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Friedrich A. Hayek: New Economics
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The Meaning of Hayek Gerald P. O'Driscoll Jr. is director of policy analysis at Citicorp, a senior fellow of the Cato Institute, and the author of Economics as a Coordination Process: The Contributions of Friedrich Hayek. He delivered these remarks at the dedication of Cato's F. A. Hayek Auditorium on May 9, 1995.
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If any twentieth-century economist was a Renaissance man, it was Friedrich Hayek. He made fundamental contributions in political theory, psychology, and economics. In a field where the relevance of ideas often is eclipsed by expansions on an initial theory, many of his contributions are so remarkable that people still read them over forty years after they were written. Many graduate economics students today, for example, study his articles from the thirties and forties on economics and knowledge, deriving insights that some of their elders in the economics profession still do not totally understand. It would not be surprising if a substantial minority of economists still read and learn from his articles in the year 2050.
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Just as Hayek predicted market development has great implications for civil rights pertaining to persons. First of all, independent economic decision-making effectively killed the old rationing system because in the new market economy migrants could buy food in the markets without any food coupons. The food coupon that was given only to urban residents had been used as a means not only to control people's movement but ... to differentiate the rural/urban identities. For the majority of farmers, the death of the coupon was liberation.
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A look into Hayek reveals that the present-day neoconservative and liberal programs both emerge from lengthy and complicated lines of development within the broader history of Western modernity. Both those lines, it turns out, lead back to a common ground in the 17th and 18th centuries in England. The English located in unimpeded economic enterprise the source of the individual freedom that took center stage in their vision of modernity. And, as an essential condition for freedom, they elevated the rule of law—the necessary condition for the classic values of equity and equality—to paramount status. Classical liberalism combined these two principles, laissez-faire in economic activity and equity and equality in society, into a grand vision for human progress.
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Hayek's point is that when people are not under war conditions, they have many different values. So the question then becomes, if you have socialism, who makes the decision of what gets produced? If people have different values, they are going to disagree with the planners. The planners end up being frustrated because they are unable to decide what to produce and gain full consensus. So they completely take over the production process. Hayek argues that you can't make that neat separation between economics and politics that implicitly fills in the claims of the socialists.
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In the 1930s and 1940s, Hayek and Mises were the leading opponents of socialist central planning. Hayek's particular and profound contribution to the debate over the feasibility of socialism was the following argument: that the more complex a society, the more difficult it becomes for a central planner to possess the required knowledge to coordinate all the economic activity of that society. In a system of division of labor, human knowledge is ... divided. Each member of society possesses a small fraction of all the world's knowledge. And a successful coordination of all of these bits of knowledge, upon which the prosperity of the social order depends, is only possible through the use of market competition that transmits essential information about changing supply and demand conditions to every comer of the market through the price mechanism. And market competition also serves as a "discovery procedure" for finding out the capabilities and comparative advantage of each member of the social division of labor.
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