• Born in 1899 Vienna
• Studied with Ludwig von Mises
• Moved to London, then to Chicago and
finally to Germany.
• Won the Nobel prize in 1974
Business Cycle Theory
• Hayek said “busts” were caused by bad
central bank policy.
• If the bank lowered interest rates too
much, credit would be too easy to get.
• People would make bad business
assumptions, and the hollowness of
these would eventually be discovered,
resulting in a bust.
Hayek’s view of free markets
and government planning
• Hayek said that the problem of communism
was that knowledge is diffuse. Central
planning assumes the planners know
everything necessary to run society. They do
• Free markets allow people to each make
decisions based on their area of expertise,
resulting in a “spontaneous” order.
• “The peculiar character of the problem of a
rational economic order is determined
precisely by the fact that the knowledge of
circumstances of which we must make use
never exists in concentrated or integrated
form but solely as the dispersed bits of
incomplete and frequently contradictory
knowledge which all the separate individuals
• ---Hayek, The Use of Knowledge in Society
• Hayek had many followers among the new
conservatives of the 1980s.
• Margaret Thatcher said his The Road to
Serfdom was “what we believe.”
• Ronald Reagan appointed many Hayekians
to high office.
• George H.W. Bush gave him the presidential
medal of freedom.
• Jimmy Wales, the founder of Wikipedia,
has said that Hayek’s ideas of diffuse
knowledge inspired him to create an
encyclopedia anyone can edit.
• http://freedomandwhisky.blogspot.com/1980c5.jpg (Illustration)
• Hayek NY Times Obit by Sylvia Nasar
• Thatcher’s People by John Ranelagh
• Jimmy Wales interview on Youtube
• ‘The Use of Knowledge in Society,” by F.A. Hayek
• Hayek biography from Mises.org, by Peter G. Klein
• Hayek article on econlib.org