Friedrich August von Hayek

Who he was and his times

Friedrich August von Hayek was born in Vienna in 1899. He served in the Austro-Hungarian army in the First World War, then studied at the University of Vienna and received doctorates in law (1921) and political science (1923). In his youth, by his own recollection, he sympathised with moderate socialism, but under the influence of Ludwig von Mises’s book Socialism (1922) and Mises’s private seminar he moved to the positions of the Austrian school. In 1927, together with Mises, he founded the Austrian Institute for Business Cycle Research and became its director.

In 1931 Hayek moved to London and took up a professorial chair at the London School of Economics, where he taught until 1950; in 1938 he became a British subject. London in the 1930s was the centre of the dispute with Keynes over the causes of crises and, at the same time, a place where British and émigré economists discussed the possibility of socialist calculation. It was here that Hayek prepared the collection Collectivist Economic Planning (1935) and wrote The Road to Serfdom.

In 1950 Hayek moved to the Committee on Social Thought at the University of Chicago, where he worked until 1962; he was then a professor in Freiburg (1962–1968) and Salzburg (1969–1977). In 1947 he became one of the founders of the Mont Pelerin Society, which brought together liberal economists and philosophers. In 1974 the Nobel Prize in economics was shared by Hayek and the Swedish economist Gunnar Myrdal, an advocate of active state policy; the prize was awarded for work in the theory of money and economic fluctuations and for the analysis of the interdependence of economic, social and institutional phenomena. Hayek died in Freiburg in 1992.

Key ideas

Hayek’s first contribution to the planning debate was editorial and historical. In the collection Collectivist Economic Planning (1935) he included Mises’s 1920 article and works by Nicolaas Pierson, Georg Halm and Enrico Barone, and wrote two essays — on the origins of the problem and on the current state of the debate. Already then he shifted the emphasis: the problem is not only that one cannot calculate without market prices, but also that in order to set up the necessary equations the centre would have to know an enormous number of constantly changing facts.

In the essays “Economics and Knowledge” (1937), “Socialist Calculation: The Competitive ‘Solution’” (1940) and “The Use of Knowledge in Society” (1945) this idea became central. Hayek distinguished scientific knowledge, which can be collected in a book or a database, from knowledge of “the particular circumstances of time and place”: which machine is standing idle, where a load can be shipped cheaply, which supplier is reliable. Such knowledge is dispersed, often tacit — that is, its holder cannot fully articulate it — and quickly becomes outdated. Prices, according to Hayek, work as a system of signals: when a raw material becomes more expensive, thousands of people begin to economise on it without knowing the reason and without receiving an order.

The second set of ideas is set out in The Road to Serfdom (1944). Hayek argued that comprehensive central planning requires agreement on a single scale of ends, which does not exist in a free society. Decisions therefore inevitably pass to a narrow circle of executives, laws turn into orders for particular cases, and the rule of law — the principle under which the state is bound by general rules announced in advance — is destroyed. In the chapter “Why the Worst Get on Top” he argued that planning power selects people prepared to use coercion. At the same time Hayek was no advocate of state inaction: in the same book he allowed for a guaranteed minimum of subsistence, social insurance and regulation, provided it does not replace competition.

His later works generalise these ideas. In his Nobel lecture “The Pretence of Knowledge” (1974) Hayek reproached economists for “scientism” — the urge to imitate the natural sciences and rely only on measurable quantities, even when important causes cannot be measured. In The Fatal Conceit (1988) he used the term “fatal conceit” for the belief that humans are capable of consciously designing a complex social order, and contrasted it with “spontaneous order” — the market, language, law and morality, which took shape through evolution rather than according to anyone’s plan.

What became of the ideas in practice

Like Mises, Hayek had no direct influence on Soviet planning: his books were not published in the USSR, and The Road to Serfdom first appeared in Russian in the journal Voprosy filosofii in 1990. Yet the problem of dispersed knowledge he described is easily recognisable in the history of Gosplan. The centre could draw up a balance for an aggregated item, but specific information about the capabilities of factories remained with the factories themselves, and they had an interest in understating capacity and overstating needs in order to obtain an easy plan. The gap between a plan item and a product was closed by tolkachi (expediters) and informal connections — that is, by local knowledge that found a way around.

Soviet reformers tried to solve this problem in two ways, and both can be read through Hayek. The first was computational: Viktor Glushkov’s OGAS, which from 1962 was supposed to gather data into a single network. As our site already notes, the project ran up not against the capacity of the machines but against ministries unwilling to give up information and control. The second was the 1965 reform associated with the names of Kosygin and Liberman, which tried to give enterprises more autonomy and to assess them by profit. Its curtailment showed that it is difficult to expand the rights of those who execute the plan without changing the system of power.

