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Jul 4, 2000

The Worst on Top: A Biography of Friedrich Hayek

Friedrich A. Hayek was a Nobel Laureate economist. He contributed to our understanding of free market economies and free societies generally.

Socialism appealed to the idealism of intellectuals, yet it brought the most hideous tyrannies. Just from the standpoint of human liberty, socialism was a catastrophe everywhere.

More than anyone else, Nobel Laureate Friedrich Hayek showed why socialism undermines human liberty and, if pursued far enough, must result in tyranny. He told why thugs dominate so many socialist regimes. He explained how institutions of a free society develop without central planning.

“Over the years,” Nobel Laureate Milton Friedman remarked, “I have again and again asked fellow believers in a free society how they managed to escape the contagion of their collectivist intellectual environment. No name has been mentioned more often as the source of enlightenment and understanding than Friedrich Hayek’s…I, like the others, owe him a great debt…his powerful mind…his lucid and always principled expositions have helped to broaden and deepen my understanding of the meaning and the requisites of a free society.”

Former British Prime Minister Margaret Thatcher wrote that “the most powerful critique of socialist planning and the socialist state which I read at this time [the late 1940s], and to which I have returned so often since [is] F.A. Hayek’s The Road to Serfdom.” Futurist Peter F. Drucker called him “our time’s preeminent social philosopher.”

Pulitzer Prize winning journalist Daniel Yergin reported in The Commanding Heights (1998), written with Joseph Stanislaw: “Concepts and notions that were decidedly outside the mainstream have now moved, with some rapidity, to center stage and are reshaping economies in every corner of the world…Hayek, the fierce advocate of free markets…is preeminent.”

He was a thin, distinguished-looking man who stood an inch or two over six feet. He had a small gray mustache and, in his later years, neatly-combed white hair. He spoke in a slow, thoughtful manner with a thick Austrian accent. He was an ardent hiker, spending as many summers as he could in the Alps. He loved to collect rare books on economics, philosophy and history, and he assembled three formidable libraries during his life.

While some students found his lectures hard to follow, others were enthralled. Majorie Grice-Hutchinson, for instance, who saw him at the London School of Economics during the 1940s: “He generally strolled up and down while lecturing, and he talked in a conversational tone, without emphasis or pedantry. His excellent memory and wide humanistic background allowed him to present attractively the ideas of philosophers, jurists, politicians and businessmen of many countries and every period, and he had no difficulty in holding the attention of the large numbers of students who always filled his classroom.”

Although Hayek defended controversial views for decades, he usually managed to maintain the goodwill of his adversaries. He developed a warm relationship with the English economist John Maynard Keynes whose advocacy of government intervention in the economy he emphatically disagreed with. As a gesture of good will, Hayek dedicated his best-known work, The Road to Serfdom (1944), to “socialists of all parties.” Nobel Laureate George J. Stigler observed that “Hayek has always been both a gentleman and a scholar.”

Friedrich August von Hayek was born on May 8, 1899 in Vienna which was one of Europe’s great intellectual capitals. He was the oldest of three boys born to Felicitas Juraschek and Dr. August von Hayek, a botany professor at the University of Vienna.

Early on, he enjoyed reading about all kinds of things, and it was during World War I, when he was in the Austrian army, that he read Carl Menger’s Grundsatze der Volkswirtschaftslehre [Principles of Economics]. Menger explained how markets work, and Hayek was fascinated. After the war, in 1918, he enrolled at the University of Vienna where he earned degrees in law (1921) and political science (1923).

In October 1921, Hayek met Ludwig von Mises who was a financial adviser at the Chamber of Commerce. Mises’ 1912 book The Theory of Money and Credit had made him a respected economist, and he explained how government expansion of money and credit caused the runaway inflation which was front page news. Mises found Hayek a job with an initial salary of 5,000 old kronen per month. In an effort to maintain purchasing power, amidst Austria’s postwar inflation, the salary was tripled within 30 days, and nine months later the salary was about a million old kronen per month.

