©Deirdre Nansen McCloskey | COPYRIGHTED MATERIAL

Review of Ebenstein on Hayek
Alan Ebenstein, Friedrich Hayek: A Biography. NY and Basingstoke: Palgrave for St. Martin's Press. Index of names. Bibliographical essay. Pp. 403 + xiii.

by Deirdre N. McCloskey
Reason magazine, October 2001
Filed under articles [intellectual biography] [reviews]

Freidrich Hayek
Alan Ebenstein declares at the end of his engaging biography of one of the handful of people who brought it about, "The libertarian age is at hand." So we most fervently pray, though the very sainted Friedrich August von Hayek, 1899-1992, would I think be less than confident. He had lived through a startling disintegration of liberal societies. He had seen socialism triumphant, freedom limited to a handful of nations. By the early 1940s even his fellow Austrian, the Harvard economist Joseph Schumpeter, had given up on capitalism, along with most other intellectuals. By 1944 when Hayek wrote his most famous if not his most profound book, The Road to Serfdom, most of his academic colleagues were lining up for state slavery. George Orwell praised the book in part: "It cannot be said too often-at any rate it is not being said nearly often enough-that collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitor never dreamed of." When Hayek tried to have the book published in the United States it was rejected by three publishers. Orwell's Animal Farm, a rather more vivid approach to the same theme, was in that same heyday of collectivist enthusiasm in the United States rejected by eight or nine American publishers, one of whom explained kindly that "we are not doing animal books this year."

But Hayek lived gloriously to receive in 1974 the Nobel Memorial Prize in Economic Science and to witness socialism's collapse. The chief political theorist of capitalism became a hero in the former socialist countries. In 1989 the Cato Institute gave Yevgeny Primakov a bronze bust of the author of The Road to Serfdom. The ironies are dizzying.

Hayek had an interesting life, sometimes in the sense of the Chinese curse: May you live in interesting times. He was a child in the Vienna of Freud, a cousin of Wittgenstein, a decorated officer in the horrors of the Italian front, a witness to hyperinflation and the rise of Nazism, an early proponent of the new quantitative methods in social science, an academic star at the London School of Economics, a media figure briefly in the United States after The Reader's Digest picked up on The Road to Serfdom, and then a pariah in mainstream economics, viewed as merely polemical, No Longer an Economist. When in 1946 he was considered for a job in Economics at the University of Chicago and then again in 1950 was in fact invited to join the University's quirky Committee on Social Thought the Department of Economics one floor down wouldn't give him an appointment. It was not because he was an anti-socialist-the Chicago School was just forming then, under the agricultural economist Theodore Schultz, and was just realizing that it was an anti-socialist outpost-but because he was thinking beyond economics and econometrics. (Departments of economics haven't changed since 1950.) In the 1950s he worked on political philosophy at Chicago, and then returned to the German speaking world, and especially his well-named hometown Freiburg, for the long final third of his career.

The career was a stellar rise to 1944, a shocking fall followed by a long period of relative and then depressing obscurity, out of which emerged the grand old man of what the Europeans call neoliberalism. Hayek confessed in an interview that "I had a period of twenty years in which I bitterly regretted having once mentioned to my [first, soon-to-be-divorced] wife after Keynes' death [in April 1946 that] I was probably the best-known economist living. But ten days later [as the leftist academic anger about The Road to Serfdom hardened and as Keynes safely dead and unable to exercise his unpredictability became the patron saint of Western non-Marxist socialism] it was probably no longer true. [Laughter.]" Yet in his and the century's middle seventies he began a triumphant old age. Even his health improved. He said, "For a while I tried old age, but it disagreed with me. [Laughter]"

Ebenstein's compulsively readable book gives you a man almost in full, a mainly intellectual biography with intriguing personal supplements. It consists of forty or so little essays, perfect for bedtable dipping--"University of Vienna," "New York," "Robbins," "Mont Pelerin Society" (Hayek's club of neoliberals founded in the darkest days), "Chicago School of Economics" (of which he was of course no member: he was an Austrian economist, and we Chicago Schoolers looked down on them), "Mill" (about whom he did important scholarly work), "Law, Legislation and Liberty," "Laureate," "Friedman," "Thatcher," "Opa" (that is, Grandpa), The Fatal Conceit (his last book, against the conceit of excessive rationalism). We hear some of Hayek's first marriage ending in a contested divorce, and of an idyllic second marriage to a boyhood sweetheart and cousin. A big, tall man (he weighed 200 pounds in his prime) Hayek was "aristocratic in temper and origins," but no Prussian. Unlike his senior in the Austrian school, Ludwig von Mises (notice all those vons, "sir"), he did not demand sycophancy, nor did he get it much until his Nobel Prize. What comes through is a Viennese sense of humor, sardonic and self-deprecating.

