177
Auctions are free markets where
prices arise from the direct and rapid
exchange of localized information
between buyers and sellers.
WAR AND DEPRESSIONS
Friedrich Hayek
Friedrich August von Hayek
was born in Vienna, Austria,
to a family of intellectuals. By
the age of 23, he had received
doctorates in law and politics
in addition to spending a year
in the Italian army during
World War I. Initially drawn to
socialism, he attended Ludwig
von Mises’ seminars while in
Vienna, and with von Mises’
support founded the Austrian
Institute of Business Cycle
Research. In 1923, he traveled
to New York for a year, and
the accuracy of US newspaper
accounts of the war compared
to those in Austria led to his
deep distrust of governments.
In 1931, he moved to
London to teach at the London
School of Economics and
became embroiled in a very
public, two-year argument
with John Maynard Keynes.
Hayek became a British citizen
in 1938, but in 1950 left
London for the University of
Chicago. He died aged 93 in
Freiburg, Germany, in 1992.Key works1944 The Road to Serfdom
1948 Individualism and
Economic Order
1988 The Fatal ConceitAt the same time Hayek and others
in the Austrian School formed the
Mont Perelin Society, which acted
as a guiding influence on the
free market think tanks that arose
during the breakdown of the
Keynesian consensus in the
1970s. A similar new approach
to economic policy sprang up in
South America, but it was its
adoption by the governments of
Ronald Reagan in the US and
Margaret Thatcher in the UK that
made it globally significant. This
was neoliberalism, and it followed
closely the ideas of the once-
maligned Austrian School.
Nationalized industries were
privatized, and governments rolled
back their intervention in the
workings of the market. The Soviet
Union collapsed, giving further
impetus to the apparent triumph of
Hayekian themes in politics. Across
the world even those parties once
most adamantly opposed to free
markets came to believe that there
was no viable alternative, including
Britain’s Labour Party—who had
been the direct target of Hayek’s
Road to Serfdom.
Mainstream economists strongly
influenced by free market thinking,
such as Milton Friedman, have
risen to influence. By 2000, a
“new consensus” prevailed in
macroeconomics that emphasized
the limited role of the state.New relevance
Despite the apparent triumph of
Austrian themes in economics
and Hayek’s 1974 Nobel Prize, the
distinctive methods and theory of
the Austrian School remained
largely confined to the fringes.
However, the collapse of the global
financial system in 2007–08 and
the subsequent bank bailouts have
provoked a renewed interest in
its doctrines. Austrian School
economists have been prominent in
attacking bank bailouts, claiming
that they represent an unwarranted
interference in the market. The Free
Banking School, which calls for an
end to the government monopoly of
the money supply, takes its cue from
a 1976 Hayek paper, Denationalization
of Money, and its ideas have gained
ground. Keynesian programs of
increased government spending
have been similarly criticized.
With mainstream economics in
a continuing state of turmoil, the
Austrian School is set to achieve
fresh influence. ■