Professor Friedrich von Hayek at home in Salzburg, Austria, 1974 (AP Photo)

Unpacking an economic titan

Hayek was not, and always insisted that he was not, a laissez-faire economist


This article is taken from the June 2023 issue of The Critic. To get the full magazine why not subscribe? Right now we’re offering five issues for just £10.

In our present world of slogans, slurs and sound bites, few names have had more resonance than that of the Austrian economist Friedrich Hayek. To those in Britain on the political left, Hayek has become shorthand for the evils of market fundamentalism and rational economic man. 

To those on the right, Hayek’s name is forever associated with the moment in 1975, soon after he won a Nobel Prize for Economics, when Mrs Thatcher on a visit to the Conservative Research Department slammed down a copy of his Constitution of Liberty on the table, with the words “This is what we believe”.

Hayek: A Life, 1899–1950, Bruce Caldwell and Hansjörg Klausinger (University of Chicago Press, £35)

Rarely, however, have these opposing views been informed by much actual knowledge of Hayek’s thought. As a result, myths have abounded: that Hayek was the high priest of laissez-faire, “neoliberalism” and a minimal welfare state, the sworn foe of John Maynard Keynes, and the moving force behind a shadowy network of illuminati known as the Mont Pelerin Society, amongst much else. 

Over the years there has been a voluminous literature seeking to separate fact from fiction, including several short biographies. Now, however, we have the first of two volumes of Hayek by Bruce Caldwell and Hansjörg Klausinger, which aims to be the definitive biography for a generation.

The two authors are well suited to their task. Since Hayek grew up in Vienna and spent much of his adult life in the USA, the choice of American and Viennese co-authors allows for meticulous attention to the sources, in particular family papers, some of which they have been able to consult for the first time.

“Fritz” von Hayek — the “von” was dropped in the 1940s, although periodically resuscitated by those seeking to discredit his Austrian birth — was born in 1899 in Vienna. One can scarcely imagine a more stimulating environment, for Vienna over the early decades of Hayek’s life was home to a dazzling array of thinkers and artists, including Freud, Wittgenstein, Mahler and Schoenberg; the painters Kokoschka, Klimt and Schiele; the physicist Erwin Schrödinger and the logical positivist Vienna Circle philosophers Schlick and Neurath.

The revolutionary modernism of these figures was in part a reaction to the social instability and economic convulsions that gripped Vienna. The dual monarchy of the Austro-Hungarian empire was coming under the challenge of nationalism, new political ideas and mass parties, and growing anti-semitism. In due course the Hayek family would find itself profoundly affected. 

Fritz grew up as the oldest of three brothers in a conventional upper middle-class family preoccupied with natural science. He received a conventional education in which he did not excel. 

He was, as he later remarked, “a muddler rather than a master”, infuriating his teachers with a combination of evident ability and laziness. Yet his interests included philosophy, law, psychology and physiology as well as economics, all areas to which he would later contribute.

Hayek’s views evolved, especially with greater fame and fortune

The book follows three great arcs that played themselves out over the first 50 years of Hayek’s life. The first was intellectual as, influenced by Ludwig von Mises, he started to develop the core of what he saw as classically liberal ideas. He would become famous for espousing market competition rather than the administrative allocation of goods, for freely moving prices as sources of information about relative scarcity, for the myriad unexpected ways in which open societies usefully coordinate dispersed and tacit information. Coming at a time when enlightened opinion was almost entirely in favour of state planning, these ideas were widely regarded as heretical.

The second arc was geographical. As a young professor, Hayek saw his future abroad — apart from regular holidays in the mountains, he would live outside Austria for almost four decades. He was revolted by Hitler’s rise and the spread of anti-semitism. It affected his mother and brother Heinz, who was an enthusiastic Nazi and a member of the Sturmabteilung.

Hayek’s response was to join the London School of Economics in 1931, at the invitation of Lionel Robbins. He stayed in England for nearly 20 years, had several memorable disagreements with Keynes and published a series of works that made his name. Most notably, Hayek’s 1945 anti-planning tract The Road to Serfdom was a huge popular success, and it laid down a political and economic challenge which still resonates today.

Hayek’s views evolved, especially with greater fame and fortune in the second half of his life. As this book shows, he was not — and always insisted that he was not — a laissez-faire economist. He was not unfriendly to Keynes, who found him rooms at King’s College Cambridge during the war and supported his election to the British Academy in 1944. As for the Mont Pelerin Society, which he helped to found, Hayek always saw this as a scholarly community exploring liberal ideas rather than a lobbying organisation.

The third arc was emotional. Hayek married Hella von Fritsch in 1925, apparently on the rebound after the marriage of his cousin Helene (“Lenerl”) Bitterlich, to whom he had been close. As Caldwell and Klausinger carefully document, Hayek never cut his ties with Lenerl, and he conceived an increasingly desperate need to be with her.

Hella, meanwhile, had left Vienna, moved to London and learned English to be with Hayek. She was a devoted wife and mother, and they had two children and an outwardly contented life together. 

It is little wonder to us, though it came as a huge shock to Hayek, that Hella was unwilling to fall in with his long-laid plans for a divorce. The result was a prolonged and bitter dispute, which gravely damaged Hayek’s friendship with Robbins, burned his boats in London, and sent him on an inglorious legal two-step — via Arkansas to the University of Chicago and a happy second marriage.

All this is told in scrupulous, occasionally horrendous, detail. Inevitably in a work of 800-odd pages, there is a tendency to try to chart every person and document that ever came Hayek’s way, even if one does rejoice to learn that Keynes kept his old golf score cards and shot a 256 in his first game.

More surprising is that the reader sometimes loses a sense of exactly what Hayek’s seminal contributions were, and why they mattered — for these one might better turn to Caldwell’s earlier short biography. Overall, though, this book is in every sense a monumental undertaking, for which we should be profoundly grateful.

What would Hayek notice today? The huge growth of the financial sector, and the explosion of the money supply since 2000. The impact of periodic crashes and bank bailouts in ratcheting up public debt. The loss of competition in many markets. The sentimentalisation of the public realm, the compression of policy thinking, and the apparent narrowing of what is politically possible outside a crisis. We cannot doubt that Hayek would have had much of value to say on all of these issues.

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