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Friedrich A. Hayek: London School
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One of the leaders of the Austrian school of economics in the twentieth century, Friedrich Hayek received the Nobel Memorial Prize in Economic Science in 1974. Born to a distinguished family of Viennese intellectuals, he attended the University of Vienna, earning doctorates in law and economics in 1921 and 1923. He became a participant in Ludwig von Mises's private economics seminar and was greatly influenced by von Mises's treatise on socialism and his argument about the impossibility of economic rationality under socialism due to the absence of private property and markets in the means of production. Hayek developed a theory of credit-driven business cycles, discussed in his books Prices and Production (1931) and Monetary Theory and the Trade Cycle (1933). As a result he was offered a lectureship, and then the Tooke Chair in Economics and Statistics at the London School of Economics and Politics (LSE) in 1931. There he worked on developing an alternative analysis to the nascent Keynesian economic system, which he published in The Pure Theory of Capital in 1941, by which point the Keynesian macro model had already become the accepted and dominant paradigm of economic analysis.
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Hayek remained at the London School of Economics until 1949. During that time he published a large body of work that established his international stature as one of the leading economists of his time. It was during this period that he became the greatest challenger to the emerging New Economics of Keynes. In Prices and Production; Monetary Theory and the Trade Cycle (1933); a series of articles reprinted in 1939 under the title Profits, Interest and Investment; and The Pure Theory of Capital (1941), Hayek argued that business cycles had their origin in the mismanagement of the monetary system. Also, in 1931–1932, Hayek wrote a lengthy two-part review of Keynes’s Treatise on Money for the journal Economica. It was considered a definitive critique of Keynes’s work.[4] The Great Depression served as the backdrop against which Hayek explained his own theory and criticized Keynes.
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In 1947 Hayek founded the exclusive Mont Pelerin Society, an international association of like-minded scholars. By the end of 1949 he left London and accepted a professorship at the University of Chicago. The Sensory Order (1952), a discourse in pure psychology containing some of his most original and important ideas, was published in 1952, though the preliminary thoughts dated back to the early 1920s when he had been uncertain whether to become a psychologist or an economist. Hayek's socio-philosophic approach... led to his The Constitution of Liberty (1960), regarded as one of the great books of the mid-20th century. Here he further developed his idea of spontaneous order and laid down the ethical, legal, and economic principles of freedom.
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Hayek worked as a research assistant to Prof. Jeremiah Jenks of New York University from 1923 to 1924. He then worked for the Austrian government helping to work out the legal and economic details of the international treaty ending World War I. Hayek then set up and became director of the Austrian Institute for Business Cycle Research before joining the faculty of the London School of Economics at the behest of Lionel Robbins in 1931. In the 1930s Hayek enjoyed a considerable reputation as a leading economic theorist, but his models were not received well by the followers of John Maynard Keynes and debate between the two schools of thought continues to this day. Unwilling to return to Austria after its annexation to Nazi Germany, Hayek became a British citizen in 1938, a status he held for the remainder of his life.
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Hayek represented the subjective approach of the free-market oriented Austrian School of Economics, distinguished by its methodological individualism. His economic analysis, therefore, rested upon the insight that every individual chooses and acts in pursuit of his purposes and in accordance with his perception of his options for achieving them. His early writings, as shown above, were in pure economic theory.
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Hayek's criticisms of socialist central planning led him to attack the premise behind all attempts at social engineering. Developing some of the ideas of Carl Menger, the founder of the Austrian School of Economics, Hayek argued that the central planners and the social engineers all suffered from a "pretense of knowledge" (the title of his Nobel lecture).
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