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In November, 1977, on a still-sticky evening along Louisiana’s Gulf Coast, the Austrian economist and philosopher Friedrich Hayek boarded a flight bound for Chile and settled into his seat in first class. He was headed to the Valparaíso Business School, where he was scheduled to receive an honorary degree. Upon arrival in Santiago, the Nobel laureate was greeted at the airport by the dean of the business school, Carlos Cáceres. They drove toward the Pacific Coast, stopping for a bite to eat in the city of Casablanca, which had a restaurant known for its chicken stew. After their meal, they steered north to Viña del Mar, a seaside resort city in Valparaíso, where Hayek would take long walks on the beach, pausing now and then to study the stones in the sand.
To the casual observer, it seemed like a typical autumnal recessional, the sort of trip that illustrious scholars enjoy at the end of their careers. This one had a wintrier purpose. In addition to being a fan of Hayek, Cáceres sat on a special board of advisers to the military dictator Augusto Pinochet, who had overthrown Chile’s democratically elected Socialist leader, Salvador Allende, in a violent coup four years earlier. Cáceres would go on to serve as Pinochet’s central banker, finance minister, and interior minister. He helped design the country’s 1980 constitution, which nested a neoliberal economy in the spikes of an authoritarian state. Like many of his market-minded colleagues in the regime, Cáceres wanted the world to see the dictatorship—steeped in kidnapping, torture, and murder—as he saw it: on the road to freedom. A visit from Hayek, an internationally renowned theorist of capitalism and liberty, might help.
If Hayek had any qualms about his role, he did not express them. To the contrary: after a personal meeting with Pinochet, the philosopher told reporters that he had explained to the tyrant that “unlimited democracy does not work.” Pinochet “listened carefully” and asked Hayek to send his writing on the topic. Hayek had his secretary mail a chapter from his forthcoming book, the third volume of “Law, Legislation and Liberty,” which included a discussion of emergency rule. After commending the dictatorship for not “being obsessed with popular commitments or political expectations of any kind,” Hayek reported to the media that “the direction of the Chilean economy is very good,” and “an example for the world.” The regime, Cáceres later told Hayek, welcomed his words.
In the following years, Hayek continued to defend the regime, describing its leaders as “educated, reasonable, and insightful men” and Pinochet as “an honorable general.” To a doubting public, Hayek explained that dictators can cleanse democracies of their “impurities.” He reassured critics that he had “not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much greater under Pinochet than it had been under Allende.” It was one of the rare instances when his perception of the country matched reality; as a respondent pointed out, “such absolute unanimity only exists when those who disagree have been imprisoned, expelled, terrified into silence, or destroyed.”
Hayek made his voyage to Santiago more than a quarter century after the years covered in “Hayek: A Life,” the first half of Bruce Caldwell and Hansjoerg Klausinger’s projected two-volume biography. The trip is naturally not discussed in this volume, which ends in 1950, yet it is embedded in virtually every sentence of Hayek’s developing thought and being. Decades before he set foot on Chilean soil, Hayek envisioned economic freedom as a form of élite domination. His economy required no intervention of an authoritarian state to be coercive and unfree. It was already coercive and unfree, by design. The question we’re left with, at the end of 1950, is not how Hayek, theorist of liberty, could have come to the aid of Pinochet but, given his theory of the economy, how could he not?
Friedrich August Edler von Hayek was born on May 8, 1899, in his parents’ apartment in Vienna. Two miles away, Sigmund Freud was putting the finishing touches on “The Interpretation of Dreams.” “Fin-de-siècle Vienna” invokes a century-straddling city whose violent metamorphosis, from the crown jewel of the Austro-Hungarian Empire to the capital of the Austrian Republic, released into the world a distinctive swirl of psychoanalysis and logical positivism, fascism and atonal music. Though often omitted from the city’s syllabus, Hayek’s writings are among its lasting texts.
His family story reads like a novel by Joseph Roth or Thomas Mann. Hayek’s paternal great-great-grandfather, a textile manufacturer in Moravia, was ennobled at the end of the eighteenth century; his son squandered his wealth in the course of the nineteenth. Hayek’s maternal great-grandfather was knighted for service to the Emperor at the siege of Arad. Both sides of the family were beneficiaries of a century’s creative accounting that, by the collapse of the Empire in 1918, had bestowed a “von” upon eight thousand members of the bourgeoisie. Though the Republic abolished the use of titles in 1919, Hayek continued to use his until 1945, when it became a liability in his arguments with the left.