Mises had an enormous impact on Hayek’s career. Mises’ 1922 book Die Gemeinwirtschaft [Socialism] convinced Hayek that a government-run economy would be a mess. Thanks to Mises’ efforts, Hayek was awarded a Rockefeller Foundation grant which enabled European intellectuals to visit the United States. From March 1923 to June 1924, he attended classes at New York University, Columbia University and the New School, which helped him learn English. He broke into print in English, a letter about runaway inflation, published in the August 19, 1923 New York Times. At New York Public Library, he read news accounts of World War I, and he was astonished that they differed so dramatically from the Austrian government’s war reports. This made him profoundly skeptical about government.

Back in Vienna, Hayek began attending Mises’ twice-monthly private seminar on free market economics, meeting in Mises’ office at the Chamber of Commerce. In January 1927, Hayek, with Mises’ help, established Osterreichische Konjunkturforschunginstitut [Austrian Institute for Business Cycle Research]. Two years later, Hayek became a Privatdozent at the University of Vienna, which meant he could teach students there—without pay.

Hayek had fallen in love with his cousin Helene Bitterlich, but he never got around to asking her to marry him before he left for America, and when he came back 14 months later, she was with another man whom she subsequently married. At the Abrechnungsamt, Hayek met Berta Maria von Fritsch, known as Hella. They got married in the summer of 1926. They had two children, Christina Maria Felicitas (1929) and Lorenz (Laurence) Josef Heinrich (1934).

Impressed by his work on the causes of economic depressions, economics professor Lionel Robbins invited him to deliver guest lectures at the London School of Economics and later to become a full professor there. Hayek introduced English-speaking economists to the Austrian view that a depression was the consequence of a prior inflation of money and credit. When ruinous inflation is stopped, many businesses collapse because they had become dependent on ever-rising prices. He became a British citizen and taught at the London School until 1949.

Hayek’s seminars influenced many people. Future Nobel Laureate Ronald H. Coase remembered Hayek for “encouraging rigor in our thinking and in enlarging our vision.” Hayek had Austrian-born philosopher Karl R. Popper speak at a seminar, and Popper expanded his talk into his most controversial book, The Open Society and Its Enemies (1945), a passionate attack on collectivists Plato and Karl Marx. Hayek helped find a publisher and persuaded colleagues at the London School of Economics to give Popper a teaching position.

During the 1930s, Hayek’s influence was dwarfed by Cambridge-based John Maynard Keynes whose book The General Theory of Employment, Interest and Money (1936) told politicians to try curing depression with inflation. It didn’t work, but the politicians wanted to spend money, so that’s what they did, and Keynes was hailed as a genius. Despite their disagreements, Hayek and Keynes became good friends.

Hayek focused on central planning which captured the imagination of intellectuals and politicians almost everywhere. He realized that decisive critiques of central planning, published in German, were virtually unknown among English-speaking readers. Accordingly, he gathered English translations of essays by Ludwig von Mises, N. G. Pierson and Georg Halm into a book, Collectivist Economic Planning (1935). Without free market prices, they showed, an economy won’t work efficiently.

In 1936, Hayek gave a talk, “Economics and Knowledge,” at the London Economic Club, and Economica reprinted it. He explained that prosperity depends on tapping vast amounts of information about what people want and how best to supply it. The information is dispersed among millions of people and constantly changing, which dooms central planning to failure.

Meanwhile, Hayek emphatically disagreed with intellectuals who claimed the Nazis were “a sort of capitalist reaction to the socialist tendencies of the immediate postwar period,” as he put it. He believed socialism leads to tyranny and that the Nazis—National Socialists—were just a variety of socialist tyranny. The May 1940 issue of Economica published Hayek’s article “Socialist Calculation: The Competitive ‘Solution,’” where he wrote that in a government-controlled economy, “all economic questions become political questions, because it is no longer a question of reconciling as far as possible individual views and desires, but one of imposing a single scale of values.”

In September 1940, Hayek began turning this idea into a book. It took almost four years. After the Germans started bombing London, the London School of Economics moved from their quarters on Houghton Street to Peterhouse College, Cambridge, and Keynes found rooms for Hayek’s family at King’s College, Cambridge. The rooms were cold, so they moved to a semi-converted barn nearby, and that’s where he finished his book.

