Friedrich von Hayek Essay

Friedrich von Hayek

Friedrich von Hayek was known as perceptive and a great intellect of economics during 20th century. With exceptional contribution in economics, winning Nobel Prize in 1974, he made valuable involvement in the disciplines of political philosophy, psychology, and epistemology.

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Eminent economist Friedrich von Hayek was born on May 8, 1899, in Vienna. On March 1917, he joined a field artillery regiment before completing his education at the Gymnasium. He started his studies at the University of Vienna in 1918. He was much affected by war and it changed his mind from the natural sciences to the social sciences, although he served a lot in a conglomerate armed forces. He stated in his own words, “That’s when I saw, more or less, the great empire collapse over the nationalist problem. I served in a battle in which eleven different languages were spoken. It’s bound to draw your attention to the problems of political organization”[1].

During war period, Hayek gained knowledge of Italian and a ruthless infection of dreaded disease malaria. After that he studied a number of branches at the University of Vienna where he actively took part in the societal and cultural life. These early years at the university were crucial for Hayek because at that time he recognized the pattern of rational investigation that had an effect on throughout his life. At this period, Hayek’s view were crystallized and defined as compared to the mythical characterization of Vienna. But he was still unsure between psychology and economics. He left psychology and concentrated on law as a study, which combined economics with preparation for the civil service. Due to his intelligence, Hayek completed a four-year degree course in three years and he was awarded a doctorate in jurisprudence in 1921. A year later, he received a doctorate degree in political science. His academic life was greatly dominated by Ernst Mach, known as a unit of measurement for the speed of supersonic aircraft. Friedrich Hayek was projected from relative obscurity in Vienna into the prestigious Tooke Chair of Economic Science and Statistics at the age of thirty-three years at London School of Economics.[2]  He died on March 23, 1992, in the city of Freiburg im Breisgau in Germany. During last days of his life, Hayek experienced that he was extremely fortunate that his one discovery or opportunity found the way to another.

Hayek had multifaceted birthright in economics. He is a main star for his popular “The Road to Serfdom (1944)” and for his valuable work on knowledge in the 1930s and 1940s among middle-of-the-road economists. Later he concentrated on the role of knowledge and breakthrough in market processes, and on the methodological ground works of the Austrian folklore, mainly subjectivism and methodological individualism. Due to his energetic involvement in the debate over the likelihood of economic calculation under socialism, he contributed a lot in above areas. In 1950, Hayek joined the Committee on Social Thought at the University of Chicago where he engaged in researching the wide spectrum aspects social, political and legal philosophy. In all through his writings, general conception of economics as a coordination problem was reproduced. Hayek adopted a two stage approach to the study of business cycles. In Hayek’s words, “before we explain why people commit mistakes, we must first explain why they should ever be right” (1937, p. 34). His account first of how a market economy works to coordinate activities over time and then of what can go wrong draws from several different fields of study within the science of economics.[3]  In spite of important contribution in each of these fields of study, he eventually attained mastery over the integration of price theory, capital theory, and monetary theory. Hayek developed integration of these fields into a cohesive account of a market process which tends towards intertemporal coordination and of central-bank policies that can meddle with that process resulting artificial economic detonations, which are inexorably followed by economic busts.  Business-cycle theory developed by Hayek had presented a foundation for inferring much of nineteenth- and twentieth-century economic history, to appraise substitute macroeconomic theories particularly those of John Maynard Keynes, and to prop up institutional improvement of the kind that will avert or lessen intertemporal discoordination. Another major contribution of to economic field was the development of capital theory, which is usually observed as his most deep-seated and path breaking accomplishment. Hayekian triangles, initiated in his Prices and Production (1935), presented an expedient change in the intertemporal pattern of the capital structure which was the generally predictable but hardly ever understood.

Pure Theory of Capital of Hayek provides a comprehensive management of capital goods in terms of reproducibility, durability, specificity, substitutability, and complementarity in summary terms, Hayek’s monetary theory consists of integrating the idea of money as a medium of exchange with the idea of the price system as a communication network. His trade-cycle theory consists of integrating monetary theory and capital theory-in which a particular aspect of the price system, namely the system of intertemporal prices, is emphasized. [4]

Hayek’s life work was justified in fall down of socialism. His popular book, The Road to Serfdom, was remained dominant in re-establishing the political and economic ideals that helped in disintegrating of communist regimes. “What original ideas I have had,” Hayek writes (see pp. 134-35), “actually did not come out of an orderly process of reasoning. I have always regarded myself as a living refutation of the contention that all thinking takes place in words or generally in language. [5]Carl Menger’s Principles of Economics influenced on Hayek’s first eagerness for economics, which was published in 1871. This contributed a source of guidance to the succeeding Austrian economists.