In the West, Hayek’s ideas found political application much later than they were put forward. From the 1970s, especially after the Nobel Prize, they were invoked by supporters of market reforms in Britain and the United States, and after 1989 by reformers in Eastern Europe. Hayek himself received the US Presidential Medal of Freedom in 1991. Historians and economists differ on how far the practical policies of those years matched his views.

In Russia Hayek became known precisely at the moment the planning system was falling apart. A translation of The Road to Serfdom appeared in Voprosy filosofii in 1990, and The Fatal Conceit was published as a separate book in 1992. For many readers of the time these books sounded like an explanation of experience already lived through rather than a theoretical dispute. This reading had its cost: Hayek’s complex argument about knowledge and rules was often reduced to the slogan “the market will sort everything out”, although he himself wrote of the need for a carefully designed legal framework, within which alone the market can work.

What worked and what did not

The argument about dispersed knowledge proved the most durable in the entire debate. It is accepted by many economists far removed from Hayek’s political views: mechanism design and contract theory, which received Nobel Prizes in 2007 and 2016, largely study how to induce people to reveal private information. The problem of Soviet enterprises “assessing their own capacity”, of understated plans and padded reports, is a vivid example that Hayek was right: knowledge is not only dispersed but also strategically concealed when a reward depends on it.

The warning about substituting the measurable for the important was also borne out. This regularity was later formulated by the British economist Charles Goodhart: an indicator that has become a target ceases to reflect well what it was meant to measure. The history of the Soviet “val” (gross output), when factories turned out heavy products to fulfil a plan in tonnes, and modern examples of management by key performance indicators in education and medicine fit the logic of “The Pretence of Knowledge”.

The political forecast of The Road to Serfdom proved weaker. Hayek wrote that the expansion of the state’s economic role leads to totalitarianism, and although he later stressed that he had spoken of a tendency rather than an inevitability, many readers took the book precisely as a prediction. The British political scientist Herman Finer responded as early as 1946 with the book Road to Reaction, and later critics pointed to the post-war welfare states of Western and Northern Europe, where a high share of public spending and elements of planning were combined with stable democracy. Keynes, in a letter to Hayek, called the book a great one in moral terms but objected that the question was where to draw the line, not whether to reject planning altogether.

Hayek himself drew this line differently from what is often assumed. In The Road to Serfdom he acknowledged that the state should prevent fraud, regulate harmful external effects such as pollution, and provide a minimum of subsistence and social insurance against sickness and accidents. His objection concerned not state activity as such but planning that replaces competition with orders and requires the authorities to decide who is to produce and receive what. The distinction between “planning for competition” and “planning instead of competition” is one of the ideas in the book most useful to us, though one of the less quoted.

Debate and criticism

Hayek’s main opponent in the 1930s–1940s was Oskar Lange, who believed that a central planning board could find prices by trial and error. In his 1940 article Hayek objected that Lange’s model is static: it describes the search for equilibrium under given conditions, whereas the real economy consists of continuous change, and prices set by the centre would always lag behind. He also pointed out that managers of state enterprises bearing no risk of their own would not behave like entrepreneurs. “The Use of Knowledge in Society” (1945) is often interpreted as a continuation of his reply to Lange.

Historians of economic thought note that in the course of this debate Hayek moved noticeably away from Mises’s position. Mises spoke of the logical impossibility of calculation without market prices for the means of production; Hayek, in the assessment of the authors of The New Palgrave Dictionary of Economics, shifted the centre of gravity to practical infeasibility — to the fact that the necessary knowledge is dispersed, partly tacit and cannot be transmitted to the centre. The distinction matters: Mises’s argument can be challenged with a model, as Lange did, whereas Hayek’s argument can be refuted only by practice — by demonstrating that the centre actually obtains and uses the necessary information.

Criticism from the left targets several points. First, spontaneous order, critics argue, is not neutral: the market reflects not only knowledge but also the distribution of wealth and power, so price “signals” speak of effective demand rather than of needs. Second, Hayek said little about market failures — external effects such as pollution, public goods, long-term investment — although he allowed a role for the state in these areas. Third, advocates of new computational approaches, such as Paul Cockshott and Allin Cottrell, believe that modern networks and sensors can already collect a significant part of dispersed knowledge.

There is also a dispute about authorship and method. His last book, The Fatal Conceit, was prepared for publication with substantial involvement of the editor William Bartley, when Hayek was already seriously ill, and historians differ in their assessment of the extent of editorial intervention. In addition, many philosophers consider the evolutionary argument — that surviving institutions are good because they have survived — vulnerable: it does not follow from the fact that an order arose spontaneously that it cannot be improved by a conscious decision.

Legacy today

Today Hayek is cited far beyond economics. The 1945 article has become one of the most cited in the history of economics; it has been called a source of ideas about decentralised systems, from open encyclopaedias to distributed networks. For the history of planning, his main legacy is the requirement to distinguish knowledge that can be gathered at the centre from knowledge that can be used only where it arises.

