By: Dr. Richard Paul, D.D.
In the first part chapter, we learned who Milton Friedman was. To recap, just a little, for those that didn't read it: Friedman was an Economic Advisor to Ronald Reagan. He believed heavily in the "free market" ideology of Austrian Economics. Reagan himself was an advocate of that economic theory, as well. Friedman was a fan of Friedrich Hayek as well, even though hayek said he never spoke with the man directly. Both are members of the same Chicago Scool of Economics Theorists, and even were at the University of Chicago at the same time. Friedman was best known for being the Father of Austrian Economics in the US.
Now, we must move the discussion ontowards the next major figure in Austrian Economics, if we are to fully understand why this cleverly disguised economic theory has gained as much ground as it has over the last 50 years and more in the USA. The fact is, no discussion on this topic would be complete without studying who Hayek was, and why he had this extremist view of economics. To understand why he viewed economics this way, we must, in all earnest thought, understand this great man's history, because your past dictates how you represent yourself in the present and future.
Hayek grew up in Hungary-Austria. He was of noble birth, having been born into the von Hayek family. In 1919, it became illegal to use titles in the Austria-Hungarian legal systems, thereby mandating his name be changed from von Hayek to simply Hayek. Due to his families high stature, he rapidly became a known scholar, and went to several schools. He wasn't just an economist, but touched upon many academia. Some of this was psychology, law, and political sciences.
One of his second cousins, Ludwig Wittgenstein, was an undergraduate student of Cambridge. This is the part that gets really interesting, because we can understand the psychological make up of a person based upon some of the actions of his close relatives. It allows for us to determine what a person might be thinking based upon the socio-familial styles they grew up in. His cousin has some useful historical value in itself when compared to the socio-familial values within the context of Hayek's psychology. Wittgenstein, himself, was asked by John Maynard Keynes to become an Apostle at Cambridge University, a society known as Cambridge Conversazione Society, while attending. While this society itself is open for debate, the key factor is that it actually helped create some stylistic open discussions about the fields of Economics, Psychology, and many other liberal arts and sciences. Wittgenstein became a nominal member of this group.
One of the best known acts, that we can definitevly attribute towards the socio-familial psychology of Hayek, that the Wittgenstein family performed was that three of the five brothers Ludwig had were perfectionists. If we study the psycho-social familial concept of who is more likely to have perfectionism within its microsociety, we can absolutely tell that it is throughout that entire family. Since Ludwig and Friedrich were no less than second cousins, and we know that perfectionism is inherent in familial settings, we can logically deduce that Friedrich himself came from not a dissimilar household. Those of that socio-familial households tend to have very strict paternal or maternal parentages. This, however is, not a study in the socio-psycholgy of perfectionism within the familial unit.
One of the facts that I personally find fascinating is that it is highly likely Hayek and Friedrich knew each other, personally. While there is no solid proof of this, the circumstantial evidence is overwhelmingly in favor of such a meeting. If that is the case, and if Hayek knew Keynes personally, and they didn't have a coming together of the minds, then what would ensue is a lifelong battle of two opposing ideas. The evidence of the two differing viewpoints between Hayek's and Keynes's ideologies concerning economics would dictate that this is the case.
So, what is Hayek's ideology, anyway? That is a long and drawn out process of evaluation, in which we don't have the time to discuss. What we can view, in the limited amount of time we have, is the basics behind his ideas. We must also put into perspective the era in which he developed his ideas, and how they would impact the world today.
At the time Hayek started to develop his "free market" ideology, the main thought was skewered toward neoclassical economics and Keynesian Economics, and then Socialism itself, with all of its theories on economies. Hayek, being raised in Astria-Hungary, and that having been ravaged by Nazi Germany at the time, looked greatly into the Socialist economy, and rapidly denounced it as a theory of economics that ran contrariwise to those opposed to national socialism, or Nazi-ism. Looking for something that was the exact opposite of National Socialism, the Chicago School of Thought came together with the concepts which are today more commonly called "Austrian Economics". These include a move away from the Demand-side economy and towards a Supply-sided economy. The varied theories included growing a national debt can increase the Gross National Product, the theory that the use of economic models and statistical methods to model economic behavior are a flawed, unreliable, and insufficient means of analyzing economic behavior and evaluating economic theories, and in a free market, interest rates, and profits are determined by three factors: monetary gains or losses from a change in the consumption of a good or service, additional output that can be produced by additional inputs, and the valuation of consumption nearer in time versus more remote consumption.
That's it for this blog. Next Blog is on the differences between Keynesian, Austrian, and Neoclassical Economics.