 Hayek’s view on socialism was the most influential among the various collectivist political doctrines pledge to central planning and direction in the economy. So far, according to Hayek, planned economies invariably are unsuccessful. He interpreted that these are ineffective, and their fall down can be prevented only at the cost of colossal intimidation. Providing solid basis, he conveyed that socialism inexorably deteriorates into political totalitarianism.[6]

Hayek had a conviction that the one can understand economy from an upturned standpoint. With such type of approach he comprehended both Keynesian macroeconomics and Walrasian general equilibrium theory, that later dominated in the field of economics. He insisted on the need to consider a market economy as a truly decentralized system of interacting individual agents. One of the central questions Hayek analyzed was: “How can the combination of fragments of knowledge existing in different minds bring about results which, if they were to be brought about deliberately, would require knowledge on the part of the directing mind which no single person can possess?”[7] In Hayek’s point of view, one must start the analysis from the level of individuals to explain such phenomena. “Antirationalistic” approach of the English individualism was strongly related to individual behavior in Hayek’s view.

To Sum up, by appraising the vision and contributions of distinguished economist Hayek, his position is top most level among prominent economists in 20th century. His work will remain influential in multifaceted area of business-cycle theory, comparative economic systems, political and social philosophy, legal theory, and cognitive psychology. Though his write-ups are hard to understand by people but he gave many interpretations for his work. He will be known as a great mind of economics for future generations.

Bibliography:

1) John Eatwell, Murray Milgate, and Peter Newman. 1987. eds. The New Palgrave: A Dictionary of Economics London: Macmillan Press Ltd., pp. 609-614.

2) Hayek, F. (1937). “Economics and Knowledge,” Economica, n.s. 4, February.

3) Hayek, F. (1952). The Counter-Revolution of Science: Studies on the Abuse of Reason, Glencoe, Illinois, The Free Press.

4) Marguerite Mendell, Kari Polanyi-Levitt.1989. The Origins of Market Fetishism. Magazine Title: Monthly Review. Volume: 41. Issue: 2.  Page Number: 11.

5) Nicolaas J. Vriend . 2002. Was Hayek an ACE? Journal Title: Southern Economic Journal. Volume: 68. Issue: 4. Page Number: 811.

6) Roland Kley. 1994. Hayek’s Social and Political Thought. Publisher: Clarendon Press. Place of Publication: Oxford.  Page Number: 6.

7) Stephen Kresge, Leif Wenar.1994.Hayek on Hayek: An Autobiographical Dialogue.  Publisher: Routledge. Place of Publication: London.  Page Number: 1-8.

[1] Stephen Kresge, Leif Wenar.1994.Hayek on Hayek: An Autobiographical Dialogue.  Publisher: Routledge. Place of Publication: London.  Page Number: 1-8.
[2] Marguerite Mendell, Kari Polanyi-Levitt.1989. The Origins of Market Fetishism. Magazine Title: Monthly Review. Volume: 41. Issue: 2.  Page Number: 11.
[3] Hayek, F. (1937). “Economics and Knowledge,” Economica, n.s. 4, February.

[4] John Eatwell, Murray Milgate, and Peter Newman. 1987. eds. The New Palgrave: A Dictionary of Economics London: Macmillan Press Ltd., pp. 609-614.

[5] Stephen Kresge, Leif Wenar.1994.Hayek on Hayek: An Autobiographical Dialogue.  Publisher: Routledge. Place of Publication: London.  Page Number: 1-8.

[6] Roland Kley. 1994. Hayek’s Social and Political Thought. Publisher: Clarendon Press. Place of Publication: Oxford.  Page Number: 6.
[7] Nicolaas J. Vriend . 2002. Was Hayek an ACE? Journal Title: Southern Economic Journal. Volume: 68. Issue: 4. Page Number: 811.