A high-minded liberalism is often attributed to these branches of the Austrian bourgeoisie, but fascist and proto-fascist ornaments adorn the Hayek family tree. His grandfather ran for political office, twice, as a follower of Karl Lueger, whom Adolf Hitler claimed as an inspiration. Hayek’s father helped found a racially restrictive association of physicians to oppose the increasing number of Jews in the medical profession. His mother pored over “Mein Kampf” and welcomed the Anschluss. His brother Heinz, who had moved to Germany for a job in 1929, joined the S.A. in 1933 and the Nazi Party in 1938, for reasons of conviction and career, then underwent a de-Nazification trial after the war.
Whatever hold Hayek’s family had upon him in his youth, it loosened during the First World War. While serving at the Italian front, he briefly fell under the spell of the writings of the German Jewish industrialist Walther Rathenau. Upon returning home, Hayek enrolled at the University of Vienna, where he studied with the author of the Austrian constitution, Hans Kelsen, a Jewish social democrat. When capitalism became his passion and economics his profession, Hayek helped found a discussion group of students and faculty, most of them Jewish or of Jewish descent. Exposed “to the best type of Jewish intelligentsia . . . who proved to be far ahead of me in literary education and general precociousness,” Hayek planted his flag of free markets in the field of enlightenment and cosmopolitanism.
Its perimeter extended only so far. In 1923, he travelled to the United States, believing that an “acquaintance” with the country was “indispensable for an economist.” Already primed by Oswald Spengler’s “The Decline of the West,” which he read in 1920, Hayek was appalled by what he saw. The culture was lowbrow, its tastes crass and banal. The women were “horrible . . . walking paint pots.” New York City was crowded and noisy. Americans cared too much about money. Good living required inordinate wealth. Like a socialist who can’t abide the working class, Hayek couldn’t bear the reality of commercial civilization. He chose enchantment instead.
The task of psychoanalysis, Freud wrote in 1917, is “to prove to the ego that it is not even master in its own house, but must content itself with scanty information of what is going on unconsciously in its mind.” Despite his animus toward Freud, whom he called “probably . . . the greatest destroyer of culture,” Hayek launched a similar strike at the “economic man” of mainstream analysis. Against the idea of the “quasi-omniscient individual” who operates in a “perfect market in which everybody knows everything,” Hayek created what he would later call an “anti-rationalistic” approach to economics and social life.
Before 1937, Hayek, by his own account, was a conventional thinker. He had joined the London School of Economics in 1931, where he hewed to the conservative maxims of Austrian economics. He argued for tight money and the gold standard, supported wage cuts and austerity, and tried to assemble a theory of prices and the business cycle from pieces he had been collecting since his dissertation days in Vienna. With his articles “Economics and Knowledge” (1937) and “The Use of Knowledge in Society” (1945), Hayek broke free of these strictures and started his “own way of thinking.” It was “the most exciting moment” of his career, generating a “feeling of sudden illumination, sudden enlightenment.”
Hayek believed that what we see in the economy, what we can know, is limited and constrained. We know small facts: how to jiggle the handle of a machine in our office; who’s available on the weekend to fix that part that always breaks just so; which supplier will replace it when it’s beyond repair. If we, or a limited group of us, were alone in the world with those facts, like Robinson Crusoe on his island, we might know the whole of the economy. But we’re not. We share the economy with a great many others, scattered across the globe. We can’t know their infinitesimal facts any more than they can know ours. Straitened by time and place, each of us possesses only a “special knowledge of circumstances of the fleeting moment not known to others.”
These fragments of economic knowledge are often unconscious; we can’t render them as propositions or in words. A skilled manager can inspire his employees to do excellent work without being able to explain what he did to inspire them.
But if all this knowledge is local and unique, if much of it is unspoken and inferred, how do we produce and consume on a global scale? How does my knowledge get registered by buyers and sellers thousands of miles away? And if the facts of my economic situation change, as they invariably do, how do those buyers and sellers learn of those changes and respond in kind?
For Hayek, the answer lay in the movement of prices. Imagine the global market in lithium, which is crucial to batteries. One day, the price of lithium increases. Maybe demand has gone up: an affordable electric car has rolled off the assembly line, or an efficient energy grid has come online. Maybe supply has come down: a vein of ore in Australia has been thoroughly mined, or workers at a salt flat in Chile have gone on strike. The source of the scarcity is irrelevant to us. Not only does it not matter, Hayek says, “it is significant that it does not matter.” All we know and need to know is the facts of our economic situation. The higher price of lithium raises the price of a new cell phone, so I hold off on upgrading my phone. When the price of lithium goes back down—the Chilean workers settle with management or suppliers find a new source in Australia—I get my phone.
