Episode #141: Memorable Mentors - Freidrich Hayek

Friedrich Hayek (1899-1992) was one of the most prodigious classical liberal scholars of the 20th century. He won the 1974 Nobel Prize in economics, published 130 articles and twenty-five books on topics ranging from technical economics to theoretical psychology, from political philosophy to legal anthropology, and from the philosophy of science to the history of ideas.

The focus of our conversation was around the essays published in the free eBook entitled The Essential F.A. Hayek, published by The Foundation for Economic Education, and available for free.

The book contains six chapters.

The Case for Freedom

If we knew our wants/desires, there would be little case for liberty. Liberty is essential to leave room for the unforeseeable and unpredictable

Freedom for the sake of only producing future beneficial effects is not freedom. Freedom is frequently abused, but on balance the good outweighs the bad.

Freedom used by one out of one million could be more important to society than the freedom we all use.

We can’t plan the advance of knowledge—the mind can’t see its own advance. We are dependent on the vagaries of individual genius and circumstance. Freedom in action is as important as freedom of thought.

The use of reason aims at control and predictability, but the process of the advance of reason rests on freedom and the unpredictability of human action.

The Use of Knowledge in Society

The economic problem is not how we allocate “given resources.” Rather, it is that the utilization of knowledge is not given to any one person.

Hayek believed mathematics obscured this issue rather than shed light on it. He wrote:

The various ways in which knowledge on which people base their plans is communicated to them is the crucial problem for any theory explaining economic process.

Scientific knowledge is not the sum total of all knowledge. The knowledge of the particular circumstances of time and place is often just as important, even though not scientific.

Central planning, or statistical information cannot take into account circumstances of time and place.

Millions of people, who couldn’t be identified, move in right direction just by price signals. Hayek called this a “marvel.” We take it for granted, but if it had been the result of human design, it would be the greatest triumph of the human mind.

The Pretense of Knowledge

This was Hayek’s 1974 Nobel speech, where he said, “As a profession we have made a mess of things.”

Economics has tried to imitate physics—“scientistic attitude.”

Our theories are formulated in such terms that they refer only to measurable magnitudes, yet the actions of millions cannot be measured.

“I confess that I prefer true but imperfect knowledge, even if it leaves much undetermined and unpredictable, to a pretense of exact knowledge that is likely to be false.”

In other words, Hayek rather be approximately right than precisely wrong.

He thought that economists needed to cultivate growth by providing the appropriate environment, like a gardener.

Intellectuals and Socialism

Hayek defined an intellectual as a “Professional secondhand dealer in ideas.”

Socialism was never a working class movement, rather it was a construction of theorists, intellectuals.

The philosopher has grater influence over intellectuals than any other scholar or scientist.

Socialists have the courage to indulge in Utopian thought, it’s a source of strength traditional liberalism lacks. No one marches in the streets for capitalism. We must appeal to the imagination.

The Moral Element in Free Enterprise

A free society lacking a moral foundation would be very unpleasant, but it is still better than an un-free and immoral society.

The value of services as determined by the market does not convey moral merit. This is probably the chief source of dissatisfaction with the free enterprise system. It’s why we see continuous calls for “distributive justice.”

Hayek thought this a great merit, since no one would be dependent on their fellow humans to like them personally.

We don’t know in advance if a brilliant idea is the result of years of hard work or luck, so we must allow a man to get the gain even if luck was the cause.

It’s argued that a free market system is more materialistic. It might be, but it also leaves us free to choose other paths.

The way to prevent this is not to have the material means placed under a single direction.

Look at North Korea, Cuba, USSR, or any other communist/socialist country: they are some of the most materialistic societies you’ll ever see.

Free enterprise deals with means, not ends.

Why I Am Not a Conservative

Tug of war between conservative and progressives only affect the speed, not direction of developments.

Conservatives have a fear of change, and use the power of government to prevent or slow change. They have a fondness for authority and lack of understanding of economic forces, are frequently protectionists, a hostility to internationalism, and a strident nationalism.

Conservatives have a distrust of theory, and have a lack of imagination except where experience has already been proven.

Hayek didn’t like the term “libertarian.” Whiggism, historically, is the correct term for ideas he believed.

Whig principles guided James Madison, Thomas Jefferson, and the signers of the Declaration of Independence, and the members of the Constitutional Convention.

Indeed, Washington’s soldiers were clad in the traditional “blue and buff” colors of the Whigs.

Conservative author and National Review editor Jonah Goldberg counters the arguments in Hayek’s essay, offering the conservatives rejoined.

“Conservative” means different things in different cultures—Saudi Arabia, Russia, France, even the UK.

True conservatism demands comfort with contradiction. Notice Hayek doesn’t call himself a libertarian—he rejected the label. He described himself as an “Old Whig.” So did Edmund Burke.

Hayek did say the USA was the one place in the world where you could call yourself a conservative and be a lover of liberty, because conservatives want to defend the those institutions that preserve it. In other words, American conservatism is simply classical liberalism, which ideas inspired the likes of John Locke, Edmund Burke, and Adam Smith.

William F. Buckley, Jr., no shrinking violet when it came to political philosophy, contributed a chapter to the book What Is Conservatism?

The title of that chapter is “Notes towards an Empirical Definition of Conservatism; Reluctantly and Apologetically Given by WFB.”

Conservatism isn’t a single thing. It’s a bundle of principles married to a prudential and humble appreciation of the complexity of life and the sanctity of successful human institutions.

Yuval Levin, another National Review author, defined it thus: “To my mind, conservatism is gratitude for what is good and what works, and strive to build on it, while liberals tend to begin from outrage at what is bad and broken and seek to uproot it.”

Liberty above all else undermines the development of character and citizenship, which Hayek understood.

Conservatives love people for what they are, not what they could be.

Other Resources

The Essential Hayek, by Donald Boudreaux, available for free on Kindle.

Liberal Fascism, Jonah Goldberg.

The World’s Smallest Political Quiz: The Nolan Chart.


Ed Kless

Ed Kless joined Sage in July of 2003 and is currently the senior director of partner development and strategy. He develops and delivers curriculum for Sage business partners on the art and practice of small business consulting. Courses include: Sage Consulting Academy, Business Strategy and Customer Experience Workshops. Ed is the author of The Soul of Enterprise: Dialogues on Business in the Knowledge Economy, a compendium of a few of the episodes of his VoiceAmerica talk-show The Soul of Enterprise: Business in the Knowledge Economy with Ron Baker, founder of the VeraSage Institute where Ed is also a senior fellow.