Imagine the deepest insights in economics, such as Adam Smith’s Invisible Hand, as a great mountain peak, the result of a seismic shift of the mind. Imagine the intellectual contributions inspired by Smith as rivers flowing from the foothills of Smith Mountain, with the communities and cities developing in the surrounding valley as various schools of thought. The inhabitants of this terrain (economists) are as Lord Acton observed, “the men who sit in the seat of Adam Smith.” The history of economic thought is thus a story of diverging rivers (the split into technical economics and political science), the convergence of rivers (Law and Economics), and great battles (such as the Marginal Revolution). Some economists have traveled far from the Smithian rivers and others work to show that the communities within the valley of Smith Mountain are still thriving and innovating. F. A. Hayek traveled this landscape, debating other economists and refining and redefining his approach to the social sciences.

Peter J. Boettke’s recent book, F. A. Hayek: Economics, Political Economy and Social Philosophy (Palgrave Macmillan, 2018), is no ordinary intellectual biography. The book is also an exercise in intellectual cartography, mapping out 20th Century economics and describing Hayek’s journey. Throughout the book, we see Hayek moving across the map, visiting great cities, navigating rivers, and climbing great peaks. In the real world, he was also traveling intellectually and geographically, from technical economics to social philosophy and from Vienna to Chicago. As Boettke (2018, 147) outlines:

Though Hayek began his career as a technical economist focused on the problem of imputation, intertemporal coordination, and industrial fluctuations, his debate with other economists over the viability of socialism led him increasingly to explore the institutional foundations of the market economy, and the underlying philosophical issues that clouded their understanding of those foundations.

Hayek (1980 [1948], 54) articulates what he calls “the central question of all social sciences” in his seminal essay, “Economics and Knowledge”:

How can the combination of fragments of knowledge existing in different minds bring about results which, if they were to be brought about deliberately, would require a knowledge on the part of the directing mind which no single person can possess?

This question would motivate the rest of Hayek’s academic career, but by no means limited him to a single discipline and approach to social sciences. In fact, he could not answer the question without travelling beyond technical economics, which forced him to become a multi-faceted thinker. Hayek’s question and his quest[i] to better understand it not only helps us to understand his contributions to social science but articulates a path forward for students and scholars.

Hayek’s Journey

In the 1930s, while at the London School of Economics, Hayek primarily focused on work in technical economics and more specifically on business cycle theory. During this time, Hayek discovered that many of his colleagues were shifting towards a more rigid neoclassical formalism and he, in response, wrote the essay quoted above (Hayek 1980 [1948]).

“The discipline of economics was transformed during this period from a branch of moral philosophy to a tool for social control…that relied increasingly on mathematical modeling and statistical analysis,” explains Boettke (2018, 206), who goes on to concludes that “[A] variety of critical issues are pushed to the side.” Hayek, in response to the major trends in his discipline, began his quest for understanding social science and combatting the new, and possibly dangerous, ideas of economic formalism.

Indeed, through Hayek’s experience in the socialist calculation debate, he realized that many formalists ignored the quest entirely.[ii] By assuming away the question of precisely how knowledge is transferred between individuals, the market in the abstract simply becomes a method of resource allocation. The abstract market is comparable to abstract socialism, and the deciding factor between the two is simply one of preferences in distribution and level of decision-making. Further, real-world markets have known challenges and failures whereas socialism or later market socialism, at least in theory, was seen as a possible way to eliminate market failures and improve allocation distribution. Hayek (1980 [1948], 77) summarized this approach: “If we possess all the relevant information, if we can start out from a given set of preferences, and if we command complete knowledge of available means, the problem which remains is one of pure logic.”

Hayek’s The Road to Serfdom, first published in 1944, is not simply about party politics or ideological musings, but rather a deep-seated plea to his fellow economists who had been seduced by formalism to understand the institutional complexity that frames economies. Specifically, Hayek articulates the political consequences of a planned economy. His plea was an urgent one as Britain, at the tail of end of the Second World War, was considering continuing its war economy after victory. The intellectual battle against socialism would need an intellectual army; bold ideas were needed to counter as well as shape the practical world of politics. Boettke (2018, 119) argues that, “[Hayek’s] founding of the Mont Pelerin Society in 1947 was an attempt to align the opponents of socialism in the intellectual, political, and business worlds so they could form an effective intellectual bulwark against the rising tide of socialism in the democratic West.”

