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Armen A. Alchian interviews Friedrich A. Hayek (Part II)
November 11, 1978
About this video
Describing mainly his academic life, Hayek details interactions that he had with various colleagues. First however, he describes the effects of Adam Smith and his interactions with Alfred Marshall. He recalls his experiences at the university in Vienna with Friedrich von Wieser’s lectures, and his interests at the time.
Credits
Interview with Friedrich A. Hayek by Armen A. Alchian
Thanks to Pacific Academy Advanced Studies for permission to distribute this program.
Digitized by: New Media - UFM.
Digitization: Mario Estrada, Jorge Samayoa; content analysis: Alex Weller; content reviser: Daphne Ortiz; publication: Rebeca Zuñiga
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  Transcript
 | ALCHIAN: Professor Hayek, can I use the name "Fritz"? Where did that develop? |
| HAYEK: My mother called me like that, and I dislike it particularly. Of course, my friends in London picked it up, but it so happens that there are few
Christian names which I like less than my own. |
| ALCHIAN: Does [Fritz] Machlup feel the same way? |
| HAYEK: No, no, he is quite happy about it. To me it reminds me too much of the Fritz, the Prussian emperor. |
| ALCHIAN: Speaking of the Prussian emperor, you had served in the Austrian army, I believe, and you had done mountain climbing as a-- |
| HAYEK: Oh, yes, mountain climbing and skiing were my only hobbies. |
| ALCHIAN: What climb is the one which you regard as the best climb, or the one you are most pleased to have made? |
| HAYEK: Oh, some of the really difficult rock climbing was done in the Dolomites--the famous Tre Cime [di Lavaredo], the small one, which is quite a difficult
climb. But it wasn't so much the technique of rock climbing which fascinated me, partly because for that purpose you had to get a guide. I was a guideless mountaineer in finding my
way on difficult, but not exceedingly difficult, terrain--combinations of ice and rock; that really interested me. |
| ALCHIAN: They were unplanned climbs. |
| HAYEK: Well, in a sense. Finding your way in difficult terrain where you knew there was one possible way to get through the face of a mountain, which
needn't be technically difficult. But you knew you would get stuck unless you found the one possible way through. |
| ALCHIAN: You weren't a mountain climber of the type of Alfred Marshall, who used to just take strolls in the Swiss mountains. There's a famous picture
of Alfred Marshall revising his textbook. |
| HAYEK: No, I was much more serious. I made the English Outbound Club, for which you have to provide a fairly long list of successful climbs. |
| ALCHIAN: How old were you during most of this? Were these in the twenties? |
| HAYEK: In the twenties. You see, it was while I was climbing with my brothers. The moment I had to climb with my wife, I had to have a third
person, usually a guide, because I couldn't have her belay me on a glacier and so on. So, it was a difficult climbing. It was all before '26. |
| ALCHIAN: What climbing techniques did you use? Now they have little pitons. |
| HAYEK: I detest all these artificial kinds. |
| ALCHIAN: Oh, very good. |
| HAYEK: I mean, I would use a piton for belaying, but I would not do anything which I could not have done without the artificial means. |
| ALCHIAN: I see. So climbing El Capitan would not be of any interest. |
| HAYEK: No, no. |
| ALCHIAN: You haven't mentioned Marshall at all among the people with whom you had any contact or interest. Is there some reason? |
| HAYEK: Of course, I never saw him. I might have seen him, but my first visit to England was in '26, just after he had died. I read Marshall.
