Epstein's Birthday Tribute to Hayek
Friedrich Hayek was born on May 8, 1899 -- 114 years ago today -- and died on March 23, 1992, just short of his 93rd birthday. In recent years, much of the discussion of 20th century economics has centered around a discussion of the relative influence and contributions of Milton Friedman and John Maynard Keynes, in large part because national fiscal and monetary policy are in such disarray. But it is important to remember that Hayek also did work on some of these issues, including on the business cycle. His lasting influence, however, comes from a very different source: his ability to articulate a coherent attack on the dominant views of central planning that were in fashion during much of that time, especially among the intellectual elites in England.
His most significant work, which culminated in The Road to Serfdom, was his relentless critique of the view that a perfect society could use central planning as a means to achieve incompatible ideals: high production and some preconceived ideal distribution of wealth. His simple insight -- prices are an effective means for individuals to coordinate their efforts in ways that allow society to take advantage of widely distributed knowledge -- remains, to this day, the strongest argument against central planning of the economy. The ability to pull people back from the brink of socialism led to a massive increase in market activity throughout the world, unleashing the constructive forces of voluntary exchange as a tool to advance overall social welfare.
For that one contribution we should be eternally grateful; but, by the same token, we should not deceive ourselves into thinking that there were no weaknesses in the Hayekian intellectual armament. Here are two.