He noted there is general agreement about a few functions of government such as providing national defense and punishing violent criminals, but as government expands beyond the realm of general agreement, it must enforce conformity. Central economic planning, Hayek explained, means more and more coercion as officials gain power to decide what work people must do, which kinds of cars, pens, apples and everything else must be produced—and who should get them. He observed that power attracts those who don’t have scruples about imprisoning or even executing people. That’s why “the worst get on top.”

Called The Road to Serfdom—after Alexis de Tocqueville’s phrase “the road to servitude”—Hayek’s book was published in England on March 10, 1944. It provoked controversy, and the 2,000-copy press run sold out. To secure an American publisher, Hayek sought help from Fritz Machlup, an economist who had attended Mises’ Vienna seminar, emigrated to the United States and got a job in Washington, D.C. Machlup couldn’t interest any publisher in the book, but he showed English page proofs to Aaron Director, Milton Friedman’s brother-in-law. Apparently he sent them to professor Frank Knight in the University of Chicago’s economics department. Knight recommended the book to William Couch, editor of the University of Chicago Press, and it was accepted. They had 2,000 copies printed.

Then came libertarian journalist Henry Hazlitt’s 1,500-word review on the front page of the Sunday New York Times Book Review, September 24, 1944. He declared that “Friedrich Hayek has written one of the most important books of our generation.” The University of Chicago Press ordered another 10,000 copies, and there were requests for rights to translate the book into German, Spanish and Dutch. Reader’s Digest editor-in-chief Dewitt Wallace devoted the first 20 pages of the April 1945 issue to a condensation of The Road to Serfdom. At the time, Reader’s Digest had a circulation around 8,000,000. Moreover, Harry Scherman’s Book-of-the-Month Club, America’s biggest bookseller, distributed some 600,000 copies of the condensation. Since the book appeared, it has sold over 80,000 hardcover copies and 175,000 paperback copies in the United States, plus authorized editions in almost 20 languages and unauthorized editions in Eastern European languages.

The book struck a responsive chord with at least some of Hayek’s intellectual adversaries. Keynes wrote Hayek: “In my opinion it is a grand book—morally and philosophically, I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement.” George Orwell, the socialist who attacked totalitarianism in his novels Animal Farm and 1984, acknowledged that Hayek’s thesis contains “a great deal of truth—collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitor never dreamed of.”

The University of Chicago Press rushed Hayek into the lecture circuit, a new experience for him. He told an interviewer, “when I was picked up at my hotel [in New York]…I asked, ‘What sort of audience do you expect?’ They said, ‘The hall holds 3,000 but there’s an overflow meeting.’ Dear God, I hadn’t an idea what I was going to say. ‘How have you announced it?’ ‘Oh, we have called it ‘The Rule of Law in International Affairs.’ My God, I had never thought about that problem in my life—I asked the chairman if three-quarters of an hour would be enough. ‘Oh, no, it must be exactly an hour…you are on the radio.” Hayek was a hit.

During the 1945 parliamentary elections, Winston Churchill drew a campaign theme from Hayek’s book. On June 4th, he warned that a Labour Government wouldn’t “allow free, sharp or violently worded expressions of public discontent…they would have to fall back on some form of Gestapo…” Laborite Clement Atlee derided this speech as a “second-hand version of the academic views of an Austrian professor, Friedrich August von Hayek.” The Labour Party won the election, Atlee became the next Prime Minister, and by the fall of 1947, they enacted peacetime forced labor. As economist John Jewkes explained, “the Minister of Labour had the power to direct workers changing their jobs to the employment he considered best in the national interest.” Fortunately, the Labour Party was defeated in the 1950 elections.

Meanwhile, in 1947 Hayek called a meeting of scholars, journalists and others who were concerned about liberty. “After the publication of The Road to Serfdom,” Hayek recalled, “I was invited to give many lectures. During my travels in Europe as well as in the United States, nearly everywhere I went I met someone who told me that he fully agreed with me, but that at the same time he felt totally isolated in his views and had nobody with whom he could even talk about them. This gave me the idea of bringing these people, each of whom was living in great solitude, together in one place. And by a stroke of luck I was able to raise the money to accomplish this.” Thirty-six participants from 10 countries gathered at the Hotel du Parc, Mont Pelerin, near Vevey, Switzerland, April 1st to April 10th, 1947. They exchanged views and formed the Mont Pelerin Society. Four of the original members won Nobel Prizes.