In fact, when I tried to read Marshall first, my English was not yet good enough; I had to read him in a German translation. I didn't find him to appeal very much to me; I don't
know. I never became as familiar with Marshall as all my English colleagues were. That really meant that I was moving, to some extent, in a different intellectual atmosphere than
nearly all my colleagues. Not so much at the London School of Economics, of course. They were brought up on [Edwin] Cannan rather than Marshall, and there was a certain critical
attitude towards Marshall, even among [Lionel] Robbins, [Arnold] Plant, and so on. |
| [John] Hicks was a complete Marshallian when he came, and it was really in discussion-- I probably had more theoretical discussions with John Hicks in the
early years of the thirties than with any of the other people. As I mentioned before, you know, it was I who drew his attention to indifference curves, and it was from him that I began to
appreciate Marshall, up to a point. But it was never very sympathetic to me; it's not a thing which I felt at home in. |
| ALCHIAN: Perhaps it might have been more appropriate for the Nobel Prize to have gone to you and Hicks together, and [Kenneth] Arrow and [Gunnar] Myrdal
together. |
| HAYEK: Oh, surely, yes. |
| ALCHIAN: Where did you first read or hear of Adam Smith? Or do you recall? |
| HAYEK: I certainly read Adam Smith first in German; not very early in my studies. I knew Adam Smith mainly through the history of economics--lectures
and so on--and it probably was very late that I read right through
The Wealth of Nations. At first the part on public finance didn't interest me at all; I only came to appreciate the semipolitical aspects of it very much later. Being brought
up on the idea that the theory of value was central to economics, I didn't really fully appreciate him. I think he's the one author for whom my appreciation has steadily grown, and is
still growing. |
| ALCHIAN: I think that's true for most economists. Where did you get your first formal education in economics? |
| HAYEK: Well, in [Friedrich von] Wieser's lectures. |
| ALCHIAN: What were they like? Did he just come in and give a lecture? |
| HAYEK: No, they were most impressive. He knew by heart his own book, so much so that we could follow his lecture in the book. He spoke in
absolutely perfect German, in very long sentences, so that we amused ourselves making note of all the subsidiary sentences. We would wonder whether he could get all the auxiliary words in
there right. And he did! He did it equally perfectly when he inserted [something] in his original text. Unless you followed it in writing, you would not know how he could
remember this very big book--
The Theory of Social Economy--in that perfect form. |
| Occasionally he would pause with a certain trick. He had a golden hunting watch in a leather thing, and if he was in doubt about words he would pull
that out, spring it open, look at it, close it, put it back, and continue his lecture. |
| ALCHIAN: I guess we puff on a pipe as an excuse to do something like that. Didn't you mention that [Karl] Menger's book was more
influential? |
| HAYEK: Yes. This was before I went to Wieser's lectures. It's very curious; the man who drew my attention to Menger's book was Othmar Spann.
I don't know if the name means anything to you. He was semicrazy and changed violently from different political persuasions--from socialism to extreme nationalism to
Catholicism, always a step ahead of current fashions. By the time the Nazis came into power, he was suspect as a Catholic, although five years before he was a leading extreme nationalist.
But he drew my attention to Menger's book at a very early stage, and Menger's
Grundsetze, probably more than any other book, influenced me. |
| ALCHIAN: Would [George] Von Tungeln have been available to you? |
| HAYEK: Von Tungeln, no. I came to know him very late. |
| ALCHIAN: How large was Wieser's class? Was it, say, twenty? |
| HAYEK: No, it was a formal class to which he lectured. They were a special kind of lectures, and particularly if the lecturer was His Excellency, the
ex-minister, nobody would dare to ask a question or interrupt. We were just sitting, 200 or 300 of us, at the foot of this elevated platform, where this very impressive figure, a very
handsome man in his late sixties, with a beautiful beard, spoke these absolutely perfect orations. And he had very little personal contact with his students, except when, as I did, one
came up afterwards with an intelligent question. He at once took a personal interest in that individual. |
| So he would have personal contacts with 5 or 6 of the 300 that were sitting in his lectures. In addition, you attended his seminar one year--that,
again, was a very formal affair--for which somebody produced a long paper which was then commented upon by Wieser. But personally I ultimately became very friendly with him; he asked me
many times to his house. How far that was because he was a contemporary and friend of my grandfather's, I don't know. This reminds me of the fact that in Vienna--I would have to
restrict it to non-Jewish intelligentsia--there was a very small circle where everybody knew everybody else. |
| It so happened the other day that somebody was asking me about the famous people from Vienna from the period, beginning with [Erwin] Schrödinger--of course,
