechanisms whereby societies reach to equilibrium? And how does Hayek explain the political catastrophes and economic collapses with which human history is littered? In truth, Hayek's attempt at an evolutionary or synthetic philosophy that supports the political ideals of classical liberalism fails, just as Herbert Spencer's did before him. Hayek would have done better to rest his case for limited government on the ethical foundation of respect for human freedom; but a deep-seated ethical skepticism, common among those whose intellects were formed in the Vienna of the first part of this century, induced him instead to seek foundations for liberalism that were, in his own term, "scientistic" in that they gave to science a normative force it does not possess.

Though it has this scientistic aspect, Hayek's thought remains deeply instructive for conservatives. Hayek recognized that individual liberty presupposes an undergirding framework of traditions and practices that are accepted, not because they satisfy some rationalistic standard of justification, but simply because they are acknowledged to be authoritative. Hayek's version of classical liberalism may be unique in that, unlike virtually all others, it recognizes the hubris of reason to be an enemy of freedom. The lesson for conservatives, especially in America, is clear: a free society, if it is also to be stable and successful in renewing itself across the generations, must be in considerable measure tradition-bound. Or, to put the same point in another, Burkean way, assured progress depends upon strong traditions. The importance of these insights to American conservatives is profound, in that the implication of Hayek's thought is that the antinomian tradition of radical libertarianism, with its rationalistic conception of man and society, is inimical to individual liberty over the long run. Accordingly, despite his resistance to being considered a conservative, Hayek's thought counsels us against doctrinal classical liberalism and in favor of a much more traditionalist position.

Even though his system of ideas does not fully cohere, Hayek's thought remains extraordinary in its vitality and cross-disciplinary versatility. He made many contributions to the life of the mind--to intellectual history, for example--which space prevents my discussing. His case for limited government and economic liberty has a certain moral emptiness that in the end disables it. Yet his insight into the nature of market institutions as bearers of knowledge otherwise unavailable to us, and his prediction that attempts at comprehensive central planning would yield only chaos and poverty, illuminates and renders intelligible, as nothing else has, one of the great dramas of the age--the demise of socialism. It is Hayek's achievement, virtually alone, to have anticipated the collapse of socialist institutions, during a period when the spirit of the age cast out into the wilderness any who doubted the superiority of central planning over personal liberty.

FRIEDRICH August von Hayek is no longer among us, and I have lost a friend with whom I met every summer for twenty years in Obergurgl, a Tyrolean Alpine village. This most remarkable man descended from a family ennobled at the end of the eighteenth century by the Holy Roman Emperor. Born in Vienna in 1899, he originally wanted to become a biologist (two of his brothers were noted professors of anatomy and chemistry). But, having served as a lieutenant on the Italian front in 1918, he decided not to spend his life and microscopes and test tubes but to concern himself directly with people--and thus he became an economist.

He became associated with Ludwig von Mises (18 years his senior), who imbued him with an aversion to anything resembling Marxism. Seeing Austria menaced by both forms of socialism--national and international--Hayek went to England, where fom 1931 to 1950 he taught at the London School of Economics. His classic The Road to Serfdom made him world famous (and widely hated) and brought him a call to the University of Chicago, where for years he worked with the Committee on Social Thought. Together with Wilhelm Ropke he profoundly influenced Ludwig Erhard; for his share in Germany's "Economic Miracle," he was made a professor at Freiburg University. In 1974 he received the Nobel Prize.

Hayek and Ludwig von Mises, two outstanding fighters for freedom, were the ones who gave its final profile to the Austrian School of Economics, founded by Carl von Menger, Friedrich von Wieser, and Eugen von Bohm-Bawerk. With the exception of Fritz Machlup, the original Austrian School consisted of members of the nobility. When in 1946, Hayek, Mises, and Ropke set out to form an elitist intellectual organization for free enterprise and against socialism, they wanted to call it "The Tocqueville-Acton Society." At the initial meeting and Switzerland an American professor shrilly served an ultimatum: "If you name this society after two Roman Catholic aristocrats, I'll quit!" Whereupon the group was named the Mont Pelerin Society, after a nearby mountain.