The University of Chicago Law Review (Spring 1949) published Hayek’s essay “The Intellectuals and Socialism.” He wrote, “The main lesson which the true liberal must learn from the success of the socialists,” he wrote, “is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion which is daily making possible what only recently seemed utterly remote.” Thousands of copies of this essay were distributed over the years, and Hayek’s view inspired efforts in many countries to influence intellectuals and ultimately public policy for liberty.

While visiting Austria to see family members who had survived the war, Hayek learned that his first love Helene Bitterlich had become a widow and was therefore free to marry him. He and his wife Hella separated in December 1949. Friends were upset. Soon after the divorce in July 1950, Hayek married Bitterlich, and they were together for the rest of his life.

Hayek had to get away from England, and the best bet was the United States. The University of Chicago was a possibility because of The Road to Serfdom, but the economics department didn’t want him. Princeton and Stanford turned him down. After teaching for a year at the University of Arkansas, John U. Nef, Chairman of the University of Chicago’s Committee on Social Thought, invited him to be Professor of Social and Moral Science. The University of Chicago wouldn’t pay him a salary, but the William Volker Fund’s Harold W. Luhnow agreed to cover it. Hayek office was Room 506 of the Social Sciences building on 59th Street.

One of his students, Shirley Robin Letwin, remembered that “On Wednesdays, after dinner, a large assortment of the wise and callow, coming from all disciplines and all nations, assembled around a massive oval oak table in a mock Gothic chamber to talk about topics proposed by Hayek…philosophy, history, social science, and knowledge generally…Hayek presided over this remarkable company with a gentle rectitude that made his seminar an exercise in the liberal virtues…The general subject was [market] liberalism…the only obligation was to enter into the thoughts of others with fidelity and to accept questions and dissent gracefully.”

Since views about history influence about current policies, Hayek gathered contributions by economic historians T.S. Ashton and Louis Hacker, economists W.H. Hutt and Bertrand de Jouvenal into a book, Capitalism and the Historians (1954). They rejected the widely held view that free markets made people worse off and that government regulation was needed. The book told how people voluntarily migrated from poor rural areas to factories because tough as factory work might have been, it made possible a better and longer life.

In 1956, Hayek was invited to deliver some lectures for the National Bank of Egypt. He chose as his subject “The Political Ideal of the Rule of Law.” He surveyed the history of efforts to limit government power by achieving a rule of law, meaning laws that apply equally to everybody and are predictable so that people can plan their lives accordingly. Hayek developed these ideas more fully in The Constitution of Liberty. Like John Milton and John Stuart Mill, Hayek went on to say that because one never knows where discoveries might come from, it’s essential that people be free to pursue the truth. He wrote, “the chief reason why we should be held wholly responsible for our decisions is that this will direct our attention to those causes of events that depend on our actions. The recognition of property is clearly the first step in the delimitation of the private sphere which protects us against coercion. We are rarely in a position to carry out a coherent plan of action unless we are certain of our exclusive control of some material objects…”

Hayek summarized a legal framework for liberty. First, laws should be rules rather than commands dictating specifically what people must do. “The rationale for securing to each individual a known range within which he can decide on his actions is to enable him to make the fullest use of his knowledge,” Hayek noted. Moreover, laws should be general, applying to government as well as the people. This won’t prevent all bad laws from being passed, but if lawmakers know that laws apply with full force to them, they’ll be less prone to mischief.

Hayek pointed out that “today the conception of the rule of law is sometimes confused with the requirement of mere legality in all government action. The rule of law, of course, presupposes complete legality, but this is not enough: if a law gave the government unlimited power to act as it pleased, all its actions would be legal, but it would certainly not be under the rule of law. The rule of law, therefore, is also more than constitutionalism: it requires that all laws conform to certain principles…The rule of law is therefore not a rule of the law, but a rule concerning what the law ought to be…”

Hayek had high hopes for The Constitution of Liberty, published on February 9, 1960, which he seems to have considered his best work. While he did get reviewed in friendly publications, like the Wall Street Journal, Chicago Tribune, Fortune and Henry Hazlitt’s Newsweek column, the book was generally ignored. Hayek became depressed.