I knew him as a young man--and [Karl von] Frisch, the man [who studied] the bees, he was an old friend of my father, and so it went on all through the list, till it came to Freud. No,
that was a different circle. I had never met him, and that is because it was a Jewish circle as distinct from the non-Jewish one. Although I moved a good deal later on the margin of
the two groups--there was a sort of intermediate group--the purely Jewish circle in which Freud moved was a different world from ours. |
| ALCHIAN: Were there any Jewish economists in the Jewish group there? |
| HAYEK: [Ludwig von] Mises, with whom, of course, I was very close indeed; but-- Well, that's not correct. Mises was not of the Jewish group. He
was Jewish, but he was rather regarded as a monstrosity--a Jew who was neither a capitalist nor a socialist. But an antisocialist Jew who was not a capitalist was absolutely a monstrosity
in Vienna. |
| ALCHIAN: Or anyplace. As a university student, or even shortly thereafter, what were the major topics of interest in economics? Were they
tactical questions, or were they questions of socialism, or were they questions on inflation, or was there any dominant set of themes? |
| HAYEK: You know, to me you have to distinguish very sharply between two periods: before I went to America and after, when I still retained my connection with
the university. The early period was very short. I did my degree in three years--the law degree with veterans' privileges--as I've mentioned before. So, in that period, before
I went to America, I did not take part a great deal in discussion. Except, perhaps, for the two years I was already with Mises, between '21 and '23. |
| Then the main interests were, on the one hand, pure value theory--and I was working on imputation--and Mises's ideas on socialism. As I was starting
for America, I had got bored with these two subjects; I still wrote up the article on imputation I had been working on, but I turned in America to monetary theory. |
| I was largely interested by the great discussions which were then carried on about Federal Reserve policy, on the idea they had mastered the trade cycle.
I was in constant contact with Haggott Beckhart who was writing his book on the discount policies of the Federal Reserve system, and it was he who led me in all these discussions on the
possibility of controlling the presumed cycle. And it was in America that my interest in monetary theory started, for which I had the background of a strong influence of the [Eugen von]
Böhm-Bawerk tradition. |
| I believe I also mentioned already that I didn't know Böhm-Bawerk as an economist personally, although he, like Wieser, his exact contemporary, was a friend
of my grandfather's. And I actually saw him in the home of my grandfather before I knew what economics was. |
| But in the Mises seminar the shade of Böhm-Bawerk was dominating; he was the common base upon which we talked and understood each other. But even in
his work, his writings on marginal utility were perhaps more important than his work on interest. I think nearly everybody had some reservations on his interest theory, while everybody
accepted his article on marginal utility as
the standard exposition, really, of the marginal-utility theory. When I came back I had changed in my interests from value and socialism to problems of capital interest and
money. |
| And I had, in fact, in the United States started writing a thesis at New York University under the title "Is the Stabilization of the Value of Money
Compatible with the Functions of Money?" I think you can still find in the files of New York University a registration for a doctor's degree under this subject. |
| But when I came back, I was soon asked to write that missing volume for the great
Encyclopedia of Economics, the
Grundriss der Sozialökonomik, which was practically finished then except that the authors who were to write the volume on money had died one after the other before supplying it. So
I finally undertook it but didn't do it, because in the end, before I had done it, I went to London. So I at first had to interrupt working on it, and then before I returned to it, Hitler
had come to power, and the publisher came to visit me in London to ask me to be released from the contract, because he could no longer publish in this German work the work of an author who had
moved to England. |
| This was a great relief to me, because my interests had moved to other tasks. To write, while I was starting a professorship in London, a great
treatise in German was clearly impracticable. But it was in the work on that-- Well, I'll say one intermediate step [I achieved] out of my American thesis was a plan for what I
believe I intended to call "Investigations into Monetary Theory." Again only one long article was ever written and published, that called "The Intertemporal Equilibrium of Prices and the
Changes in the Value of Money," I think, in the
Weltwirtschafliches Archiv. This, I believe, is probably the most characteristic product of my thinking of that period, before I turned definitely to industrial fluctuations and
the history of monetary theory. |
| It was really only the history of monetary theory that I did for that extended textbook; I never started on the systematic part of it. And that was the
