Friedrich Hayek: The Ideas and Influence of the Libertarian Economist

Reviewed for EH.Net by Steven Horwitz, Department of Economics, St. Lawrence University.

This short book by Eamonn Butler, Director of the Adam Smith Institute in London, is a very accessible and largely well-written ?once over lightly? introduction to the work of F.A. Hayek, and not just his economics. Though a Ph.D. in philosophy, Butler has written other books on Milton Friedman, Adam Smith, and Ludwig von Mises, and those books demonstrated a solid knowledge of all of their works, and others in the classical liberal tradition. This book is also the work of someone very familiar with Hayek?s ideas and with a talent for translating complicated contributions in economics, political theory, psychology, and philosophy into language that the non-specialist can access. As Butler says early on, the book is written for those ?who want to learn more about the case for individual freedom and free-market capitalism ? and the deeply insightful case for liberalism put forward by one of its greatest exponents? (p. 2).

With that his purpose, Butler is very successful. The book is covers a remarkable amount of ground in a rather brief 151 pages. Chapters average fifteen or so pages and cover topics such as ?Freedom and the Law,? ?The Market Process,? ?Money, Inflation, Booms, and Busts,? ?Psychology, Science, and Society,? and ?Why Socialism Was a Mistake.? Each chapter provides a fairly thorough overview of Hayek?s thinking on each topic and does a nice job in connecting to ideas developed in prior chapters. Butler ends up offering a fairly integrated and coherent view of Hayek?s social thought, building from his fundamental premises about liberalism through his economics, both micro and macro, and then on to his broader social theory. This book would work very well for an undergraduate seminar on Hayek?s thought or one on the history of classical liberalism in the twentieth century.

However, the book is not a work in the history of economic thought. There is some very brief biographical material on Hayek in the first chapter and some discussion of his influence on twentieth-century economic thought, but very little, if any, discussion of either those who influenced Hayek or the larger historical context out of which he developed his ideas. There are a few mentions of Mises, but there is no index entry for Carl Menger and only two brief mentions of Bohm-Bawerk in the business cycle theory chapter. For the reader looking to learn more about those influences and the context of Hayek?s ideas, Bruce Caldwell?s Hayek?s Challenge is the work to consult, as Butler himself notes. Having not set himself the goal of writing for the scholarly audience in economics, Butler should not be held too responsible for not writing a book that achieves that goal. However, historians of economic thought should be aware that the book is not intended for them.

In some ways it is unfortunate that Butler did not at least inject a little bit more historical context in places as it would have helped provide some clarity. For example, in the chapter on booms and busts, Butler does mention the earlier work of Mises in first developing the barebones Austrian business cycle theory and he notes the importance of Bohm-Bawerk?s capital theory. He does not, however, note that Mises?s work built on the earlier contributions of Knut Wicksell. The Austrian theory would not be possible without Wicksell?s natural and market rates of interest concept and a brief discussion of that influence would have enriched the discussion in that chapter.

The business cycle chapter also contains a brief comparison of the Austrian theory to Keynesian and Monetarist theories. Given the brevity of the discussion, a lack of nuance is not surprising. Butler?s treatment of both Keynesianism and Friedman is far from what historians of economic thought would provide, so any classroom use of this book for discussing the history of macroeconomics should probably be supplemented by other texts. Butler does rightly note one key difference between the Monetarist and Austrian approaches that is always worth emphasizing: although both theories focus on the money supply, Monetarism saw the problem with excess money creation as movements in the price level, while Austrians were concerned with relative prices, regardless of the average level of prices as a whole.

One other point in the history of economic thought that Butler does not handle well is the relationship between Mises and Hayek. Toward the end, he asserts a contrast between the two, with Mises thinking ?economic truth can be deduced from the very nature of human action? and Hayek preferring trial and error. Butler argues that this leads to Hayek?s emphasis on markets as processes. His portrayal of Mises is something of a caricature, but the more important issue is that the idea of the market as an economic process is very clearly in Mises?s work and was part of Mises?s influence on Hayek. The attempt to draw these sorts of lines between the two thinkers ignores substantial historical evidence of their influence on each other as well as their common ancestry in Menger. A good book on the Mises-Hayek relationship that made substantive use of archival sources would be most welcome.

Eamonn Butler?s book on Hayek would be a very good addition to an undergraduate course on Hayek, Austrian Economics, or twentieth-century classical liberal thought. It would also make helpful background reading for someone teaching Hayek for the first time. It is not a contribution to the history of economic thought, but it is nonetheless a very good, and very accessible, introduction to the breadth of Hayek?s thought.

Steven Horwitz is Charles A. Dana Professor of Economics at St. Lawrence University in Canton, NY and is the author of Microfoundations and Macroeconomics: An Austrian Perspective, released in paperback in 2009.