The Legacy of Hayek

My article titled "The Legacy of Hayek" was published in The Economic Times, 8 May 1999.

Friedrich A. von Hayek, the philosopher of freedom and Nobel laureate economist, was born on 8 May, 1899 in Vienna, one hundred years ago. The man, who went on to become one of the greatest champions of liberty, however, had begun his life as a young soldier in the Austro-Hungarian Empire, and was sent to the Italian front in 1917.

An academic, whose “controversial ideas” were eventually recognised by the Nobel committee in 1974, Hayek was also an activist who was among the founders of the Mont Pelerin Society in 1948, an organisation dedicated to pursue the intellectual battle against all forms of authoritarianism and tyranny.

While we in India were fascinated by government planning, a quarter century ago, the Nobel Academy held that “von Hayek’s analysis of the functional efficiency of different economic systems is one of his most significant contributions to economic research in the broader sense. His conclusion is that only by far-reaching decentralisation in a market system with competition and free price-fixing is it possible to make full use of knowledge and information.”

If, today, the world is witnessing a perceptible change in its mode of thinking, it is in no small amount due to the legacy of Hayek. No wonder commemorative events are being organised in London, Paris, Vienna, Washington DC, Montreal, Eastern Europe, and Central America.

The Adam Smith Institute in the United Kingdom has named him the man of the century. Earlier this year, The Wall Street Journal named him among the most influential economists of this century.

In the 1920s, Hayek was part of that heady circle in post-war Vienna, a group that featured some of the greatest minds of the century. He earned two doctorates, one in law and another in political science. He studied economics under Ludwig von Mises, one of the greatest exponents of the Austrian School. Hayek mainly taught at the LSE, but had short spells at universities around the world including Cambridge, Chicago, Stanford, Tokyo, and Freiburg.

In the 1930s, Hayek was the principal opponent to Keynes. In various scholarly publications – Monetary Theory of Trade Cycle (1933), The Pure Theory of Capital (1941) – he had pointed out that business cycles are caused by monetary mismanagement. Subsequent events have completely vindicated Hayek. Concerned about the stability of value, he wrote a radical essay in 1976, “The Denationalisation of Money”, in which he argued that it was a serious mistake to allow governments to monopolise the legal tender. He called for the freedom of individuals to trade in whatever media of exchange they thought best.

He also published works more accessible to a wider public, which included books such as The Road to Serfdom and The Constitution of Liberty. The former has been nominated by journals like London’s Time Literary Supplement as one the noteworthy books of this century. Dozens of unauthorised editions of it were known to be in circulation among the underground activists in the Eastern block during the cold war.

Unfortunately, Hayek is hardly known in India today, and very few of his titles are available in the market, even though his relevance to us cannot ever be underestimated. Today, we are visibly concerned about corruption and criminalisation of our public life. But over five decades ago in Serfdom, he had outlined how the worst got to the top by taking advantage of the power of patronage vested in political establishments through “legalised” intervention in the economy.

Today, we are concerned that after fifty years of Independence, poverty is so widespread; and as a measure to speed up the process of redistribution of wealth, we thought it prudent to abolish right to property as a fundamental right. Hayek had cautioned all those years ago that “The system of private property is the most important guaranty of freedom, not only for those who own property, but scarcely less for those who do not”.

We want “social justice”, while Hayek warned that “There is all the difference in the world between treating people equally and attempting to make them equal”, and to attempt otherwise would only contribute to social collision.

As we, in one of the last remaining “socialist republics” in the world, grope to find a way to shed the statist mindset, it may be quite illuminating to go back and take a look at Hayek.

While the world marks his centenary, the next century could well belong to him.