stage at which I was invited to give-- Oh, there's one other feature I ought to mention: while I was in America, I got interested in the writings of [William] Foster and [Waddill] Catchings,
and there was then this competition for the best critique of Foster and Catchings, in which I did not take part. I afterwards regretted this, because I thought the products were all so
poor that I could have done better. |
| When I had to give my formal lecture for being admitted to the honorary position of
Privatdozent, I chose a critique of Foster and Catchings on the title "The Paradox of Saving" for that lecture. I published it in German, and Lionel Robbins read that particular
essay, which led him to invite me to give the lectures in London. In those lectures I drew on what I had done for my textbook on money, and of course the move to-- |
| Well, then I was asked by Robbins--I think it was even before, or was it when I was giving the lectures?--to do the review of [John Maynard] Keynes's
Treatise. So I had a year or two which I invested in reviewing that thing. Again, this had a curious outcome, which is the reason why I did not return to the charge when he
published the
General Theory. When I published the second part of my essay on Keynes, his response was, "Well, never mind, I no longer believe that." |
| ALCHIAN: The
General Theory? |
| HAYEK: That was what Keynes told me about the volume of the second part of my review of his
Treatise. I think this was very unjustly, because the second part of the
Treatise was probably the best thing Keynes ever did. |
| ALCHIAN: Yes. You mentioned that Robbins saw your critique of Foster called "The Paradox of Saving," and that's what caused-- |
| HAYEK: --caused him to invite me to give these lectures. |
| ALCHIAN: I was going to inquire how he came to hear about you, or know of you. In Vienna you worked with the reparations group-- |
| HAYEK: No, no, it wasn't the reparations commission. The peace treaty, I believe through the same truce of the German peace treaty, made arrangements
for the payment of private debts between two countries which got blocked by the outbreak of war. Incidentally, the claims the Austrians had on the Allies would be credited to a
reparations account, but that was only an incidental aspect of it. The main thing was just clearing these debts, which had been outstanding for five years, with extremely complicated
provisions because of currency changes and so on. I got the job because I knew law, economics, and several languages. |
| Now, by that time I had returned from America; I used to speak French fairly well, which I have almost completely forgotten; and I knew even some Italian,
which I had picked up in the war. The three foreign languages, plus law, plus economics, qualified me for what was comparatively a very well-paid job. Well paid for a government
office, because it was a temporary position; I was not a regular civil servant but a temporary civil servant, with a much higher salary than I would have had. So it was quite an
attractive position, even if it hadn't been that Mises became my official head. |
| ALCHIAN: That's where you met him? |
| HAYEK: Yes. I believe, again, I told the story already. I was sent to him by an introduction from Wieser, in which I was described as a promising
young economist. Mises, reading this, [said], "Promising young economist? I've never seen you at my lectures!" |
| ALCHIAN: We are still the same. When you went to work in Vienna, did you carry a briefcase every day with your lunch in it to work and back? |
| HAYEK: No, we had a sort of canteen in the building, or in the ministry opposite. So I lunched there. |
| ALCHIAN: Were you married then? |
| HAYEK: Not initially. I married while I was in this job. |
| ALCHIAN: When did you write that piece on rent control, and what was the motivation? |
| HAYEK: Oh, the cause was simply that I was irritated by the fact that no economist had dealt with it. It seemed to me such a clear demonstration of
what effects price fixing had. And none of the local economists paid any attention to it. There were even a few of the social policy people who were all in favor of it and proved
that they didn't understand any economics. |
| ALCHIAN: When was this--what year--do you recall? |
| HAYEK: I believe '22, if I am not mistaken. |
| ALCHIAN: In Vienna? |
| HAYEK: In Vienna. It was a paper I read to our economics club. There had been an economics club which died during the inflation period--I don't
know why--and I still had been as a guest at the meetings before it had died. Then I more or less revived it; my main purpose was to bring Mises's admirers together at the same desk,
because they were not on very good relations, really. That had created some difficulty for us younger people--we had to be on good terms with [Hans] Meyer in order to have any
prospects at the university. |
| We were more attracted by Mises, and so we revived this institution, which apart from the Mises seminar was the other occasion for general discussions of
economics. And my one paper to the club was the one on rent restriction, which then was published as a pamphlet, in an enlarged form. |
| ALCHIAN: Is that still easily available? Do you know where? |
| HAYEK: Not easily. A partial translation is contained in a brochure on rent control, or rent restrictions, which the London Institute [of Economic
