Friedrich Hayek: A Biography [Paperback]

Hayek finished a law degree and a second degree in political science from the University of Vienna before he lived in the United States from March 1923 to May 1924. (p. 31). One of his first economic articles in 1924 was "on American monetary policy suggesting that an expansionist credit policy leads to an overdevelopment of capital goods industries and ultimately to a crisis. . . . So I put in that article a long footnote sketching an outline of what ultimately became my explanation of industrial fluctuations. . . . A rate of interest which is inappropriately low offers to the individual sectors of the economy an advantage which is greater the more remote is their product from the consumption stage." (p. 41). The Federal Reserve Bank had been designed to keep the economy moving by offering great deals to capitalists, but when Hayek noted the tendency to produce instability, he became the head "of the evolution of Austrian business cycle theory." (p. 41). When the depression became the lowest point reached by the American economy in the 20th century, Hayek continued to think that low interest rates in the 1920s had produced the instability which produced it, while Milton Friedman produced a monetary explanation which is more widely accepted.

Public opinion is often a matter of simplifications which avoid the complexity that real problems present. Chapter 8, on Keynes, quotes Keynes attacking Marxism as if Marxism were nothing but a public opinion. "How can I adopt a creed which, preferring the mud to the fish, exalts the boorish proletariat above the bourgeois and intelligentsia who, with whatever faults, are the quality of life and surely carry the seeds of all human advancement?" (p. 68). German was a problem for Keynes, who wrote "in German I can only understand what I know already!" (p. 70). Hayek tried to review Keynes' TREATISE ON MONEY for an English journal, "Economica," when he was about to start teaching at the London School of Economics. Keynes seemed to think that his criticism could be characterized as "The wild duck has dived down to the bottom--as deep as she can get--and bitten fast hold of the weed and tangle and all the rubbish that is down there, and it would need an extraordinarily clever dog to dive after and fish her up again." (pp. 357-358). Hayek was allowed to publish a reply in the "Economic Journal" edited by Keynes "to an article by Piero Sraffa attacking him, and concluded his reply, `I venture to believe that Mr. Keynes would fully agree with me in ... that he [Sraffa] has understood Mr. Keynes' theory even less than he has my own.' Keynes then footnoted, `I should like to say that, to the best of my comprehension, Mr. Sraffa has understood my theory accurately.' " (p. 72). The finishing touches on this argument are complex. Keynes wrote that his footnote was appended to Hayek's reply "with Prof. Hayek's permission," (p. 72), a sure sign that Keynes was amused at agreeing far more with Sraffa, however Hayek might feel about it, and that he had done everything he could to force Hayek to see it his way.

Hayek was admired most for his popular book, THE ROAD TO SERFDOM, which considered central planning in control of an economy as a major step on the way to totalitarianism. He expected his book, THE CONSTITUTION OF LIBERTY, to appeal to the same readers, but when it was published on February 9, 1960, people had other concerns. In "The New York Times Book Review," Sydney Hook presented the mainstream economic opposition to Hayek's major concerns. "He is an intellectual tonic. But in our present time of troubles, his economic philosophy points the road to disaster." (p. 203).

Considering disasters in the area of economics, it is difficult to counter the idea that any government program offers the kind of deviation from stability that anyone would expect from a drunken bat. One idea that was almost popular at the end of the 20th century was a lockbox, where workers' money could be kept until it was time for them to retire. Hayek followed John Locke in thinking that civil government can maintain an impartial liberty through "certain basic rules on everybody." (p. 224). LAW, LEGISLATION AND LIBERTY was supposed to provide some guidelines, but there was no lockbox in the title, or in the title of any of Hayek's books. Now tax law has changed, as a basic incentive for a rise in the price of common stock, without safeguards to see that income is taxed even once. Speculation seems to be the common assumption upon which everyone is now to be satisfied. Actually, I suppose the government might never stop flying around like a drunken bat. For all the complexity in this book, it is much less like a drunken bat than the opinions I find in any newspaper.