Not only was von Hayek a man of encyclopedic knowledge in the entire humanities, he also had a fantastic memory, a wonderful sense of humor, and great courage. An agnostic, he finally came to see the value of religion in the fight against serfdom, and although he proudly rejected the conservative label and emphasized his liberal stand, he was distinctly a man of the Right. He was happy to be received by John Paul II, whom he addressed in Latin; the Pontiff remarked: "Ah, at long last a universally accepted language!"

Hayek battled manfully for his ideas and ideals. In Japan he was nearly deified. Having suffered several severe heart attacks in the course of his life he was attended at his lectures by a Japanese doctor who told him when to stop and asked the audience to wait until he could resume his talk. In his perseverance he resembled the late general secretary of the Mont Pelerin Society, Count Max Thurn, an octogenarian who, literally dying, traveled three hundred miles to speak to an Austrian audience about the privatization of social security in Chile. Like Ludwig von Mises, Hayek was past ninety when he closed his eyes. He who battles for truth and freedom will stay young for a long time and will live forever in our memory.

Mr. Kuehnelt-Leddihn's Leftism Revisited was recently issued by Regnery Gateway.

ANYONE privileged to know Friedrich A. Hayek must have been impressed by his gentleness, charm, and modesty, characteristics that natives of his adopted country like to think the essence of an English gentleman. That did not save him from becoming a bogeyman of what passes as the intellectual Left, who scorned him as a lackey of capitalism and prince of darkness. Such a caricature was provoked by his deliberately polemical Road to Serfdom, which he dedicated "To the socialists of all parties." But at least his critics had identified a foe who, perhaps alone this century, ranks with such giants as Smith, Hume, and Tocqueville.

For conservative audiences he liked to refer to the chapter in Constitution of Liberty entitled "Why I Am Not a Conservative," and he mocked "the middle way" advocated by Harold Macmillan as "the muddle of the middle." In the same chuckling manner he would draw attention to his hearing aid and explain: "I'm deaf in my left ear, as I believe Marx was in his right."

His true intellectual humility was in keeping with the title of his final, crowning volume, The Fatal Conceit, which deplores what he called in his Nobel Prize address "the pretense of knowledge" affected by socialist planners.

A perennial student, he never stopped learning. I recall the almost boyish excitement with which at the age of 77 he invited Arthur Seldon at the Institute of Economic Affairs to publish his radical proposal for competing private currencies. He explained how during a lecture in Switzerland he had suddenly found himself wondering why classical liberals--who grasped above all the scope for abuse of monopoly power--should ever have swallowed the idea that politicians could be trusted with control of national money. Thus was born The Denationalization of Money, which my new-found young economist friends in Moscow recently asked for permission (and a subsidy) to translate into Russian.

It was sad that by 1989 the great man had lost touch with affairs and was unable to grasp the magnitude of the counter-revolution in the old USSR, to which, I believe, he and his Mont Pelerin Society contributed more even than President Reagan and star wars.

Since his naturalization in 1938, Hayek was intensely proud of his British citizenship and returned regularly to London and the West Country from retirement in Freiburg. He rejoiced in Margaret Thatcher's determination to curb the legal privileges of trade unions and to make a start on the herculean task of restoring market forces after decades of cumulative state encroachment going back to the "Liberal" government of 1906. When I first introduced him to Mrs. Thatcher, he quietly reduced that formidable lady to unusual periods of silence.

He was almost casual about being summoned from the wilderness to become Nobel Laureate in 1974, partly because he shared the prize with a now forgotten Swedish collectivist, Gunnar Myrdal, and partly because he thought some previous winners had bordered on economic illiteracy. Of all his distinctions, he prized the Companion of Honor conferred by the Queen in 1984. He enjoyed telling that when the usher at Buckingham Palace asked how he should be announced, he startled that solemn dignitary by replying: "Hi-yek, as in high explosive." From that date he shyly let it be known that after a lifetime as "Fritz," since his days at the LSE with the egregious leftist Harold Laski, he preferred to be called "Friedrich," pronounced as in Fred.