Affairs] published; but not a complete one. |
| ALCHIAN: Do you have a complete set of your works? |
| HAYEK: I have one, yes. |
| ALCHIAN: It has not been published as such, or as a collector's series, has it? |
| HAYEK: No, no, they have not been reprinted; but there is, of course, a complete list of my publications in that Machlup volume. |
| ALCHIAN: But a list is quite different from the-- |
| HAYEK: Yes. |
| ALCHIAN: Would you be tolerant of a proposal to have the works all published and made available? |
| HAYEK: Well, of course, everything in recent years which is worth republishing I have collected, but only what appeared in English; not the early things I
published in German. There aren't many, and they have some defects which would have to be very carefully looked into. There are things like that article, "The Intertemporal
Equilibrium of Prices and the Changes in the Value of Money," the one on American monetary policy, the one on imputation. I suppose yes; but they would require translating and some
revision. For instance, I only discovered years later that in the article on American monetary policy, the printer ultimately mixed up the pages. They don't occur in the proper
sequence. |
| ALCHIAN: Is it true that Mrs. Hayek has been checking some of the translations? I had the impression she did. |
| HAYEK: She did some of the translating. Three of my books were essentially done by her:
The Counter-Revolution of Science, one other of the early ones, and finally, she practically redid
The Constitution of Liberty. There was a complete translation which was unsatisfactory. |
| ALCHIAN: You wrote that originally in German? |
| HAYEK: Oh, no, I wrote it in English. It had been translated by somebody else, but it was very poor, and she redid it. |
| ALCHIAN: I see what you mean. So we have your monetary theory work in the United States, rent control, and-- Where would the capital theory interest
come in? Or can you identify a place where you got involved in capital theory? |
| HAYEK: Oh, yes. I think it was essentially after
Prices and Productionthat I couldn't elaborate this without elaborating capital theory. You see, I was relying on it in its simple, Böhm-Bawerkian form, and I very soon became
aware that with the average period of production, you didn't get anywhere. It was planned as a two-volume work: one on static and one on dynamic. I took so long on the static part
that I was finally glad of the excuse of the outbreak of war to bring out something which wasn't really finished, pretending that I never knew if it would be published at all if I delayed, and
without having even started on what I intended to be the second dynamic volume. Well, I never did it. |
| ALCHIAN: Are you referring to
The Pure Theory of Capital? It came out in '41. |
| HAYEK:
The Pure Theory of Capital is the first part of what was intended to be a two-volume work:
The Pure Theory of Capitaland
The Dynamics of Capital. |
| ALCHIAN: Again, I've looked at that lately, and my thought was that had [Irving] Fisher not written his theory of interest book, with the words, the algebra,
and the arithmetic illustrated, that your book would probably be better known and more widely used. Do you have any conjectures as to whether that's true? |
| HAYEK: Well, you know, capital theory is an extraordinary--I forget; there is a good English word for it--a thing which refuses simple treatment. There
was another very important book in the Wicksellian tradition, by a man called Ackerman, which is really very important, but nobody understands it because it's so complex and difficult. I
think the same is very largely true of my book. It's become too difficult because the subject is too difficult. Friedrich Lutz once told me one day that after he finds the things
himself, he finds I have already said them, because he never learned it from my book and had to work it out himself. |
| ALCHIAN: In
The Pure Theory of CapitalI was taken by the similarity between your position and that of Joan Robinson and [Luigi] Pasinetti and the others at the current English Cambridge school, who
are objecting to the classical simple homogeneous model. I don't want to associate you with that Cambridge school, but nevertheless, there is a similarity. |
| HAYEK: I've been told so before, particularly by [Ludwig] Lachmann, who carefully followed this discussion. I haven't followed it. |
| ALCHIAN: Well, you might find it entertaining, because Joan Robinson is saying you cannot use a simple concept of capital and understand capital theory, and
there's been a big debate on that. My own impression is that they are quite right, but when I read your work, or even the work of Fisher, I often wonder why anybody thought
otherwise. |
| HAYEK: Well, I have no doubt you are right, because, as I say, Lachmann, who probably knows my work better than almost anybody else, has told me the same
thing. But since they came out, I never could return to that interest. |
| ALCHIAN: Why not? Or do you know why not? |
| HAYEK: Oh, I've become much too interested in the semiphilosophical policy problems--the interaction between economics and political structure. |
| ALCHIAN: Those are more difficult problems. |
| HAYEK: They are in a way more difficult, and of course much more difficult to come to clear conclusions. But I have been engaged in them so long-- You
