POLITICAL THEORY – Friedrich Hayek

frii AUST Von Hayek was a political Economist who had a tremendous influence upon how people in capitalist societies understand the concept of liberty controversially for hyek liberty did not mean democracy or a commitment to a set of liberal ideals rather hyek believed that Liberty was a policy which deliber L adopts competition markets and prices as its ordering principles to Hayek's way of thinking it was markets that guaranteed individual liberty and by contrast it was the interference of the state in markets which disrupted the operation of Liberty and started Society down as he famously put it

the road to serfdom Hayek was born into a minor part of the austr Hungarian aristocracy his father who came from a line of Scholars was a medical doctor and part-time lecturer in botany Hayek's childhood was filled with considerations of philosophy and economics after a brief stint in the austr Hungarian army during the first world war hyek took up studies at the University of Vienna obtaining doctorates in law and political science and afterwards he became an academic Economist Hayek's career can be divided into two periods the first which ended towards the end of the 1940s was

spent mainly at the London School of Economics where Hayek concerned himself with many of the macroeconomic debates of the day the second half of Hayek's career was much more varied from 1945 onwards in first Chicago and later Friberg Los Angeles and salsburg hyek wrote and lectured on a whole range of subjects economics yes but also politics psychology philosophy and the philosophy of science and while he officially retired in 1968 it was actually in the 1970s and ' 80s that hyek enjoyed his greatest moments of influence being awarded the Nobel Prize in economic Sciences in 197

4 and subsequently being enormously influential upon the governments of Ronald Reagan and Margaret Thatcher during Hayek's stay at the London School of Economics which he joined in 1931 he wrestled with a number of the then contemporary debates with an economic theory much of this revolved around the business cycle which put simply is the way in which economies grow and contract traditional economic theory held that over time economies find themselves in equilibrium in short gluts and shortages should balance themselves out via Market mechanisms leading to the optimal distribution of resources within an economy the problem was

that the economic Peaks and troughs seem to keep occurring and they also seem to be more dramatic than they should be when the world economy stagnated and then crashed in the late 1920s and the 1930s Fierce debate began as to why this had occurred coming at economics from a fairly classical position Hayek focused on issues of Supply he noticed that when economies were in recession Sen central banks often artificially injected more money into the economy by printing cash or else or in addition by holding interest rates low to encourage investment rather than saving hyek argued

that this was a mistake when money was too readily available entrepreneurs invested in products which were not necessarily desired by consumers when these products went unsold companies would go bankrupt leaving industrial capacity invested where it need not be in addition cheap credit incentivized long-term capital investment and hyek argued that this too was a problem because it limited the possibility of entrepreneurs attempting to realize short-term gains which would actually Kickstart the economy resisting the temptation to meddle in the money supply was for hyek crucial to solving the problems of the Great Depression Hayek's colleagues at the

London School of Economics were receptive to his more classical approach but up the road in Cambridge a very different set of ideas was emerging centered on the thought of John Maynard KES kanes argued that the problems of the 1930s economy were located not so much in issues of Supply but rather of demand for KES the role of government was to invest in public works the buildings of roads for example which would create employment and therefore give people money to spend stimulating economic growth for K's full employment was therefore not only a loable social goal but

vital for the economy too kan's demand Le economics was fundamentally at odds with Hayek's ideas hyek felt that kan's focus on full employment would require governments to keep increasing money supply this in turn would create severe inflation of the kind that had wiped out his family savings when 1920s Austria had suffered a bout of hyperinflation throughout the 1930s Hayek and KES corresponded with each other argued bitterly and found very little Common Ground during the second world war they even met under bizarre circumstances because of the German bombing campaign against London the LSC had been evacuated

to Cambridge one night KES and Hayek were assigned to firat duty together on the roof of the chapel of King's College sadly we don't know what it was they talked about throughout that night the opening of the second half of Hayek's career is marked by his first foray out from dry economic arguments and the publication of what is probably his most famous work the road to surom Hayek saw the writing of this book as a form of War workor forced upon him because as a former enemy combatant Hayek was refused official service in the British

