THE COLLECTED WORKS OF
F. A. Hayek
VOLUME IV
THE FORTUNES OF LIBERALISM Essays on Austrian Economics and the Ideal of Freedom
The University of Chicago Press, Chicago 60637
Routledge, London
© 1992 by F. A. Hayek © 1992 Introduction and editorial notes by Peter G. Klein
All rights reserved. Published 1992 Printed in the United States of America
00 99 98 97 96 95 94 93 92 5 4 3 2 1
ISBN: 0-226-32064-2 (cloth)
This book was produced using WordPerfect 5.0. Final copy was produced on a Linotronic 300. WordPerfect is a registered trade mark of WordPerfect
Corporation.
Library of Congress Cataloging-i^Publication Data
Hayek, Friedrich A. von (Friedrich August), 1899—
The fortunes of liberalism: essays on Austrian economics and the ideal of freedom / edited by Peter G. Klein
p. cm.—(The collected works of E A. Hayek, vol. 4)
Includes bibliographical references and index.
1. Economics. 2. Free enterprise. 3. Liberalism. 4. Austrian
school of economists. 5. Social sciences. I. Klein, Peter G.
IL Title. III. Series: Hayek, Friedrich A. von (Friedrich August),
1899- Works. 1989 v. 4.
HB17LH426 1989 vol. 4 330.1 s—dc20
[HB171] [330.15'7 91-26840
© The paper used in this publications meets the minimum requirements of the American National Standard for Information Sciences-Permanence of paper for Printed Library Materials, ANSI Z39.48-1984.
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CONTENTS
Editorial Foreword ix
Introduction 1
PART I. THE AUSTRIAN SCHOOL OF ECONOMICS
Prologue_The Economics of the 1920s as Seen from
Vienna_ 19
Addenda: John Bates Clark (1847-1938)_38
Wesley Clair Mitchell (1874-1948) 40
One_The Austrian School of Economics_42
Addendum: In Britain and the United States_53
Two_Carl Menger (1840-1921)_61
Addendum: The Place of Menger's Grundsdtze in the History of Economic Thought_96
Three_Friedrich von Wieser (1851-1926)_108
Four_Ludwig von Mises (1881-1973)_126
Five_Joseph Schumpeter (1883-1950)_160
Six_Ewald Schams (1899-1955) and Richard
von Strigl (1891-1942)_166
Addendum: Strigl's Theory of Wages 170
Seven Ernst Mach (1838-1916) and the Social
Sciences in Vienna 172
Vll
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Coda
Remembering My Cousin Ludwig Wittgenstein (1889-1951)
176
PAR T II. THE FOR TUNES OF LIBERA LISM
Prologue
Eight
Nine
Ten
The Rediscovery of Freedom: Personal
ions_
185
Addenda: Tribute to Ropke 195
Ropke's Theory of Capital Formation 198 Hallowell on the Decline of Liberalism as an Ideology_199
Historians and the Future of Europe
The Actonian Revival: On Lord Acton (1834-1902)
Is There a German Nation?
201
216
219
Eleven
A Plan for the Future of Germany
223
Twelve
Addendum: The Future of Austria
Opening Address to a Conference at Mont
Pelerin
234
237
Thirteen
Fourteen
The Tragedy of Organised Humanity
de Jouvenel on Power
Bruno Leoni (1913-1967) and
Leonard Read (1898-1983)
249
253
Editor's Acknowledgements Chronological List of Contents
263
265
Index
269
Vlll
EDITORIAL FOREWORD
The Collected Works of F. A. Hayek is the product not of the design but of the perception of W. W. Bartley III that the great importance of Hayek's thought would not be fully grasped without a complete, newly ordered, and annotated presentation of his writings. Thus the series is an unplanned outcome of Hayek's offer to place at Bartley's disposal all of his papers, should he undertake Hayek's biography, which Bardey did agree to do. In the course of their many talks—about Popper, about Wittgenstein, about Vienna—Hayek realised that Bardey had acquired a unique understanding of the Vienna of Hayek's birth and youth. Bardey, for his part, as he examined the depth and range of Hayek's writings, came to realise that the knowledge of Hayek's ideas held by contemporary thinkers was at best fragmentary and at worst woefully non-existent. Just as Ludwig Wittgenstein's English followers knew litde of his Austrian life until Bartley wrote of it, Hayek's English and American readers knew little of Hayek's early work written in German. Even most economists had ceased to read Hayek's work on economic theory, and neglected entirely Hayek's ideas about theories of perception and the growth of knowledge. Yet none of Hayek's writing is entirely unconnected to the whole, and now, placed within its historical, theoretical, and critical context, which is the rewarding labour of the editors, Hayek's collected writing provides an invaluable education in a subject which is nothing less than the development of the modern world.
This new collection of essays, The Fortunes of Liberalism: Essays on Austrian Economics and the Ideal of Freedom, is the fourth volume of the Collected Works of F. A. Hayek and the third volume in order of appearance. Of particular interest is the essay "The Economics of the 1920s as Seen from Vienna", which is published here for the first time, and the essay "The Rediscovery of Freedom: Personal
ix
Bihar dergan Hiak clpta
Recollections", which is published for the first time in English. Also published for the first time is the Addendum to chapter 1, and for the first time in English chapters 3 and 7 and sections of chapters 4 and 6. With but two exceptions the remaining chapters have not been readily accessible and are here collected for the first time.