know, it was
The Road to Serfdomwhich led me to
The Constitution of Liberty. Having done
The Constitution of Liberty, I found that I had only restated in modern language what had been the classical-liberal view; but I discovered there were at least three issues which I had
not answered systematically. I cannot now enumerate them; it'll come back to me in a moment. |
| So I felt I had to fill the gaps, and I believe that in a way the thing on which I have now been working for seventeen years, which I have now at last
finished--
Law, Legislation and Liberty--is probably a much more original contribution to the thing. It's not merely a restatement, but I have developed my own views on several issues--on the
whole relation between rule and order, on democracy, and the critique of the social justice concept, which were absolutely essential as complements to the original ideas, answering questions
which traditional liberalism had not answered. |
| But that was such a big and long--I mean, I never imagined, in either case-- Well, in fact,
The Constitution of Liberty I did relatively quickly. I wrote the three parts in three successive years, and then took a fourth year to rewrite the whole thing. So I
must have done
The Constitution of Liberty in 4 years, while--of course, there was an interruption for health reasons on
Law, Legislation and Liberty; well, we have '78 now-- Yes, since I formed the conception--I didn't immediately start working on it--it's been seventeen years. |
| ALCHIAN: I was going to ask, do you have a work schedule during the day? Do you in the morning do work of rewriting? |
| HAYEK: It has changed in the course of time by a great deal. Most of my life I could work most all morning and then again in the evening. The
evening is out now for any original work; I can only read in the evening. And my steam lasts for two hours only even in the morning, or something like that. I usually, if
I am not disturbed, as soon as I have read my newspaper, I sit down to work and work for two hours. Sometimes a cup of coffee helps me on a little longer, but not very much
longer. |
| ALCHIAN: When you're working, are you at your desk writing, or do you pace and think, or what works? |
| HAYEK: In an easy chair, leaning back and writing on my knees. |
| ALCHIAN: I see. That's a nice comfortable way. You don't go to sleep often and wake up five minutes later? |
| HAYEK: Oh, no. Well, if I try to do it in the afternoon, it happens to me. I should say I have my reading periods and my writing periods.
When I really want to read extensively, I cannot write at the same time. |
| ALCHIAN: You mean during the same week or so, or during the same day? |
| HAYEK: Oh, sometimes it's a question of two or three months that I do only reading, practically. Well I'm making notes all the time, but I don't
attempt to pursue systematically a train of thought. While once I settle down to writing, I consult books, but I no longer read systematically, at least on that subject. In the
evening I will be reading something else. |
| ALCHIAN: In general, for many of your articles, when you have written them, did you foresee when you started what you were going to say, or did you take a
topic and then work and work and pretty soon out came a finished product which was entirely different than what you thought you were going to be saying? |
| HAYEK: Mostly the latter. There are a very few short pieces which I saw clearly beforehand, and could write out at once. But the normal process,
one which I already described, is of collecting notes on cards, rearranging them in a systematic order, writing it out in longhand in a systematic order. So in only very few exceptional
cases I just sat down and wrote an article. |
| ALCHIAN: Let me just make this comment to purge my mind. If you could have one of your books or articles destroyed because you wish you had never
published it, is there any such work? It was a waste of time and you should have never written it? |
| HAYEK: I think there are things which I published prematurely. For instance, the article, that early one, on the "Intertemporal Equilibrium of Prices
and the Changes in the Value of Money," which I believe contains some important ideas, was clearly prematurely published. I didn't see the things yet in the right way; it would have been
wiser not to publish it at that time, although that probably would have meant that I would have never published those ideas at all. They exist only in the imperfect form. Others--
Well, I would have to think of those that I have not republished, which I have probably forgotten. |
| ALCHIAN: If you remember what they are, we'll know which ones they should have been. Was there pressure in the twenties, as there is now, to so-called
"publish or perish"? Or was publication a matter of getting yourself acquainted with other people, letting them know what you're doing--a mode of communication rather than to establish
your prestige? |
| HAYEK: Well, of course, it was in this sense very strong in Austria for getting the
Privatdozenteur. You had to publish, relatively early, a major piece of work. It was not a question of a number of articles; it had to be one substantial work. But
that's the only thing corresponding to the "publish or perish," which I experienced, but partly of course because I was so extremely fortunate to get, at the age of thirty-two, as good a
