Hayek: A Collaborative Biography

Part XV: The Chicago School of Economics, Hayek's 'luck' and the 1974 Nobel Prize for Economic Science

Robert Leeson, Robert Leeson

• Publisher: Palgrave Macmillan
• Year: 2018
• ISBN:
  9783319952192
• Topic: Economics
• Subtopic: Economic Theory
• Index: Economics

On 9 August 1974, Richard Nixon resigned to avoid impeachment; on 29 April 1975, the United States scuttled from their Embassy in Saigon - optics that were interpreted as defeats for the 'International Right'. Yet in 1975, Margaret Thatcher became leader of the Conservative Party; and in 1976 Ronald Reagan almost unseated a sitting Republican Party President. Pivotal to the 'turn to the Right' was Friedrich 'von' Hayek's 1974 Nobel Prize for Economic Science - awarded for having used Austrian Business Cycle Theory to predict the Great Depression: 'For him it is not a matter of a simple defence of a liberal system of society as may sometimes appear from the popularized versions of his thinking.'
The evidence suggests that Hayek's fraudulent assertion was uncovered at the University of Chicago in the early 1930s – but not reported. The most likely explanation is self-censorship - for reasons of ideological correctness, fund raising and residual deference to the Second Estate. Four indirect tests suggest that 'free' market economists have - in other instances and presumably for fund-raising motives - suppressed embarrassing 'knowledge': which suggests that they were perfectly capable of suppressing 'knowledge' about Hayek's non-prediction of the Great Depression.
With respect to the Nobel Prize and thus his ability to reach a wider audience, Hayek was fortune in having two loyal 'intermediaries': Lionel Robbins and Fritz Machlup who were – and probably felt themselves to be – 'socially' inferior to 'von' Hayek.

Part IHayek’s Luck

© The Author(s) 2018

Robert Leeson (ed.)Hayek: A Collaborative BiographyArchival Insights into the Evolution of Economicshttps://doi.org/10.1007/978-3-319-95219-2_1

Begin Abstract

1. ‘I Have Been Lucky in This Game’

Robert Leeson^{1, 2}

(1)

Stanford University, Stanford, CA, USA

(2)

Notre Dame Australia University, Fremantle, WA, Australia

Robert Leeson

Email: [email protected]

Keywords

HayekMisesPrices and productionSlogan of liberty

End Abstract

1 ‘Von’ Hayek’s Luck

In 1974, Friedrich ‘von’ Hayek received the Nobel Prize for Economic Science for having predicted the Great Depression and for his ‘conclusion’ that ‘only by far-reaching decentralization in a market system with competition and free price-fixing is it possible to make full use [emphasis added] of knowledge and information.’ ¹ Four years later, Hayek (1978) reflected that it was his ‘general view of life that we are playing a game of luck, and on the whole I have been lucky in this game.’ He described his own knowledge: ‘I know certain events which were extremely lucky, that I had luck in many connections.’ ² Hayek (1978) also promoted dictators: ‘After all, there have been good dictators in the past … it will depend, from country to country, whether they are lucky or unlucky in the kind of person who gets in power.’ ³

Luck was central to Hayek’s (1979) political philosophy and denial of the concept of social justice: the distribution of income was like ‘bad health’ or ‘the stupidity’ or ‘the lack of beauty of some people’:

it’s all in the same category. And since we owe our wealth to a system in which prices tell people what to do, and these prices must be the source of their income, prices which tell people what to do cannot be prices which correspond to any sort of merit or desert. They must be different. We have found out – we haven’t designed it – we have found out that playing a game which is partly a game of chance, and partly a game of skill, is the best method of organising our affairs. But once we have agreed to play a game because it’s efficient, you can’t no longer afterwards say that the results have been unjust. As long as nobody has cheated, there’s nothing unjust about it. Even if you lose in the game.

Hayek’s (1994, 77) appointment to the London School of Economics (LSE) was ‘luck from beginning to end.’

What ‘game of chance’ and ‘game of skill’ was ‘von’ Hayek playing? A legitimate noble title requires a legitimate royal source: a fons honorum (the ‘fountainhead’ or ‘source of honor’). Hayek (1978) reflected that the ‘Great’ War was a ‘great break in my recollected history.’ ⁴ It also broke the Habsburg nobility: coats of arms and titles (‘von,’ ‘Archduke,’ ‘Count,’ ‘Ritter,’ etc.) were abolished on 3 April 1919 by the Adelsaufhebungsgesetz, the Law on the Abolition of Nobility. Violators face fines or six months jail. Republics transform ‘subjects’ into ‘citizens’: the status of ‘German Austrian citizens’ ‘equal before the law in all respects’ was forcibly imposed on Austrian nobles (Gusejnova 2012, 115). Henceforth, ‘von’ Hayek and Ludwig ‘von’ Mises became common criminals—facing fines and six months jail.