In April 1962, the Volker Fund was dissolved, and Hayek feared that meant no more income at the University of Chicago. Consequently, when he received an offer to teach at the University of Freiburg, southwestern Germany, he took it. Hayek pushed his thinking beyond The Constitution of Liberty, but he suffered ill health and didn’t write much. In 1969, he became a visiting professor at the University of Salzburg, Austria because it was closer to his wife’s family in Vienna, and the law faculty bought his library while letting him continue to use it.

Five years later, those on the Nobel Prize nominating committee wanted to honor Swedish socialist Gunnar Myrdal, but they decided they better be more balanced and share the award with somebody holding contrary views. They settled on Hayek. The Nobel Prize lifted his spirits, and as Daniel Yergin and Joseph Stanislaw observed in The Commanding Heights (1998), “documented the beginning of a great shift in the intellectual center of gravity of the economics profession toward a restoration of confidence in markets, indeed a renewed belief in the superiority of markets over other ways of organizing economic activity.”

Hayek completed his long-dormant trilogy Law, Legislation and Liberty, consisting of Rules and Order (1973), The Mirage of Social Justice (1976) and The Political Order of a Free People (1979). He attributed much of the decline of liberty to the mistaken belief “that democratic control of government made unnecessary any other safeguards against the arbitrary use of power.” He attacked “social justice” as a vague idea aimed to justify the endless expansion of government power during the 20th century. The most disastrous consequences occurred in countries which adopted parliamentary government and lacked a constitutional tradition limiting, at least to some degree, what government could inflict on people.

In 1976, Hayek produced The Denationalization of Money, a report for the Institute of Economic Affairs (London), which challenged what he called “the source and root of all monetary evil, the government monopoly of the issue and control of money.” He made a case that private institutions would do a better job avoiding inflation or depression because they’d be watched by competitors, currency exchanges and the financial press.

Hayek’s writings inspired Ronald Reagan in the United States and Margaret Thatcher in Great Britain. Hayek was revered by people who suffered from socialist tyranny in Eastern Europe, the Soviet Union and China. Hayek’s last work was The Fatal Conceit, the Errors of Socialism (1988), substantially edited by William Bartley III whom he had picked to write a biography and assemble his collected works. Bartley died in 1990, the biography unwritten, but Bartley’s associate Stephen Kresge has ably directed the publication of Hayek’s collected works.

Although Hayek was lucid almost to the end, he couldn’t do any writing after about 1985. Besides the infirmities of old age, he suffered a bout with pneumonia. He seldom ventured out of the third floor apartment in a big stucco house on Urachstrasse 27, Freiburg, West Germany, next to the Black Forest. He had moved back to Freiberg in 1977. Biographer Ebenstein reported, “His library contained perhaps 4,000 volumes across a number of disciplines, including economics, psychology, anthropology, and political philosophy. The furniture was not new, nor the interior recently painted…He had on his desk a picture of his second wife as a beautiful young woman in Vienna many years before.”

He died Monday, March 23, 1992 in the apartment. He was 92. About a hundred people attended a funeral service April 4th, conducted by Father Johannes Schasching. Hayek was buried in the hilly Neustift am Wald cemetery, overlooking the Vienna Woods.

Hayek had lived just long enough to see the Union of Soviet Socialist Republics disappear from the map. He had insisted, as Mises did before him, that socialism would impoverish multitudes—and he was vindicated. He correctly warned that socialism ultimately means oppression, slavery and mass murder. He did perhaps more than anyone else to show that free people, not government planners, are the key to a flourishing civilization.

As John Cassidy wrote in the February 7, 2000 New Yorker, “If there are two things most people can agree on these days, they are that free-market capitalism is the only practical way to organize a modern society and that the key to economic growth is ‘knowledge.’ So prevalent are these beliefs that their origins are rarely examined, which is somewhat surprising, since both statements can be traced back, in large part, to one man, Friedrich August von Hayek.” His moral courage and dazzling insights made clear that ideas shape our destiny.

Reprinted from The Triumph of Liberty by Jim Powell.