The fight against socialism is also a push for markets and more decentralized governance, grounded in the intellectual tradition of Adam Smith, David Hume, Lord Acton, and others who understood the importance of comparative institutional analysis. This tradition has ramifications for not only Hayek’s time but the intellectual battles of today. Boettke (2018, 268) cautions that, “Our modern understanding of the technical economics, the structural political economy, and deeper moral philosophy of Adam Smith is so flawed that the Scottish Philosophers’ most basic common concern of creating the institutional conditions for a civil and compassionate society is lost in the rendering.”

Hayek’s next move was to dig deeper into social and moral philosophy. Again, this does not mean that his ideas were roundly defeated, but rather that he needed to look deeper to gain satisfactory answers. In the early 1950s, Hayek began to write about his explorations into philosophy. This project spanned many disciplines, from psychology in The Sensory Order (1952), epistemology in The Counter Revolution of Science (1952), and social anthropology in Law Legislation and Liberty (1973–9) and The Fatal Conceit (1988). Throughout these works, Hayek explicates the concept of spontaneous order — the product of human action but not of human design. He not only described the limits of the individual human mind to understand an extended social order, but began to formulate his solution for how social order, coordination, and progress take place in human society. Hayek believed, and his work over his lifetime articulated that, “[i]t is a subtle and nuanced dance of evolution and design that makes up the spontaneous order of society and the institutional framework that shapes that order” (Boettke 2018, 174).

Epistemic Institutionalism

Hayek’s answer to his question, what Boettke terms “epistemic institutionalism,” is the same at every stage of his journey. “[T]he most productive reading of Hayek is one which sees the common thread in his work from psychology to economics to philosophy of science to political science to law and finally to philosophical anthropology and social theory. That common thread is a decisively epistemic turn to comparative institutional analysis” (Boettke 1999, xv, emphasis in original). Fragmented pieces of knowledge can come together if the institutional framework directs individuals’ attention to the knowledge that they can best utilize, allowing them to economize on the amount of knowledge needed to best pursue their plans.

For example, in the market system, property rights, prices, and profit and loss are guides to navigate with when exchanging with others. The knowledge of distant shocks in resources arrive to sellers and consumers in the form of changing prices in the raw materials and consumer products; these price changes signal to producers to swap out resources or tweak their processes and signal to consumers to consider shifting to lower-priced substitutes. This allows for knowledge of time and place to disseminate across society and for individuals to adjust their behavior without any central direction or authority needed to guide interaction.

The institutions that shape and bind behavior have emerged over time, and, hopefully, are reformed as circumstances change. While socialism is often viewed as an institutional substitution for current governments and markets, the experiments with socialism have not led to the anticipated results or longevity. This evolutionary view of institutions informed and shaped Hayek’s approach to economics, political economy, and social philosophy. In hindsight, we can see Hayek’s quest running like a bright line through his life’s work, but ironically, he did not realize this pattern himself. Hayek wrote in the foreword to Gerald O’Driscoll’s 1977 book, Economics as a Coordination Problem: The Contributions of F.A. Hayek, that,

It is a curious fact that a student of complex phenomena may long himself remain unaware of how his views of different problems hang together and perhaps never fully succeed in clearly stating the guiding ideas which led him in the treatment of particulars. That it seems in principle possible to recast a great part of economic theory in terms of the approach which I had found useful in dealing with such different problems as those of industrial fluctuations and the running of a socialist economy was the more gratifying to me as what I had done had often seemed to me more to point out barriers to further advance on the path chosen by others than to supply new ideas which opened the path to further development.

(Hayek in O’Driscoll 1977, 5)

The question wasn’t necessarily conscious on his mind, but every successive step led Hayek to a more robust answer to his question and to his critics. He began answering questions about intertemporal coordination in business cycle theory. Although Keynes was declared the victor in their debate by both the academy and the populous, his resolve was not shaken. Same was true after the socialist calculation debate. Keynesianism and neoclassical formalism had no concern for the questions of political economy and the limits of reason. What may seem like a retreat was actually a strategic reconquering of lost territory that Hayek’s opponents had discounted. Boettke (2018, 5) states that, “Hayek did not shift topics and fields to run away from perceived intellectual defeats. Rather, he sought to deepen our understanding of the nature of the economic problem that modern societies must confront and the demands of a truly liberal order.”

A Truly Liberal Order

Latent in almost every one of Hayek’s works are the blueprints for such a liberal order. In “The Intellectuals and Socialism” he stressed,

We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia, a program which seems neither a mere defense of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which does not spare the susceptibilities of the mighty (including trade unions), which is not too severely practical, and which does not confine itself to what appears today as politically possible.