The Habsburg-born, Austrian-educated Arthur Koestler (1950, 19) described some of the affected: ‘Those who refused to admit that they had become déclassé, who clung to the empty shell of gentility, joined the Nazis and found comfort in blaming their fate on Versailles and the Jews. Many did not even have that consolation; they lived on pointlessly, like a great black swarm of tired winter flies crawling over the dim windows of Europe, members of a class displaced by history.’ ⁵

According to Mises (2008 [1956], 15), ‘the fool’ releases feelings in ‘slander and defamation. The more sophisticated … sublimate their hatred into a philosophy.’ ⁶ Hayek (1978) denigrated those who stripped him of his intergenerational entitlements as ‘a republic of peasants and workers’ ⁷ ; and in promoting political ‘Fascism,’ Mises (1985 [1927], 42–43) sought to undermine ‘everywhere ridiculous’ democracy: ‘Those of the old regime had displayed a certain aristocratic dignity, at least in their outward demeanor. The new ones, who replaced them, made themselves contemptible by their behavior.’

In his Völkischer Beobachter newspaper, Adolf Hitler promoted Austrian business cycle theory for the same reason that Hayek and Mises did:

The government calmly goes on printing these scraps of paper because, if it stopped, that would be the end of the government. Because once the printing presses stopped - and that is a prerequisite for the stabilisation of the mark - the swindle would at once be brought to light … Believe me, our misery will increase. The scoundrel will get by … The reason: because the State itself has become the biggest swindler and crook. A robbers’ State! … If the horrified people notice that they can starve on billions, they must arrive at this conclusion: we will no longer submit to a State which is built on the swindling idea of the majority. We want a dictatorship. (Cited by Heiden 1944, 131–133; Shirer 1960, 87; Noakes and Pridham 1994, 19)

In Austria and Germany, the fledgling democracies that emerged after the ‘Great’ War between the dynasties perished in the ‘von’ Hayek- and ‘von’ Mises-intensified Great Depression (Leeson 2018a).

Based on ‘Conversations and interviews with Hayek I, Salzburg, 1971–77. Tapes in my possession,’ Kurt Leube (2003a, 13) reported that ‘von Hayek’ and ‘von Mises’ supported Anschluss with Germany: ‘von Hayek’

had grown to manhood within an intellectual milieu formed by individuals who had become accustomed to playing a leading role in a large cosmopolitan multi-national state … Their society had disappeared and the new Austria was simply unable to offer the type of opportunities for leadership which Hayek and his social class had come to expect.

Hayek’s (1978) family ‘tradition … made us feel that a university professor was the sum of achievement, the maximum you could hope for, but even that wasn’t very likely. It reminds me that my closest friend predicted that I would end as a senior official in one of the ministries.’ ⁸

Hayek’s (1978) ‘determination to become a scholar was certainly affected by the unsatisfied ambition of my father’ to acquire the title of full university professor:

I grew up with the idea that there was nothing higher in life than becoming a university professor. ⁹ At the age of thirty-two, when you’re offered a professorship in London you just take it. [Laughter] I mean, there’s no problem about who’s competing. It was as unexpected as forty years later the Nobel Prize. It came like something out of the clear sky when I never expected such a thing to happen, and if it’s offered to you, you take it. It was in ‘31, when Hitler hadn’t even risen to power in Germany; so it was in no way affected by political considerations. ¹⁰

Previously, Hayek (1978) had held a Privatdozent at the University of Vienna which ‘allowed one to lecture but practically to earn no money. When I finally achieved it, what I got from student fees just served to pay my taxi, which I had to take once a week from my office to give a lecture at the university. That’s all I got from the university.’ This Privatdozent had been derived in a corrupt, sponsor-driven environment (see below)—and wherever he was employed, Hayek ‘imported’ this ‘free’ market academic corruption.

Hayek (1978) detected gullibility in his American admirers: ‘I began with a tone of profound conviction, not knowing how I would end the sentence, and it turned out that the American public is an exceedingly grateful and easy public … I went through the United States for five weeks doing that stunt [laughter] everyday, more or less … I think I ought to have added that what I did in America was a very corrupting experience. You become an actor, and I didn’t know I had it in me. But given the opportunity to play with an audience, I began enjoying it [Laughter].’ ¹¹

‘Free’ market ‘knowledge’ has been ‘constructed’ by four malevolently mentally ill individuals: Ayn Rand (1905–1982), who explicitly wrote fiction; plus Mises (1881–1973), Hayek (1899–1992) and Murray Rothbard (1926–1995), who masqueraded their ideological agenda as ‘science.’ Their ‘knowledge’ is ‘spread’ by what Hayek (1978) contemptuously called ‘the intellectuals, which I have long ago defined as the secondhand dealers in ideas. For some reason or other, they are probably more subject to waves of fashion in ideas and more influential in the American sense than they are elsewhere.’ ¹² These disciples have embraced the title of ‘worst inferior mediocrities’ (Hayek 1949, 426–427; 1978) in return for ‘property’: academic tenure and ‘1%’ financial elite status (Chapter 3).

Their ‘thoroughly Hitlerian contempt for the democratic man’ i...

Table of contents

• Cover
• Front Matter
• Part I. Hayek’s Luck
• Part II. Myrdal and Machlup
• Part III. The Chicago School of Economics
• Back Matter