I owe him a special debt for my life peerage, conferred by Mrs. Thatcher in recognition of the work of the Institute of Economic Affairs, which he had inspired Sir Antony Fisher to set up in 1957. His watchword was that intellectuals should proclaim a vision of the free society "without regard for what appears today as politically possible." The lesson from Britain--where the Labour Party has dropped socialism and now talks of markets without malignancy--shows that far more has become politically possible than the younger, persecuted Fritz could ever have dared to hope.

Lord Harris of High Cross is the former general director of the Institute of Economic Affairs.

AS I WROTE in 1976, "Friedrich Hayek's influence has been tremendous. His work is incorporated in the body of technical economic theory; has had a major influence on economic history, political philosophy, and political science; has affected students of the law, of scientific methodology, and even of psychology. But from the particular perspective of [NATIONAL REVIEW]..., all of these are secondary to Hayek's influence in strengthening the moral and intellectual support for a free society" (Essays on Hayek, edited by Fritz Machlup). And what was true then is true in even greater measure today, as Eastern Europe so eloquently testifies.

That this should be so is something of a paradox, for Hayek was first, last, and always, a scholar. As Arthur Shenfield wrote in the same volume, "To anyone who knows him ... Hayek must appear to be the very embodiment of the cloistered scholarly virtues. Calm, reflective, interested only in ideas, and standing apart from the rough and tumble which now characterize the academic world almost as much as the worlds of politics and business, he would be the last person to be found caught up in anything that smacked of a |movement.'" Yet he unquestionably became the most important intellectual leader of the movement that has produced a major change in the climate of opinion.

Hayek's first major step in that direction was the publication in 1944 of the Road to Serfdom. It is a measure of the change in the climate of opinion which he did so much to produce that more than one commercial publisher turned the book down on the grounds that it would not be profitable! A book that became an international best-seller, has been translated into numerous languages, is still in print, and is a current bestseller in Eastern Europe after nearly half a century was therefore published by the University of Chicago Press on the strong recommendation of members of its faculty.

His second major step was taking the initiative to found the Mont Pelerin Society. At the founding meeting of that Society in April 1947, he said: "The basic conviction which has guided me in my efforts [in organizing the conference] is that if the ideals which I believe unite us, and for which, in spite of abuse of the word, there is still no better name than liberal, are to have any chance of revival, a great intellectual task is in the first instance required before we can successfully meet the errors which govern the world today."

The key word is "intellectual." Both in the stimulating, lively, and controversial discussions that followed at that meeting of 39 participants from 10 countries, and in the activities of the Society in subsequent years, Hayek was largely successful in keeping the Society a company of scholars, exchanging and developing their ideas in mutual interaction but not seeking to make propaganda. As I wrote in 1976, he succeeded in keeping the Society "a spiritual fountain of youth, to which we could all repair once a year or so to renew our spirits and faith among a growing company of fellow believers; the one time a year when a generally beleaguered minority could stop looking over their shoulders and let themselves go in a thoroughly supportive environment."

I came to know Hayek best during the 12 years that he taught at the University of Chicago. He was a brilliant conversationalist, and his powerful mind, moral courage, and lucid and always principled exposition helped to broaden and deepen my understanding of the meaning and requisites of a free society. He soon attracted a group of gifted students, whose dissertations he supervised and some of whom he encouraged to found the New Individualist Review, a journal that had a considerable influence during its brief career. It served as a training ground for some of the currently most articulate defenders of a free society.

Hayek's contributions continued in one important publication after another, all on a high intellectual plane, devoted to abstract and sometimes abstruse ideas, yet all inspiring active participants in the attempt to reshape society and persuade the "socialists of all parties" to whom Hayek dedicated The Road to Serfdom of the error of their ways. We are the poorer for his death, but his ideas will live on and influence the course of events long after the rest of us are gone.