war effort against the backdrop of K's ideas on planning which had become accepted within British government circles the road to serum was an attempt to save people from themselves or more accurately from central government Hayek put forward several key arguments firstly that there was nothing intrinsic to Germans as a race of people that had caused them to adopt authoritarian forms of government hyek rejected the idea somewhat popular at the time that there was something about German culture or indeed inherent to Germans as a race which predis Expos them to authoritarian and expansionist forms of government

secondly hyek argued that where Germany and the Soviet Union too for that matter had gone wrong was in undertaking State planning that interfered in the natural operation of markets for hyek the problem with State planning was that it necessarily involved offering up responsibility for deciding upon a plan to a single individual in a bureaucratic system such as the state Hayek argued someone had to ultimately decide on what course of action should be taken and that person's judgment would necessarily have to be deferred to and deferred to repeatedly over a given period of time in this

sense planning LED societies to sleepwalk into dictatorship thirdly not only did hyek worry about the inherent need for planners to defer to a single individual but also he was concerned that fundamentally no one individual could actually make rational choices in regards to economic problems due to them not having enough information to base their decisions upon to be clear it was not that Hayek necessarily condemned dictatorship after all his vision of Liberty was a society in which markets were the principal method of economic organization not necessarily one where Society collectively decided upon governments via The Ballot

Box to this end hyek was comfortable with dictators who adopted free market economic policies involving minimal State intervention in a nation's economy but dictators who undertook economic planning were for hyek the really great evil hyek saw it like this markets are extremely complicated networks with Millions if not billions of transactions going on all the time even consideration of some of the basics of Market transactions shows this items are bought and sold Commodities are invested in and divested from and famines and bumper crop yields affect how much there is to eat and how much it will

cost to acquire it in keeping with the laws of supply and demand when individuals make choices as to whether or not to buy a commodity they affect that commodity's price if it becomes scarce its price increas inrees if it becomes plentiful its price Falls in this sense the free market acts as a kind of constant referendum on the value of goods within an economy for hyek the market represented a form of Collective Agreement made amongst all of the people operating in that market as to the value of particular goods and services and against the collective

wisdom of hundreds or thousands or millions of people what could one single planner hope to offer that represented a superior form of wisdom Liberty for Hayek therefore was to be found in letting the market do its work the road to serfdom launched Hayek's later career instantly it became a bestseller during the second world war its print run was limited due to paper shortages and obtaining a copy was NY on Impossible due to sheer demand in the United States of America a condensed Readers Digest version of the book brought the message to a very large public

so too did a series of lectures delivered by hyek during 1945 at various venues in the United States hyek cold shouldered by British policy makers and economists was delighted at the reception he received in the US and in 1950 he moved to the University of Chicago which became the center of neoliberal economic thinking with which Hayek was closely associated much as Cambridge had been the Locust for kyy and economics but despite the popular Acclaim of the road to serum two negative reactions irked him first of all some of his own colleagues normally sympathetic to the

ideas he put forward saw the road to surum as a kind of lightweight form of Journalism rather than as a form of scholarship Caines who read the road to serum sent Hayek what was for the most part a complimentary message about its content however towards the end and in quick order Caines challenged Hayek as to where he would draw the line on government planning some planning was clearly needed Hayek was not an economic Anarchist after all but K's challenged where would the line be drawn it took Hayek many years to work out his response to

KES who died in 1946 but the response eventually came in 1960 in Hayek's book The Constitution of Liberty the book laid out Hayek's practical vision for where the line between the state and the market should be drawn and it was highly influential among the political right in an anecdote a story is told that at a meeting with a conservative research Department in 1975 Margaret Thatcher responded to a policy paper on political philosophy by reaching into a handbag and withdrawing a copy of the Constitution of Liberty holding it a loft thater declared this is what we

believe as the 20th century unfolded Hayek's ideas gained more common currency the notion that the state should limit itself to providing a legal framework within which entrepreneurs can engage with free markets is now at the heart of much of economic thinking many politicians and large sections of the public too are skeptical about the ability of the state to plan and undertake anything but the most simple of economic tasks and this owes much to Hayek's warnings about the anti-libertarian Perils of planning and the inability of planners to truly understand the world around them even when the

financial crisis of 2008 hit the world economy leading to a prolonged recession faith in government planning was not restored in the popular imagination this was best testified to by the road to surom hitting the number one spot on the Amazon book bestseller list in early 2010 despite it having been written over 60 years ago e