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Friedrich von Hayek: His Nobel Prize and


F.A. Hayek
Gold medal by Gunvor Svensson Lundquist, obverse with head of Alfred Nobel above crossed cornucopiae and ''Sveriges Riksbank Till Alfred Nobels Minne 1968'' [Swedish Central Bank in Memory of Alfred Nobel] applied in raised letters with the engraver's initials incuse in field right ("G | SL"); reverse with arms of Sweden superimposed on a five-pointed star with incuse rays emanating (the emblem of the Royal Swedish Academy of Sciences) and ''Kungliga Vetenskapsakademien'' applied in raised letters; “Friedrich von Hayek 1974" engraved on the rim and stamped with hallmarks (SPORR [Sporrong], citymark, three crowns [Swedish assay office], 23K, Z9 [i.e. 1974]); housed in its original red morocco case by Gillbergs of Stockholm with Hayek’s name gilt stamped on lid with cornerpiece fleur-de-lis and border of double dot fillets, the interior fitted with suede and satin

[also with:] Original Nobel diploma, on vellum, calligraphic text with citation in Swedish, dated Stockholm, 10 December 1974, signed by the President and Secretary of the Academy of Sciences and with original watercolour by Karl Axel Pehrsson of a lakeside landscape with flowers, laid down in a brown morocco gilt folder, the upper cover with initials "FvH" in gilt

Catalogue Note

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - F.A. Hayek, The Fatal Conceit

THE NOBEL PRIZE AWARDED TO "THE CENTURY'S GREATEST CHAMPION OF ECONOMIC LIBERALISM" (The Economist). Friedrich August von Hayek (1899-1992) was one of the great intellectual figures of the twentieth century: his writings as an economist and political philosopher, and especially his explanation of the relationship between market forces and personal freedom, have had a profound impact in shaping the modern world. His ideas and his books, notably The Road to Serfdom, transcend the academy. They were both a key part of the intellectual ferment that undermined the Soviet bloc, and have influenced generations of free-market policy-makers in the West and around the world.

In retrospect it seems inevitable that Hayek should have been awarded the ultimate accolade of his discipline, the Nobel Memorial Prize in Economic Sciences. His contribution to the field of economics itself was exceptional, but what sets Hayek apart is that he used the insights he gained from the study of markets to underpin a wider political philosophy that has had an influence that is surely unmatched by any other Economics laureate. The breadth of Hayek’s writing was acknowledged by the Nobel committee, who awarded the prize for “pioneering work in the theory of money and economic fluctuations and for [...] penetrating analysis of the interdependence of economic, social and institutional phenomena.” But whilst for many the receipt of a Nobel Prize marks the apogee of their public visibility and influence, Hayek was a more marginal figure when he won the Nobel Memorial Prize in 1974 than he appears today, more than 25 years after his death. His writing reinvigorated the right by providing a rationale a renewed faith in the workings of free markets and helped support the emergence of a new political movement, but the true impact of this only emerged in the governments of Thatcher, Reagan, and others in the 1980s. The clandestine spread of Hayek’s books and ideas behind the Iron Curtain hollowed out the intellectual foundations of Communism to an extent that only was evident with the collapse of the Soviet bloc. Hayek is of course associated with a particular political creed, but his ideas have had such a powerful influence not because of any doctrinaire ideological purity but because he provides thoughtful answers to deep and searching questions. What underpins our freedom? How do we understand markets? What is the role of law in a free society? What are the limits of our knowledge about society and the pattern of the flow of goods that are its lifeblood?

Hayek was born at the turn of the twentieth century in Vienna, then the city of Mahler, Klimt, Loos, and Freud. His family were part of Vienna’s intellectual elite: his father was a doctor with a keen scholarly interest in botany; both of his grandfathers were scholars; Ludwig Wittgenstein was a distant cousin. The civilisation of Hayek’s childhood disintegrated with World War One and his youth was inevitably marked by service in the artillery on the Italian Front. In later years Hayek preferred to recall these years by telling of his hapless attempt to deliver a transport of live eels to the front, but he also acknowledged how war shaped his outlook: “I saw, more or less, the great empire collapse over the nationalist problem. I served in a battle in which eleven different languages were spoken. It’s bound to draw your attention to the problems of political organisation.” (Hayek on Hayek, p.48). Military defeat was followed by an imperial collapse in which Vienna lost forever its status as a great European capital, and this was soon followed by economic catastrophe in the form of hyperinflation. In 1923, when he was a young researcher at the University of Vienna, Hayek received 200 pay rises in eight months merely to keep pace with daily rising prices. Witnessing the evisceration of a nation’s savings imbued in Hayek a deep-seated understanding of the dangers of inflation, but it was the influence of Ludwig van Mises, whose private seminars at the University of Vienna Hayek attended in the later 1920s, that shifted his political philosophy from socialism to classical liberalism.

