How to Read Hayek, and Why
F. A. Hayek was Ludwig von Mises' most famous convert to free market economics, although there were tens of thousands of others.
What did it was Mises' long article, "Economic Calculation in the Socialist Commonwealth" (1920). Then he followed this essay with a 600-page book, Socialism (1922). That did it for a generation of young socialists. They abandoned ship. Hayek was one of them. Wilhelm Röpke was another.
I read Hayek's Constitution of Liberty (University of Chicago Press, 1960) in 1961. I read Mises' Human Action (Yale University Press, 1949) in 1963.
In my economics course for high school students, I have them read the condensed version of Hayek's book, The Road to Serfdom (University of Chicago Press, 1944), which was published in the Reader's Digest in 1945. You can download it here. This is where to start.
The Intercollegiate Studies Institute published an excellent introduction to Hayek. The author offered three reasons to read Hayek.
1. Friedrich Hayek was perhaps the most influential intellectual defender of freedom in the twentieth centuryThat claim may strike you as brash given the many conservative and libertarian heroes: Russell Kirk, Richard Weaver, Milton Friedman, William F. Buckley, Ronald Reagan, Ludwig von Mises, Murray Rothbard, among others. Yet none of them, with the possible exception of Milton Friedman, had Hayek’s intellectual chops and wide-ranging influence.
This is just plain silly. Mises had a far more creative intellect. When it comes to economic theory, Hayek was always Mises-lite. Rothbard had a vastly more precise understanding of both economics and American history. Friedman was an economic technician. He was a clever debater. He was not in Hayek's league in terms of understanding either philosophy or political philosophy.
The following is true:
Hayek was the epitome of a man with nineteenth-century ideals who lived his entire life in the twentieth. And he lived to witness most of those ideals, such as robust civil societies, limited national governments, free markets, and the classical gold standard, assaulted intellectually and undermined politically. Despite setback after setback during most of his life, Hayek’s intellectual contributions inspired generations of thinkers and politicians, including Ronald Reagan and Margaret Thatcher. His ideas even held their own in the hostile world of academia.2. Hayek developed piercing and enduring critiques of large-scale government programs and planning—critiques that are as relevant today as they were in the 1920s, 1930s, and 1940s
His criticism of socialism and government planning can be broken into two categories: knowledge problems and incentive problems. Hayek, along with Ludwig von Mises, was one of the major participants in the Socialist Calculation Debate in the 1920s and 1930s. The initial criticisms, in a nutshell, were that central planners could not possibly have enough information to plan the economy and that in a planned economy there is little incentive for people to work hard or to innovate.
Even as he disputed the merits of socialist planning, Hayek was also engaged in one of the greatest debates in economics in the twentieth century—whether free market capitalism had created the Great Depression in the 1930s. John Maynard Keynes, a brilliant and persuasive intellectual, argued that free markets had indeed failed to provide perpetual prosperity and that therefore the economy required the steadying hand of government intervention. Keynes’s ideas took the world by storm and became the dominant paradigm in economics. Yet throughout the 1930s, his most important critic and interlocutor was Friedrich Hayek.
Hayek flaked out. He refused to respond to Keynes' General Theory of Employment, Interest, and Money (1936) until decades later, and then only piecemeal. This left the field to Keynes. The academic world was waiting for Hayek to respond. Hayek offered several reasons in his old age for his refusal to respond, but his refusal was the greatest failure of his career.
Although he failed to stem the rising tide of Keynesianism, Hayek made many significant contributions to economic theory during that debate.
No, he didn't. His books published in the late 1930's did not interact with Keynes. He wrote his unreadable and rarely cited Pure Theory of Capital in 1941. He wrote "The Uses of Knowledge in Society" in 1945, a fine essay, but it ignored Keynes.
In his most popular work, The Road to Serfdom, Hayek explains that central planning, by its very nature, cannot allow dissent or disagreement. What’s more, a political system that has extensive and concentrated power to direct people’s lives and wealth will create an environment where those who are best at using power, the most ruthless and cunning, will be the most successful government officials. That is why most socialist or communist countries have brutal dictators, from Lenin and Stalin to the Castros to Mao Zedong to Kim Jong-un, Kim Jong-il, and Kim Il-sung.
It is a fine book, especially Chapter 10: Incentives created by coercion are relevant to more than just dictatorships. Hayek also wrote extensively about the uses and abuses of coercion in free societies. In his book The Constitution of Liberty, Hayek argues that coercion reduces both the knowledge that can be used by society and how much experimentation can take place, because coercion involves replacing the will of individual citizens with the will of the ruler. This nullifies citizens’ agency and prevents them from using their local knowledge effectively. Hayek argues that laws should allow citizens to pursue their own plans as much as possible. The “rule of law” means that laws are known, general, equally applicable to all people, and predictable. Much of our current legislation violates Hayek’s ideal by directing individual citizens and companies in both their goals and their means of attaining those goals. It is a good idea to read Hayek. It is a far better idea to read Mises and Rothbard. It won't hurt to read my refutation of Hayek's Darwinism: Appendix B in Sovereignty and Dominion. Download it here. Here is the author's recommended reading list.3. Hayek had deep insights into how markets and societies flourish through experimentation and decentralization under free institutions
The Road to Serfdom (1945) [it was 1944]
“The Use of Knowledge in Society” (1945)
“Competition as a Discovery Procedure” (1968)
The Constitution of Liberty (1960)
Hayek’s Challenge (2004)
Law, Legislation, and Liberty
Vol. 1—Rules and Order (1973)
Vol. 2—The Mirage of Social Justice (1976)
Vol. 3—The Political Order of a Free People (1979)