(Emphasis added, Hayek 1949, 432)

Though Hayek was largely opposed to grand political experiments, he encouraged academics to pursue intellectual and abstract development of liberal social orders that counter central planning. Indeed, Boettke (2018, 200) argues that “Liberalism, correctly understood, is little more than the persistent and consistent applications of the principles of economics of the affairs of men, be they domestic or international.”

The crux of Hayek’s political economy is the rule of law, which is the focus of The Constitution of Liberty (1960). The rule of law grants no advantage, legal or political, to any particular individual or group. “For Hayek, the rule of law does not imply a law of rules,” states Boettke (2018, 212), “but a norm of generality such that individuals are seen as one another’s equals before the law, regardless of birth, race, ethnicity, and religion.” When all people are subject to the rule of law (importantly, even government officials and politicians) they are not subject to the will of any single other person, and are by extension free.

Political reform depends not only on the content of the rules, but on their character. The rules must remain “general and abstract and equally applicable to all” (Boettke 2018, 220). Rules that are stable and well-known, with changes announced beforehand, is a major theme in The Road to Serfdom. Such rules act as strong constraints on the agents of enforcement, and provide a framework for criticizing, directing, and evaluating government behavior. Further, each political era will require a new understanding of equality with respect to government and the rule of law. Hayek states, “If old truths are to retain their hold on men’s mind, they must be restated in the language and concepts of successive generations” (Hayek 1960, 1).

Advancing Mainline Economics

As Hayek himself put it, “the task of economic theory was to explain how an overall order of economic activity was achieved which utilized a large amount of knowledge which was not concentrated in any one mind… only through a re-examination of the age-old concepts of freedom under the law, the basic conception of traditional liberalism, and of the problems of the philosophy of law which this raises, that I have reached what now seems to be a tolerably clear picture of the nature of the spontaneous order of which liberal economists have so long been talking.”

(Boettke 2018, 5, quoted from Hayek 1967, 91–2)

Another way to articulate Hayek’s quest is through the lens of what Boettke calls mainline versus mainstream economics. Mainline economics is defined as a set of positive propositions about social order that were held in common by political economists from Adam Smith onward, whereas mainstream economics is a sociological concept related to what is currently fashionable among the scientific elite of the profession. These propositions are “(1) there are limits to the benevolence that individuals can rely on and therefore they face cognitive and epistemic limits as they negotiate the social world, but (2) formal and informal institutions guide and direct human activity, and, so (3) social cooperation is possible without central direction” (Boettke et al. 2016, 4). While mainline and mainstream sometimes converge, the mainline approach is based on a set of propositions rather than current trends or methods. Viewed this way, Hayek’s life work is an exemplar of mainline economics, centered on a question of how individuals in society find ways to live better together despite epistemological challenges.

Hayek’s life work is an exemplar of mainline economics, centered on a question of how individuals in society find ways to live better together despite epistemological challenges.

While today, it can be argued that many mainstream economists have considered and incorporated mainline ideas into their research (such as considering limited- to zero-knowledge), mainstream economics today has still largely pushed ahead with the formalism that Hayek encountered and warned against.

Boettke ends the book with a link to an online living bibliography of works on Hayek, a testament to his lasting effect on the social sciences. The students and scholars who contribute to Hayek’s project have continued his quest, advancing mainline economics through further investigating multi-disciplinary approaches to the social sciences. And there is still much to be understood and advanced in this tradition. Indeed, the ground of mainline economics is fertile and worthy of cultivation for generations to come.

For more discussion on the lasting significance of F. A. Hayek, see Peter J. Boettke’s F. A. Hayek: Economics, Political Economy and Social Philosophy (Palgrave Macmillan, Great Thinkers in Economics series, 2018) now in paperback.

Peter J. Boettke, Bruce Caldwell, Sandra Peart, and Paul Lewis explore this book in a panel discussion on the Hayek Program Podcast:

Peter Boettke also discusses the impact of F. A. Hayek and his ideas with Rosolino Candela on the Hayek Program Podcast:

Also read Stefanie Haeffele and Michael Schultz’s discussion of the lasting relevance of Hayek’s The Road to Serfdom, and Stefanie Haeffele and Molly Harnish’s discussion of the enduring relevance of F. A. Hayek’s ideas in “The Intellectuals and Socialism” 70 Years Later.

To learn more about the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics, visit hayek.mercatus.org.

[i] These words actually have the same Latin root, quaerere, meaning, “to ask.”

[ii] For a comprehensive history of the socialist calculation debate between thinkers like Hayek, Ludwig von Mises and Lionel Robbins on the side of markets and Oskar Lange and Abba Lerner on the side of the socialism, see Rivalry and Central Planning by Don Lavoie (1985).