by F.A. Hayek (Cambridge: Basil Blackwell, 1991); 415 pages; $29.95.
The two scourges of the 20th century have been socialism and Keynesian economics. Socialism produced the worst forms of tyranny ever known in the history of man. Keynesian economics served as the intellectual rationale for the growth of governmental intervention in the Western democracies. And between them, they either undermined or destroyed the older classical-liberal ideal of limited government and free-market capitalism in practically every country in the world.
The voices raised against these twin forces of political and economic statism have been few during much of our century. But among those voices, the Austrian economists have been among the most important. Their criticisms of socialism and Keynesianism have been uncompromising and devastating.
The two leading voices among these Austrian economists have been Ludwig von Mises and Friedrich A. Hayek. Between them, they have demolished all of the philosophical and economic assumptions underlying socialism and Keynesianism.
In 1974, Hayek’s contributions were recognized by the Nobel committee when they awarded him the Nobel prize for economics. And over the last 18 years since receiving that award, Friedrich Hayek has continued to develop the arguments for the free society and specifically the free economy. In the late
1970s, he published a three-volume work entitled Law, Legislation and Liberty and also released a collection of essays under the title New Studies in Philosophy, Politics, Economics and the History of Ideas. And in 1990, at the age of 91, he published The Fatal Conceit, in which he restated and refined his criticisms of socialism and the tribal mentality, criticisms he first presented in 1944 in his international best-seller The Road to Serfdom.
In the 1970s and 1980s, Professor Hayek also wrote several important essays and monographs for the Institute of Economic Affairs of London. These writings have now been collected in one volume entitled Economic Freedom.
The first selection is “A Tiger by the Tail,” which contains excerpts from Hayek’s writings on inflation and Keynesian economics written from the 1930s to the 1970s. In these excerpts are found some of his most pointed criticisms of macroeconomics and governmental mismanagement of money. Hayek emphasizes that it is impossible for the government to stabilize an economy through monetary manipulation. Instead, governmental monetary policy always results in distortions in the economy that produce misallocations of capital and labor that must inevitably result in an economic recession or depression.
“Choice in Currency: A Way to Stop Inflation’ and “Denationalization of Money” present the radical argument that there is no solution to inflation and governmental mismanagement of the monetary system other than to get the government out of the money-controlling business. Hayek makes the case for people to have the freedom to choose the money they want to use; and he makes the case for the end of central banking, with private, competitive banking replacing monetary central planning by the state. Originally written in 1976, these works have served as the basis for a new intellectual debate among economists as to whether monetary freedom is a better answer for a stable economic order than a governmental monetary monopoly.
“Full Employment at Any Price?” contains Hayek’s Nobel lecture “The Pretense of Knowledge.” He eloquently restates his well-known argument that the knowledge in society required for successful coordination of economic activity is too complex and too dispersed among a multitude of market participants for social engineers ever to be able successfully to plan an entire economic system. Only market competition and market prices, he explains, can solve the social problem of the economic coordination of supply and demand.
“The Repercussions of Rent Restriction” shows the harmful effects of rent controls by using Vienna of the 1920s as an example. “1980s Unemployment and the Unions” discusses the distorting effects that compulsory unionism has on an economy.
“The Confusion of Language in Political Thought” argues that the use of certain words and the meanings they have taken on have resulted in the success of statist policies winning the day against the older classical-liberal ideal of individual and market freedom. And “Economic Freedom and Representative Government” and “Will the Democratic Ideal Prevail?” explain how democratic government has become an engine for growth in governmental control over economic affairs.
In 1941, the American economist Kenneth Boulding suggested that while Keynesian economics conquered the day by offering short-run solutions to the economic problems of depression and unemployment, Professor Hayek was like the old-fashion, hell-fire and brimstone preacher warning us of the long-run consequences of short-run policies. After more than half-a-century of such warnings, the death of communism and the failures of Keynesianism have demonstrated that Hayek was right all along.