The Collected Works of F.A. Hayek, Volume 3: The Trend of Economic Thinking
by W.W. Bartley and Stephen Kresge (Chicago: The University of Chicago Press, 1991); 338 pages; $45.95.
I remember when I first read Friedrich A. Hayek’s The Constitution of Liberty in the late 1960s. In Part 1, “On The Value of Liberty,” I found one of the most profound and subtle arguments ever made for liberty.
Free-enterprise advocates have often spoken of the efficiency of market incentives. Conservatives have emphasized the need for constitutional restraints on government because of the “fallen nature of man” and the temptations of power. Many libertarians and classical liberals have grounded their defense of liberty on either the “natural rights of man” or on the utilitarian principle of weighing the long-term costs arising from a loss of liberty in comparison to the short-term “benefits” arising from governmental action.
Every one of these arguments for a free society and against the dangers of statism are important and insightful. And contrary to some freedom advocates, I believe that these positions are complementary elements in the overall case for human freedom. They neither inherently contradict each other nor exclude each other. Man may indeed have natural rights, but the market is also more efficient than either socialism or interventionism. Many may indeed have a capacity for reason that enables rational reflection on what may be “pro-life” and “anti-life,” but there is also a “dark side of the force” in each of us that constitutional restraints are meant to hold in check.
But Hayek’s work added a significant and original element to the storehouse of arguments for human liberty and the free economy. The importance of allowing individual freedom in society is that it enables each of us to use and take advantage of more knowledge than any one of us could ever hope to possess or successfully master. The social system of division of labor that enables us to specialize our’ tasks and increase our productivity also brings with it a division of knowledge. Each of us is increasingly dependent upon the knowledge and expertise of multitudes of people whose very existence is something we know nothing about but without whom our standard and quality of life would be much lower than the one we enjoy.
Hayek argued that unless each person is free to use his knowledge as he sees as most fit, the rest of us in society will be that much poorer. For we will not be able to benefit from the knowledge possessed by other individuals — knowledge which can improve the lives of the rest of us. Furthermore, since all the knowledge existing in society as a whole is divided and dispersed among all of us, only a free-market economy uncontrolled by the state can successfully bring all that knowledge to bear. Market prices, Hayek explained, not only work as incentives to get people to do things, prices also serve as a telecommunications network. Every change in supply and demand — every shift in the preferences of consumers and the expectations of producers concerning future market conditions — is transmitted throughout the entire market through changes in market prices. And every change in those prices supplies information to every corner of the market to inform every one how lie should modify his behavior to conform to the new and changed circumstances.
In response to those who have argued that the more complex a society becomes, the more government has to interfere to make sure everything runs smoothly, Hayek demonstrated the exact opposite. The more complex the social order in which we live, the more limited the knowledge that any one of us possesses. Thus, the market setting — where prices and competition serve as the institutional methods to coordinate people’s activities — requires the widest ambit of freedom in which to act and choose.
The University of Chicago Press is in the process of publishing The Collected Works of F.A. Hayek. The latest volume, The Trend of Economic Thinking, brings together several of Hayek’s early essays on a variety of themes. In the title essay and in another, “On Being an Economist,” Hayek discusses the problems confronting the professional economist who desires to remain loyal to the truth. Such a position invariably requires him to swim against the tide and oppose the popular, though usually erroneous, economic fads of his time. The economist’s task, Hayek says, is to advance positive knowledge and spend a large part of his time demonstrating the fallacies in much of what passes as economic policy.
The volume also contains four long chapters of a never-completed history of monetary policy during the last three-hundred years. Hayek discusses the origin of central-banking in England, inflationary policies in the 18th and 19th centuries, and the debates over the gold standard after the Napoleonic Wars.
And in a series of biographical essays on people like Francis Bacon, Bernard Mandeville, David Hume, Adam Smith and Frederic Bastiat, Hayek contrasts the ideas of those who have advocated the free, spontaneous order of the market economy with those who have tried to make the case for governmental planning and control.
After reading these masterful essays, the reader is left impatient for the next volume in Hayek’s collected works, Volume 4, on The Fortunes of Liberalism and the Austrian School.