For Open Planning, Hayek is the most dangerous opponent, because his arguments strike not only at Gosplan but at any system that manages by indicators. A model in which the centre sets goals and execution is left to the market partly follows his logic: the centre does not try to know exactly how the task is to be carried out. But verification by measurement and payment for confirmed results fall squarely under his critique of the “pretence of knowledge”, and that is precisely why our model limits the use of metrics and prohibits them in care, education, medicine, culture and science.

Finally, The Road to Serfdom raises a question that cannot be evaded by pointing to technology: who decides which goals take priority, and what prevents that decision-maker from gradually subordinating everything else? Hayek’s answer is to limit goal-setting itself. Our model’s answer is different — to make goal-setting public and to separate it from execution and verification. Whether this avoids the drift he described has not yet been proven and must be tested in practice.

Hayek’s understanding of the rule of law yields one more practical requirement. If rules must be general, known in advance and the same for everyone, then the calculation methodologies by which the state assesses contractors and allocates money cannot be kept closed or changed along the way. An open methodology with a version number, an effective date and a ban on retroactive application is a direct translation of Hayek’s idea into the language of digital governance systems. Here his critique and our model do not conflict but coincide.

Links between ideas

Whom the author argued with, whose ideas they developed, whom they answered and whose fate they shared. All links are on the shared graph. Graph of ideas

• Leonid Kantorovich

  Debate and criticism →

  Critics of central planning objected not to Kantorovich’s mathematics but to the premise that the centre would receive truthful data.

• Nikolai Fedorenko

  Debate and criticism →

  Hayek’s argument about dispersed knowledge targets the foundation of SOFE: the centre will not obtain knowledge that participants do not wish to reveal.

• Viktor Glushkov

  Debate and criticism →

  In Hayek’s logic, OGAS ran up against agencies unwilling to give up information and control.

• Paul Cockshott and Allin Cottrell

  Direct response →

  Cockshott and Cottrell answer the dispersed-knowledge argument: production information can be formalised and is already collected by corporations.

• Ludwig von Mises

  Develops ideas ←

  A member of Mises’s seminar, Hayek shifted the argument from the logical impossibility of calculation to dispersed knowledge.

• Oskar Lange

  Direct response ←

  In a 1940 article Hayek answered Lange: the model is static, set prices lag behind, and managers risk nothing.

• János Kornai

  Debate and criticism ←

  Kornai sees the failure of market socialism not in computing prices, as Hayek did, but in the impossibility of promising not to bail out.

Timeline

1. 1899

   Born in Vienna

2. 1927

   Together with Mises, founds the Austrian Institute for Business Cycle Research

3. 1931

   Professor at the London School of Economics

4. 1935

   Editor of the collection Collectivist Economic Planning

5. 1944

   The Road to Serfdom

6. 1945

   The essay “The Use of Knowledge in Society”

7. 1947

   One of the founders of the Mont Pelerin Society

8. 1950

   Moves to the University of Chicago

9. 1974

   Nobel Prize in economics, shared with Gunnar Myrdal; lecture “The Pretence of Knowledge”

10. 1988

    The Fatal Conceit: The Errors of Socialism

Key works

• 1935Collectivist Economic Planning (editor and author of two essays)
• 1940Socialist Calculation: The Competitive ‘Solution’
• 1944The Road to Serfdom
• 1945The Use of Knowledge in Society
• 1960The Constitution of Liberty
• 1973–1979Law, Legislation and Liberty
• 1974The Pretence of Knowledge (Nobel lecture)
• 1988The Fatal Conceit: The Errors of Socialism

Sources

1. Большая российская энциклопедия. Хайек Фридрих Август фон. 2017
2. Нобелевский комитет, NobelPrize.org. Friedrich August von Hayek. Biographical. 1974
3. NobelPrize.org. The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974. 1974
4. Википедия. The Use of Knowledge in Society. 2025
5. Springer Nature, The New Palgrave Dictionary of Economics. Socialist Calculation Debate. 2018
6. F. A. Hayek (ed.); Mises Institute. Collectivist Economic Planning. 1935
7. Википедия. The Road to Serfdom. 2025
8. University of Chicago Press; Acton Bookshop. The Road to Serfdom. The Definitive Edition. 2007
9. Википедия. Friedrich Hayek. 2025
10. Encyclopaedia Britannica. F. A. Hayek. б. г.
11. Ф. А. фон Хайек; Гуманитарный портал. Пагубная самонадеянность. Ошибки социализма. 1992 / 2012
12. Википедия. Дорога к рабству. 2025
13. F. A. Hayek; NobelPrize.org. The Pretence of Knowledge. Prize Lecture. 1974

Prepared from open sources. Dates, titles and quotations were checked against the source list at the bottom of the page; where sources disagree, the text says so.