By the early 1930s Hayek was on the faculty of the London School of Economics with a growing reputation as an economic theorist of formidable insight and rigour. His penetrating work on the business cycle brought him into conflict with John Maynard Keynes – the leading economist in Britain and perhaps the world – over the appropriate fiscal and monetary responses to the depression. Was the cycle of boom and bust a result of “animal spirits” amongst investors, or the “false signals” of artificially high interest rates? Would increased government spending during the downturn provide the boost that would reignite the economy or initiate another boom and bust cycle? How much did it matter if government spending allocated capital less wisely than the markets? This was a foundational dispute for modern economics and it has flared up repeatedly in the decades since, taking on a particular urgency during the Great Recession that followed the 2008 financial crash, especially when billions of dollars were then poured into the banking system in the form of “quantitative easing” despite the obvious moral hazard this entailed. The extent to which the Hayek/Keynes dispute entered popular culture at this time is epitomised by a distillation of the arguments in the unexpected form of a rap video, which has been viewed some 6.6 million times since 2010.

It was on economic issues that Hayek first made his name but from the 1940s onwards he expanded his intellectual horizon and expounded on the wider political and philosophical implications of his free market economics. The pivot on which Hayek’s career turned was The Road to Serfdom, published exactly 75 years ago in March 1944. It is ironic that the work of Hayek’s that has had the deepest and widest influence was written to address a specific local contingency: the likely mode of government in Post-War Britain and the author’s alarm at the growing calls for a continuing role for government in planning the economy and a widening welfare state. Hayek saw the roots of Nazi tyranny in the left-wing governments of Weimar Germany and feared the growing enthusiasm for a welfare state in 1940s Britain. He was writing a polemic addressed to a specific historical situation but his powerful critique of the planned economy has proved to be much more widely applicable. At its heart is the economic calculation problem, to which Hayek returned in more detail in The Use of Knowledge in Society (1945). A nation’s economy is a system of incredible complexity in which information is naturally widely dispersed; pricing within a free market is an aggregation of knowledge that allows for self-organisation within a society where no one individual or group can have a full understanding of the determining factors. This is impossible to mimic in a planned economy. The problem is not only that planners will fail to gain the omniscience needed to allocate resources with the efficiency of the market, but that their attempt to gather the necessary information inevitably pushes them towards an ever-greater accumulation of power. Hayek accepted the need for the government to provide a basic safety net, but the left’s desire to organise the economy would lead inexorably towards totalitarianism not because socialists were ill-intentioned but because of the inherent flaw in their understanding of markets and their role in organising society. 

The Road to Serfdom was published on 10 March 1944. The first edition of 20,000 copies sold out almost immediately. An American edition followed in September 1944, and the book reached a much wider audience through the condensed version that appeared in Reader’s Digest in April 1945. The Book of the Month Club alone distributed 600,000 copies of the condensed version. As a powerful challenge to the developing establishment consensus on both sides of the Atlantic for a pro-active role for the state, the book entrenched Hayek’s status as a strong voice of the libertarian right. When Churchill claimed during the 1945 General Election campaign that the Labour party would need “some sort of Gestapo” to fulfil its commitments to a Welfare State, this outburst was blamed on Hayek, and The Road to Serfdom was ferociously attacked by the New Dealers in the US. Hayek’s politics left him in a somewhat lonely position in the middle decades of the last century, but in the decades that followed Hayek was key to bringing reinvigorated free-market ideas back to the intellectual and political mainstream. Hayek never tried to repeat the exposition of his ideas in popular book form, although he was a tireless letter-writer to newspapers, nor did he get involved directly in politics. Instead in 1947 he organised a conference in Mont Pèlerin which gathered together advocates of free market economics and open societies – attendees included Karl Popper, Milton Friedman, Ludwig von Mises, Frank Knight, and George Stigler. The conference led to the foundation of the Mont Pelerin Society, the first of a series of think tanks that were to prove of inestimable importance to the spread of free market ideology, which warned in its “statement of aims”:

“Over large stretches of the Earth’s surface the essential conditions of human dignity and freedom have already disappeared. In others they are under constant menace from the development of current tendencies of policy. The position of the individual and the voluntary group are progressively undermined by extensions of arbitrary power. Even that most precious possession of Western Man, freedom of thought and expression, is threatened by the spread of creeds which, claiming the privilege of tolerance when in the position of a minority, seek only to establish a position of power in which they can suppress and obliterate all views but their own.”

In the decades that followed, sister organisations sprang up around the world. Hayek well understood the long-term political potency of these organisations. When he was approached by Antony Fisher, a businessman and former RAF pilot whose ideas were transformed by The Road to Serfdom, Hayek dissuaded him from entering politics: “Society’s course will be changed only by a change in ideas. First you must reach the intellectuals, the teachers and writers, with reasoned argument. It will be their influence on society which will prevail, and the politicians will follow.” Fisher went on to found the Institute of Economic Affairs, which has since had a profound influence in shaping political debate in Britain.