The very non-libertarian J. M. Keynes, a sort of friend and certainly an intellectual opponent of Hayek, remarked famously that "Madmen in authority are distilling their frenzy from some academic scribbler a few years back." The madmen (and women if you please) who brought on neoliberalism were Margaret Thatcher, Ludwig Erhard, Jacques Rueff, Luigi Einaudi, Barry Goldwater, Ronald Reagan. The scribblers from whom their frenzy was distilled were Mises, Ayn Rand, Milton Friedman, and Hayek.

Many, including Hayek himself, have noted that the chief theorist against socialism had some of the statist about him. He was no anarchist. Rand, for example, viewed him as "real poison." Ebenstein argues somewhat strangely that Hayek was the discoverer of the link between state-enforced law and real personal liberty (one would have thought that the entire Western liberal tradition is based on such a notion). Hayek always courted socialists and had many leftish friends, the economic historian Richard Tawney, for example. He was certainly no conservative: on the last page of The Constitution of Liberty (1960) he argued that our "hopes must rest on persuading and gaining the support of those who by disposition are `progressives,' those who, though they may now be seeking change in the wrong direction, are at least willing to examine critically the existing [sic: Hayek was never perfectly smooth in English idiom] and change it whenever necessary." As a student he was much influenced by Friedrich von Wieser, the most leftish of the two who ran Austrian economics. (The other was Eugen B?hm-Bawerk, who was Wieser's bother-in-law. The brothers-in-law dominated Austrian economics 1890-1920 the way another such pair, Paul Samuelson and Kenneth Arrow, dominated American economics 1940-1970--the last Clinton Secretary of the Treasury and the new president of Harvard, Larry Summers, is their nephew.) Though Hayek rejected equality of results as leading to mediocrity he was concerned throughout with human dignity. In a radio debate in 1945 for example he declared flatly that "I am in favor of a minimum income for every person in the country." He approved of the military draft, and wanted ownership of guns restricted. He was green, offering endorsements after his Nobel Prize to the World Wildlife Fund, for example. Hayek admired Marx as an economist, saying of Capital that its "long middle part is really essentially flawless."

Isaiah Berlin in his first book, Marx (1939), described Marxism as "not a hypothesis liable to be made less or more probable by the evidence of facts, but a pattern, uncovered by a non-empirical, historical method, the validity of which is not questioned." That doesn't make Marxism "non-scientific"-though you might think so if you once tasted a little high-school philosophy of science. It makes it storytelling. An identical sentence could be written about the most fruitful scientific theory of the past two centuries, Darwinism: a non-hypothesis, a pattern, a historical method, the validity of which is not questioned. Like Marxism, Darwinism is a way of telling a story. Darwinism is a good way and Marxism, Berlin came to think, is a bad way. The point is you could write still another, identical sentence (in fact I'm positing it now), with no change in any word, about the lifework of the 20th century's great anti-Marxist. By his own account Hayek in his youth almost became a Darwinian biologist. Austrian economics-and I would say, economics generally-is a way of telling a story.

So Hayek was an anti-positivist, an anti-behaviorist, an anti-most-things-that-passed-for-Science until post-modernity, with its revival of The Story. We are the economic molecules, said Hayek, and can tell our story without having to pretend that only "observation" is real knowledge. Yet as Milton Friedman remarked the Austrian method "makes it very hard to build up a cumulative discipline. . . . [In empirical science] if you and I disagree. . . . I say to you, what facts can I find that will convince you?" After Hayek's days in the 1920s as a statistical student of business cycles he lost interest in such forms of argument. He claimed for example in The Constitution of Liberty that "The rapid economic advances that we have come to expect seems in a large measure to be the result of inequality and to be impossible without it." He gives no shred of evidence, this man who read and indeed wrote knowingly on economic history. Had he said such a thing in a seminar in the presence of Friedman (as he no doubt did, if not at Chicago then in the annual meeting of the Mount Pelerin Society) Milton would surely have asked, as he always asks everyone, "How do you know?" Doubting Milton would have stayed for an answer, a quantitative one. The great failing of the Austrian School, which Hayek did nothing to help, was its insistence that one form of argument, the non-quantitative, was the only good form. (The great failing of the other schools of economics, by contrast, is their insistence that one form of argument, the quantitative, is the only good form.)