professorship as I could ever hope to get. I mean, if you are at thirty-two a professor at the London School of Economics, you don't have any further ambitions. |
| ALCHIAN: There was an episode when I first heard of your work through
Prices and Production and, let me call it the debate, or discussion, with [Frank] Knight over
The Pure Theory of Capital. Do you have any memories of that, or stories you might tell us? |
| HAYEK: No, it was really a very distant affair. I had known Knight slightly; he had been on a visit to Vienna in the twenties, but I didn't know him
at all well. All the discussions in which I got involved, except with Keynes, whom I knew fairly well, were really with distant targets of persons who were not live figures to me: Knight,
[Arthur] Pigou, whom I also came to know later quite well. There was still another one I got engaged in--one or two Germans and some others. Those were all discussions with distant
figures and were not really continued as discussions. I commented on their work once and left it at that. |
| ALCHIAN: They were very hard articles to read, and the one by Knight was very difficult. In fact, Knight's attitude, I guess, was that capital is just
a big homogeneous mass-- |
| HAYEK: I never understood really in what sense it was a mass at all. It was not a magnitude in any sense. |
| ALCHIAN: In fact, there was this theory of bombing during the war, when some of the bombing experts said, "Let us pick certain topics and destroy specific
capital," and the Knightians said, "Oh, no, all capital in time is substitutable. Bomb anything; you're bombing capital. So just go out and dump the bombs on Germany--any old
place." That was known as the Knightian theory of bombs. |
| HAYEK: You know, of course, Knight was a very puzzling figure. He was a man of such intelligence, and yet capable of going so wrong on particular
points--for the moment only, though; a year later he would see it. But he got committed to a particular thing and pursued it to its bitter end, even when it was wrong. |
| ALCHIAN: Well, to someone like me who had known of your works--
Prices and Production,
The Pure Theory of Capital--finding
The Road to Serfdomsuddenly after the war was a jolt. I said to myself, "What does he know about this? What's he doing writing on a subject like this?" But if one knows
your history, it's not at all surprising. But at that time it was a very surprising event for me to see that book come out. |
| HAYEK: When I started in '39 on these articles that became
The Counter-Revolution of Science, this was the beginning of a plan to write a major book called
The Abuse and Decline of Reason. Whereas what I published is the beginning of the study of the abuse of reason--what I now call the constructivist approach--the decline of reason
was to be something of which ultimately
The Road to Serfdom became a popular advance sketch. So I had the whole idea in my mind when external circumstances of environment made it necessary for me to explain to my
English colleagues that they were wrong in their interpretation of the Hitler movement. |
| Particularly Sir William Beveridge, as he was then, who was incredibly naive on all these things. He firmly believed that the bad German capitalists
had started a reaction against the promising socialist developments. So I wrote out my basic idea in a memorandum to him and expanded it into an article, and then Gideons here asked me to
supply it enlarged into a pamphlet. |
| Then I just had plenty of time during the war. You see, I was in that fortunate position of being already a British subject, so I could not be
molested; but being an ex-enemy, I was therefore not drawn into any war job. And having practically no students for the war period, I had plenty of time. So after I had finished
The Pure Theory of Capital, I did not have any other plans; so I gradually enlarged this pamphlet into a book. I was restricted only by the fact that the Russians were then our
allies; so I had to tame down what I said about communism. |
| I may have perhaps overemphasized the totalitarian developments of the Nazi kind, while not saying much about the other. But it was an outcome of a fairly long period of development of my thinking. But still at that time I thought it was a pamphlet for the time, for a very
specific purpose: persuading my English--what you would call liberals--Fabian colleagues that they were wrong. That the book caught on in America was a complete surprise to me; I never
thought the Americans would be the least interested in that book. |
| ALCHIAN: Yet if one looks back at your earlier thinking on socialism, when you were in the Vienna area, and your collectivist economic planning essays, [the
book] isn't surprising if one [is aware of that other material]. |
| HAYEK: You know, the planning book had a curious effect on my thinking, because it was the thinking on the planning problem which drew my interest to the
methodological problems, to the real problem of the philosophical approach to the social sciences. It was quite unexpected. I first intended to publish merely a collection of
translations of the things which had remained unknown in the English literature, when I was told that I had to write an explanation of the environment in which the discussion had taken place.