Hayek marvelled at this concert of unknowingness. Like a psychoanalytic symptom, prices condense and communicate fragments of knowledge that are obscure to the conscious mind. The movement of prices effects a change in our “dispositions”—what we want, how much of it we want, what and how much we’re willing to give up to get it—again, without our knowing why, or that we even had such a disposition in the first place. Hayek called this a sort of “social mind”—though, unlike the Freudian mind, he thought it must remain inaccessible. We are all prisoners of a knowledge that allows us to move in dimly lit corridors, bumping into one another, our weight shifting ever so slightly as we try to keep moving in line.
Hayek’s market seems to conjure a wondrous democracy of unreason. No one has comprehensive vision; we coöperate without supervision or sight. But it also invites a question: Where does something like innovation come from? It can’t be from the masses or the majority, the wageworkers whose horizons are limited. Conforming to their values would probably “mean the stagnation, if not the decay, of civilization.” For innovation to occur, he wrote, a few “must lead, and the rest must follow.”
It turns out that knowledge is distributed unequally across Hayek’s market. “Only from an advanced position does the next range of desires and possibilities become visible,” he wrote. A few men, of discrete outline and distinctive purpose, occupy that position, imposing themselves on the many. “The selection of new goals” is made by an élite “long before the majority can strive for them.” There is much unreason but little democracy. There is also little freedom. Hayek cares a great deal about freedom, but he believes that it, too, does its most important work in exclusive quarters. “The freedom that will be used by only one man in a million,” he wrote, “may be more important to society and more beneficial to the majority than any freedom that we all use.”
Hayek’s contortions—his attempts to preserve commitments both to freedom and to élitism—are most evident in his concept of coercion. Coercion, Hayek tells us in the first chapter of “The Constitution of Liberty,” his magnum opus on free societies, is “such control of the environment or circumstances of a person by another that, in order to avoid greater evil, he is forced to act not according to a coherent plan of his own but to serve the ends of another.” By way of example, let’s say an investor pulls his money out of a company that I work for, forcing me to lose my job. Thanks to my salary and benefits, I’d taken out a mortgage, started a family, and enrolled my children in school. I had a plan and a purpose for my life. Because of that investor, both are now threatened. His actions have rendered “the alternatives before me . . . distressingly few and uncertain.” Because of him, I may be “impelled” by the threat of starvation “to accept a distasteful job at a very low wage,” which leaves me “ ‘at the mercy’ of the only man willing to employ me.” Even so, Hayek insists that I have not been coerced.
How can that be? Hayek suddenly introduces a new element to his analysis, which is scarcely mentioned in that opening chapter on freedom. “So long as the intent of the act that harms me is not to make me serve another person’s ends,” he writes, “its effect on my freedom is not different from that of any natural calamity.” The investor didn’t seek to harm me, to make me give up my plans and purposes, in the service of his ends. He just happened to harm me in the service of his ends. He’s like a monster wave. Monster waves aren’t coercive; they’re simply telling us to take our surfboard elsewhere.
Hayek’s is an economy in which a few can act, with all the power of nature, while the rest of us are acted upon. That domination is directly derived from his vision of the economy and his conception of freedom. It is a commitment obscured by Hayek’s readers, not only his right-wing defenders but also his left-wing critics. The latter tend to focus on other sources of domination or unfreedom: the cruel and carceral state that enforces Hayek’s neoliberal order; the remote global institutions that put that order beyond the reach of democratic citizens; the patriarchal family that offers tutorials in submission to the market; and the construction of the enterprising self that is so emblematic of contemporary capitalism.
Persuasive as these readings are, they don’t quite capture that moment of élite domination in the Hayekian market, when the “innovations” of a seeing and knowing few have “forced a new manner of living” on the unseeing and unknowing many, whose function is neither to invest nor amass but to yield, not to the economy or the state but to their superior. It was a moment that Hayek came to know all too well in his personal life.