Hayek summarized his own intellectual life as one "discovery"-that a division of information is as crucial to society as a division of labor, which suggests (Hayek's method would allow him to say "implies") that central-plan socialism will work badly-and two mere "inventions." One of the "inventions" was the claim in his Law, Legislation and Liberty (1973-1979) that voting should be restricted to grownups (over 44 years of age, which sounds rather young to me) and to people who get no benefits from government. You can see that this particular academic scribbler had no interest in political feasibility. The other invention, more influential, was the suggestion that moneys should compete. A government should not be able to force its citizens to take its money. So the governments nowadays like Russia and Argentina that have adopted the American dollar, removing their temptations to print too many rubles and pesos, are following Hayek. Here he disagreed with Friedman, who retains a peculiar fondness for a state monopoly of the money supply. The gold standard worked, Hayek would say, because people wanted to do business in gold, or its close substitute called pounds sterling, not because a monopoly of mines had agreed to follow a rule of monetary expansion, or because a wise Greenspan was in charge of the monopoly.

But of course what was really important was his one "discovery," so damaging to the rationalist project of central planning. His discovery of information as fragmented connects his biologic with his economic thinking: a "neuron, or buyer or seller" in a brain or in an economy "is induced [by evolution, not by magic] to do what in the total circumstances benefits the system . . . . to serve the needs of which it doesn't know anything at all." He described in an interview with Jack High (reproduced in another good introduction to Hayek, Stephen Kresge and Leif Wener's edited Hayek on Hayek [1994]) how in the 1930s "my whole thinking on this started with . . . joking about economists speaking about given data," which as Hayek realized was an absurdity: "data" means in Latin "things given," so the phrase means "given things given." But given to whom? Not to the central planners, certainly, but dispersed in each individual's mind, and gatherable only by dickering in the market.

Dickering, or as Adam Smith put it, "the propensity to truck, barter, and exchange one thing for another" is "a necessary consequence of the faculty of reason and of speech." Smith was vividly aware of the faculty of speech, but nonetheless confined his system to the more behavioral and observable and quantitative division of labor. Hayek, who first came upon the idea (Smith's and the inklings of his own) when attempting during the Great War to lead men in an Austrian brigade speaking a dozen different languages, nonetheless confined his extension of Smith to the division of information.

This is a fault. I know, for example, that I like purple dresses. You as a dressmaker need to acquire that information if I am to be served. Good point, and a very great obstacle to central planners, who have no good way of getting the information, as Hayek expressed it in his famous essay of 1948, about "particular circumstances of time and place," such as that Deirdre likes purple.

Right. But let's go all the way. Why would you want to serve me, or I you? It is, I would claim against Friedrich Hayek and Israel Kirzner and others of the Austrian School who have taught us so much about alertness and information, the division of persuasion, not only of labor and information, that runs a modern economy. "By pursuing profit," Hayek wrote, "we are as altruistic as we can possibly be, because we extend our concern to people who are beyond our range of personal conception." Yes, I entirely agree, as did Smith. But if the dressmaker merely has the "information" that I like purple she can ignore it unless something leads her will. Profit and the other persuasive resources of language make me "pay attention," as we say. Adam Smith expressed the linguistic character of market persuasion this way:

If we should enquire into the principle in the human mind on which this disposition to trucking is founded, it is clearly the natural inclination every one has to persuade. The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade someone to do so and so as it is for his interest. . . . And in this manner every one is practicing oratory on others thro the whole of his life.

The baby's crying in a family, the instinct of workmanship at the factory, the threat of dismissal as a housekeeper, the lure of profit in making dresses, the offer of a shilling: these are all persuasions to courses of action, connecting heart and hand. Without persuasion the theory of economics is incomplete. And so it is incomplete without an account of language, language viewed not merely as "conveying" or "communicating" information originally "dispersed" (in Hayek's terminology of 1948), but language as rhetoric, that is, moving to action. The socialists' favored form of speech is an order, "Go mine coal." The Austrian economist's favored form is an informative statement, "I like purple." Neither of these quite do the economic task. You can be in the right job, and know exactly what to do; but unless the boss or the culture or the market or you yourself in the council of your soul has exercised sweet talk on your will, there you sit, ready to work, enlightened--but unmoved.

Completing the Austrian system in this way makes clearer that it is a system for a free society. If something called the division of "labor" is the sole key to economics, then the authoritarian claim to improve the way labor is assigned sounds plausible enough. Let's see. We will need 1,657,987 miners of coal next year if we are to produce 18,987,876 metric tons of steel. Or so at least it seemed to intellectuals in the 1930s. The socialist hope sounds much less plausible if, as in Hayek, the key is a division of information. But as the Hollywood Nazi's say, "Vee have vays" of extracting information, maybe, short of giving people their freedom. Or so it seemed to the intellectuals plugging "market socialism" in the 1950s.

But if an economy depends on a division of persuasion, an ability to exercise sweet talk with a variety of people every day, and with people we have never met, then it is suddenly clear why personal freedom, the dignity of private property, and the quantitative miracle of capitalist economic growth have pretty much gone together.

The intellectual defenses of a new age of libertarianism need sweet talk, a unity of word and number, story and metaphor, on the lips of free men and women. The story of Hayek's astonishing life and work says just that: persuade and be free.