Mr. Friedman is a Senior Research Fellow at the Hoover Institution.

AS WE look back on the excitement caused by the publication of Friedrich Hayek's The Road to Serfdom, we wonder how it could have happened. It is a tribute to him, and to his small book, that we should be able to say this. The principal theses of the book are by now so very well known, even if they are not by any means universally accepted, that they appear almost self-evident. Hayek had always taken scrupulous care to give credit, if it were faintly plausible to do so, to others who articulated ideas before he did, and indeed sometimes, on reading the footnotes to The Constitution of Liberty, one almost has the feeling that the book is a collection of after-dinner toasts by Hayek to great philosophers, political thinkers, and economists, from Thales to Ludwig von Mises. But he could not shrug off the credit for having brought much of it together: the integrated perception of the relation between law and justice and liberty. And, in an age swooning with passion for a centralized direction of social happiness and economic plenitude, he gave that squirt of ice water, presaged by the quotation he selected as epigraph to his book, the wary observation of David Hume that "it is seldom that liberty of any kind is lost all at once."

Rather, Hayek explained, it is lost gradually; and it is lost by assigning vague, extra-lawful mandates to men of political authority who take on tasks they cannot be expected to perform without absorbing all the knowledge, values, preferences, and passions of all their fellow men; and this no political authority--indeed, no animate or inanimate body--can do. Accordingly, the political authority has no alternative but to usurp. The necessary result of that usurpation is the corresponding loss in freedom of the body in which the authority previously reposed. Over time, that kind of movement must lead us down the road to serfdom, into that amnestic void toward which, Orwell intuited, evil men were for evil purposes bent on taking us; which void Michael Oakeshott saw us headed toward under the impulse of our own indisposition to bear the heavy responsibilities of freedom.

Professor Hayek gave perhaps the greatest example of his intellectual courage when, in his great book on liberty, he girded his loins, kissed his wife goodbye, made out his will, and came out against the progressive income tax. That was both audacious and exhilarating; and indeed if ever his counsel on the matter were accepted, I have no doubt whatever that any society would benefit comprehensively, and that the tuning fork of justice would resonate with the joy of bells in the morning.

But on the one occasion when he spoke of a "liberal utopia" I doubt that (for once) he weighed his words as cautiously as he tended to do. Without the progressive tax we would be left, for instance, without any guide to how the liberated taxpayer should spend his repatriated surplus; I know of nothing in libertarian literature that is instructive on the point. There is a great and brooding literature that is highly instructive on such moral matters, but it is a literature that speaks with authority to a world endowed with free will. We don't need to be reminded (or do we?) that heaven is not for this, but for another, world; and that final satisfactions are taken from adventures in faith, hope, and charity unrelated to the marketplace. In that other world, I do not hesitate to predict that Friedrich von Hayek will be praised for his contributions to a social philosophy that reflects the dignity of metaphysical man.

Four months ago, Professor Hayek was given the Presidential Medal of Freedom at a ceremony in the White House. His citation says it all: "Friedrich August von Hayek has done more than any thinker of our age to explore the promise and contours of liberty. He grew up in the shadow of Hitler's tyranny and devoted himself at an early age to the nurture of institutions that preserve and expand freedom, the lifeblood of a full life. The Road to Serfdom still thrills readers everywhere, and his subsequent works inspire people throughout the world because they possess the vigor and feel of real life --not just the hollow ring of abstract theory. Professor von Hayek has revolutionized the world's intellectual and political life. Future generations will read his works with the same sense of discovery and awe that inspire us today."

Mr. Gray is a Fellow of Jesus College, Oxford, and author of Hayek on Liberty. He wrote this essay during a period of residence as Stranahan Distinguished Research Fellow at the Social Philosophy and Policy Center, Bowling Green, Ohio.

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