Hayek himself had a series of eminent professorial appointments in the post-war decades, principally at the University of Chicago (1950-62) and then the University of Freiburg (1962-68). His work increasingly tackled broad philosophical questions relating to the nature of a free society and an understanding of structures which are “the results of human action but not of human intention”, and which form their own spontaneous order. Markets are the pre-eminent example of such structures and Hayek employed the term “catallaxy” to describe "the order brought about by the mutual adjustment of many individual economies in a market". Hayek believed that the basis of free societies was in forms of order that were generated within a society rather than being imposed upon it from above. In The Constitution of Liberty he attempted to outline “that condition of men in which coercion of some by others is reduced as much as is possible”: a society based on the rule of law, where law itself is understood as developing from accepted societal norms rather than a set of rules imposed from above. He criticized redistribution in the name of social justice: markets were neither just nor unjust – the results of an individual’s efforts are, after all, unpredictable – and “justice, like liberty and coercion, is a concept which, for the sake of clarity, ought to be confined to the deliberate treatment of men by other men”. His vision of society did not see a utopia in the far distance but required an acceptance of disparities and hard choices: “Freedom granted only when it is known beforehand that its effects will be beneficial is not freedom.”

The Royal Swedish Academy of Sciences decision to award the Prize in Economic Science in Memory of Alfred Nobel to Hayek in 1974 thus took place in a particular context. He was an eminent economist and political philosopher with the academic garlands that would be expected of a laureate, but Hayek was also someone powerfully associated with a particular political movement. The Academy may have been nervous about the possible political implications of the award: this can be surmised from their decision to award the Nobel jointly to Hayek and Gunnar Myrdal, the left-leaning Swedish sociologist and economist whose ideas were influential in European social democratic circles and provided intellectual underpinning to the distinctive Swedish welfare state, and whose antagonism to free market thinkers was such that he took the academy’s decision to award Milton Friedman the Nobel two years later as a reason to abolish the prize. Hayek himself had been ambivalent about the Nobel (“I didn’t approve of Nobel Prizes for economists – until they gave it to me, of course!”) but well understood the potency of the platform and did not hesitate to court controversy and reaffirm his position. His lecture, "The Pretence of Knowledge", began by castigating economists for promoting the policies that Hayek blamed for the inflation that threatened Western economies in the 1970s, but he soon moved to much deeper issues. The conclusion to his lecture is an eloquent exposition of Hayek’s deepest beliefs and is worth quoting at length:

“To act on the belief that we possess the knowledge and the power which enable us to shape the processes of society entirely to our liking, knowledge which in fact we do not possess, is likely to make us do much harm [...] [I]n the social field the erroneous belief that the exercise of some power would have beneficial consequences is likely to lead to a new power to coerce other men being conferred on some authority. Even if such power is not in itself bad, its exercise is likely to impede the functioning of those spontaneous ordering forces by which, without understanding them, man is in fact so largely assisted in the pursuit of his aims. We are only beginning to understand on how subtle a communication system the functioning of an advanced industrial society is based – a communications system which we call the market and which turns out to be a more efficient mechanism for digesting dispersed information than any that man has deliberately designed.

“If man is not to do more harm than good in his efforts to improve the social order, he will have to learn that in this, as in all other fields where essential complexity of an organized kind prevails, he cannot acquire the full knowledge which would make mastery of the events possible. He will therefore have to use what knowledge he can achieve, not to shape the results as the craftsman shapes his handiwork, but rather to cultivate a growth by providing the appropriate environment, in the manner in which the gardener does this for his plants. There is danger in the exuberant feeling of ever growing power which the advance of the physical sciences has engendered and which tempts man to try, “dizzy with success”, to use a characteristic phrase of early communism, to subject not only our natural but also our human environment to the control of a human will. The recognition of the insuperable limits to his knowledge ought indeed to teach the student of society a lesson of humility which should guard him against becoming an accomplice in men’s fatal striving to control society – a striving which makes him not only a tyrant over his fellows, but which may well make him the destroyer of a civilization which no brain has designed but which has grown from the free efforts of millions of individuals.”

The public accolade of the Nobel prize reinvigorated Hayek, who had retired from Freiburg some years earlier. In the years that followed he completed his trilogy Law, Legislation and Liberty and was stimulated to begin a final major book, The Fatal Conceit. In the meantime his ideas were gaining increasing attention as the post-war political consensus began to break down. “This is what we believe” declared Margaret Thatcher, whipping The Constitution of Liberty from her handbag and slamming it on the table before a left-leaning party member. This much-retold story may be too good to be true, but Thatcher was happy to trace her belief in freedom back to ideas “imbibed at my father’s knee or acquired by candle-end reading of Burke and Hayek” (The Path to Power, 1995). One visitor to Ronald Reagan’s study has described coming across heavily annotated copies of Hayek and other free market thinkers on his bookshelves, so unsurprisingly Hayek was a major influence on many of the key figures in Reagan’s White House such as David Stockman, the President’s first director of the Office of Management and Budget, known as “the father of Reaganomics”.

In the 1980s Hayek’s influence spread far beyond the west. Milton Friedman, the other great free market economist of the period, emphasised Hayek’s importance in the Communist bloc in a 1999 interview: “There is no figure who had more of an influence, no person had more of an influence on the intellectuals behind the Iron Curtain than Friedrich Hayek. His books were translated and published by the underground and black market editions, read widely, and undoubtedly influenced the climate of opinion that ultimately brought about the collapse of the Soviet Union.”


Friedrich von Hayek: His Nobel Prize and