Much has changed in the world since the inception of this series. The fall of the Berlin wall is the dramatic and symbolic event that had long been prefigured in the criticisms of socialism made by Hayek, Mises, and their followers. Now irrefutable, Hayek's arguments may come to be read as a touchstone in a renewed examination of the evolution of the extended order of society. For the Hayek specialist who is encouraged to discover how Hayek's ideas have evolved in terms of his unfailing sense of what is the key problem to be solved, the essays in this volume about Hayek's teachers and colleagues will be of considerable interest. One may well be startled to see in chapter 3 a young Hayek in 1926 writing of "the most important economic problem, the laws of income distribution". Even then there were hints that these 'laws' would be merely foothills beyond which a high range of unexplored difficulty could be glimpsed. So Friedrich von Wieser, Hayek's teacher, writes of himself, "Henceforth it became my dream to write anonymous history. This too, however, came to nothing. The most obvious social relationship manifests itself in the economy—that had to be clarified first, before one could even consider fathoming more deeply concealed relations".
The question of the place of history in social evolution and the role historians play in our national identities connect all of the essays in this volume. Like an ostinato figure, the theme is sounded at the very start in Menger's epochal controversy with the German historical school, the Metkodenstreit, over whether it is possible to discover laws of history that explain or predict or determine the destiny of nations. The great tragedy of the twentieth century was the twin monstrosities, the social calamities of Nazi Germany and Soviet Communism, which proved that if history is not "bunk", to use Henry Ford's famous monosyllable, historicism is not only wrong, but dangerously wrong. In the end it is clear the fortunes of liberalism rest on the objectivity of the historians—among whom Hayek enlists all students of social phenomena—"of the possibility of a history which is not written in the service of a particular interest".
How to reconcile the "supremacy of truth" that Hayek holds as the standard for all historians with the obscurity of events that economists must discern is the task that emerges from these pages. But then, as Hayek reminds us in the essay on Ropke, "an economist who is nothing but an economist cannot be a good economist".
///
This volume was assembled under painful circumstances. The founding editor of the Collected Works of F A- Hayek, W. W. Bartley III died of cancer in February 1990. Nothing can prepare one for such a loss. But we were prepared to do the work that will remain as a testament to his foresight, perseverance, and intelligence. Of those who have kept the project together and moving forward during this difficult year, I am most grateful to Mr. Walter Morris of the Vera and Walter Morris Foundation. His has been, as Bartley wrote, the presiding genius behind the larger project, without whose advice and support it never could have been organised or launched and, I will now add, without whose unflagging counsel and sympathy the project would not have continued.
A similar debt of gratitude must also go to Mr. John Blundell of the Institute for Humane Studies. I should also like to express my thanks to Ms. Penelope Kaiserlian of the University of Chicago Press and to Mr. Peter Sowden of Routiedge, not only for their renewed commitment to the series but for their patience and acceptance of the complexity of this undertaking; which complexity would not be resolved nor books produced without the knowledge and determination of the Assistant Editor, Ms. Gene Opton. We are also fortunate to have the translations of Dr. Grete Heinz. Thanks are due to Ms. Charlotte Cubitt, Ms. Leslie Graves, and Mr. Eric O'Keefe; and especially to Peter Klein for being curious and energetic enough to complete with great distinction the very painstaking work of editing this volume, and for being modest enough not to expect that virtue has any other reward.
Finally, the project could not have been carried through successfully without the generous financial assistance of the supporting organisations, whose names are listed prominently at the beginning of the volume and to which all associated with the volume are grateful. The support of these sponsors—institutions and foundations from six continents—not only acknowledges the international appre-
xi
ciation of Hayek's work, but also provides very tangible evidence of the extended order of human cooperation of which Hayek writes.
Stephen Kresge Oakland, California February 1991
* ■
Xll
INTRODUCTION
"Can capitalism survive?" asked Joseph Schumpeter in 1942. "No. I do not think it can".1 But capitalism survived: Now half a century later we find socialism facing self-destruction, the ideal of central planning collapsing with the failed economies of East and Central Europe. If there is any lesson to be learned from the events of 1989, it is this; The rebirth of liberalism in that part of the world is largely, if not completely, a rebirth of capitalism—a recognition that only the market order can provide the level of well-being that modern civilisation requires. Though not yet fully understood, this is now widely recognised- Robert Heilbroner, certainly no friend of capitalism, writes that recent history "has forced us to rethink the meaning of socialism. As a semi-religious vision of a transformed humanity, it has been dealt devastating blows in the twentieth century. As a blueprint for a rationally planned society, it is in tatters".2
For F. A. Hayek this is but a mild surprise. As an 'Austrian' economist Hayek has always had an understanding of the market somewhat different from that of his contemporaries, not only those who oppose capitalism, but many of those who defend it as well. Throughout most of this century 'the economic problem' has been seen as the allocation of resources, the problem of finding a distribution of productive resources to supply a set of competing and potentially unlimited demands—for which a solution can in principle be computed by an outside observer (and, by implication, a central planner). For Hayek and the Austrians, by contrast, economics is about the ...
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