The great trial of Hayek’s life was his twenty-four-year marriage to Helena (Hella) Fritsch, much of which he spent trying to get out of. Caldwell and Klausinger devote the last three chapters of their biography to the divorce—and for good reason, even if they can’t see it. In Hayek’s anguished bid to end his marriage, we find, just as Freud would have anticipated, the private pathology of the public philosophy, the knowledge problem in practice. That we should discover those pathologies in a marriage is less remarkable than it might seem. From the treatises of antiquity to the novels of Jane Austen to the economics of Thomas Piketty, writers of all sorts have understood the overlap between unions of soul and contracts of need.
Before Hella, there was Lenerl—Helene Bitterlich, a distant cousin whom Hayek fell in love with after the First World War, and who shared his feelings. Sexually inexperienced and hopeless around women, Hayek didn’t make a move. Eventually, another man did, and Lenerl accepted his proposal. Hayek began seeing Hella, and they married in 1926. Within a decade, he confessed to Hella that he had married her on the rebound from Lenerl. He secretly arranged to be with Lenerl at a future point and asked Hella for a divorce. She refused the divorce and any further discussion of it.
After the Second World War, Hayek resumed his efforts. Because he intended to support Hella and their children after the divorce, he resolved to get a higher-paying job in America. For two years, he crisscrossed the Atlantic, sometimes without telling Hella the purpose of his trips. By 1948, he had an offer from the University of Chicago. When he disclosed his plan to Hella, she again refused to grant him a divorce. He had his attorney scour the country’s various divorce laws, including Reno’s. Hella, too, spoke with a lawyer, who made clear that Hayek could not divorce her without her consent.
That Hayek and Hella should have found themselves in the marital equivalent of a Hayekian market—uncertain about each other’s plans, ignorant of each other’s moves, captive to each other’s tacit knowledge—did not give him perspective or pause. Instead, he did what victims, and left-wing critics, of the market often do. In a letter to Hella, he insisted on the objective facts of the situation and asserted the rationality and right of his position. He forgot the first rule of Hayekian economics, that all data is subjective. Hella told him that if he left her, she would have a nervous breakdown, forcing him to return to take care of their children. Then she resumed her silence.
Hayek tried a different tack, drawn from another page of his economic writing. In “The Meaning of Competition,” Hayek had taken issue with the economist George Stigler’s claim that “economic relationships are never perfectly competitive if they involve any personal relationships between economic units.” Hayek countered that the corollary of imperfect knowledge in a competitive market is the trust that we must invest in other individuals, who supply us with goods and services. We depend on our personal connections—and connections to those connections—to send us to the best doctor, restaurant, or hotel. Personal networks, and the reputations that move along them, make markets work and give market actors a competitive edge.
Seeking to alter the terms of his contest with Hella, Hayek leveraged his power and connections to get a better vantage, to see further than Hella and to make the world work for him. He knew he couldn’t take the job at Chicago without resolving his divorce, but he couldn’t put Chicago off indefinitely. With his network of academic friends and private donors, he secured a temporary appointment at the university for the winter quarter of 1950. That bought him time. It also involved considerable subterfuge, toward his wife, friends, and colleagues and supervisors at the London School of Economics, who were led to believe that he would return to Britain.
To get a divorce in America, Hayek needed to establish residence in a state other than Illinois, which had restrictive divorce laws. There could be no whiff of his using the state simply to get the divorce; he’d have to get a job there and give up his appointment at L.S.E. He secured a temporary post at the University of Arkansas for the spring quarter of 1950. He arranged for his mother to move to London, if necessary, to help take care of the children and make sure Hella made no sudden moves.
“The choreography was precise,” Caldwell and Klausinger write. In the course of two days in February, while he was in America, Hayek resigned from L.S.E. and informed Hella that he was leaving her. If she wanted him to support her and the children, she had to grant him the divorce. On the advice of a lawyer, Hayek gathered more evidence of their incompatibility. He hired a handwriting expert from Vienna, who determined, from letters written by Hella and Hayek, that she was “remote from the facts of life” and he “prevails in life and knows how to master it.” In July, they were divorced. A month later, he was married to Lenerl.
The story has a final Hayekian twist. Responding to the Labour government’s drastic devaluation of the pound, Hella’s attorneys had wisely stipulated that Hayek’s alimony payments be set out in dollars. Hayek agreed, though not without sniffing that her lawyers “were interested solely in their fees.” Hayek’s L.S.E. colleague, the economist Lionel Robbins, tussled with him over whether he had got a raw deal. Robbins, once Hayek’s best friend, had sided with Hella during the divorce and become one of her close advisers. He dismissed Hayek’s complaints: “Your conception of justice is very different from mine.” ♦
Sourse: newyorker.com