|
| Then there was some discussion at the beginning about the problems. So I wrote a concluding essay dealing with the recent literature. But that was all very much unplanned and
unintended, although doing it had effects on my further thinking. |
| ALCHIAN: Did you ever know Thomas Nixon Carver? |
| HAYEK: I visited him once, on my first visit to America. It was one of the letters of introduction from [Joseph] Schumpeter. And I did, during
these fifteen months in America, travel as far as Boston to the north, Washington to the south, and Bear Mountain, [New York], to the west. |
| ALCHIAN: That covers it. |
| HAYEK: And at Harvard I delivered my letters to [Frank] Taussig and Carver, and I made the acquaintance of both gentlemen. Carver took me to his
country club and gave me a big luncheon, which I almost abused. All I remember is that he was frightfully offended that-- He and John Hobson in England had published books under a similar
name--something about distribution; I forget what it was--and my mentioning his and Hobson's book in one sentence greatly offended him. |
| ALCHIAN: When I first went to UCLA, he walked into my office and asked if [Benjamin] Anderson was present. I said, "No, who shall I say came?" He
said, "Tell him Carver was here." And as he left I thought, "Well, there was a famous Carver, but it couldn't be you. He must have died many years ago." But he lived past '90 in Santa Monica, and he and his wife celebrated their seventy-fifth wedding anniversary. |
| Two things you wrote that had a personal influence on me, after your
Prices and Production, were "Individualism and Economic Order" and "The Use of Knowledge in Society." These I would regard as your two best articles, best in terms of their
influence on me. |
| HAYEK: "Economics and Knowledge"--the '37 one--which is reprinted in the volume, is the one which marks the new look at things in my way. |
| ALCHIAN: It was new to you, too, then? Was it a change in your own thinking? |
| HAYEK: Yes, it was really the beginning of my looking at things in a new light. If you asked me, I would say that up till that moment I was developing
conventional ideas. With the '37 lectures to the Economics Club in London, my presidential address, which is "Economics and Knowledge," I started my own way of thinking. Sometimes
in private I say I have made one discovery and two inventions in the social sciences: the discovery is the approach of the utilization of dispersed knowledge, which is the short formula which I
use for it; and the two inventions I have made are denationalization of money and my system of democracy. |
| ALCHIAN: The first will live. How did you happen to get into that topic? When you had to give this lecture, something must have made you start
thinking of that. |
| HAYEK: It was several ideas converging on that subject. It was, as we just discussed, my essays on socialism, the use in my trade-cycle theory of the
prices as guides to production, the current discussion of anticipation, particularly in the discussion with the Swedes on that subject, to some extent perhaps Knight's
Risk, Uncertainty and Profit, which contains certain suggestions in that direction--all that came together. And it was with a feeling of a sudden illumination, sudden
enlightenment, that I wrote that lecture in a certain excitement. I was aware that I was putting down things which were fairly well known in a new form, and perhaps it was the most
exciting moment in my career when I saw it in print. |
| ALCHIAN: Well, I'm delighted to hear you say that, because I had that copy typed up to mimeograph for my students in the first course I gave here. And
Allan Wallace, whom I guess you must know, came through town one day, and I said, "Allan, I've got a great article!" He looked at it, started to laugh, and said, "I've seen it too; it's
just phenomenal!" I'm just delighted to hear you say that it was exciting, because it was to me, too. But when did the idea hit you? When you started to write this paper,
started to think about it, there must have been some moment at which you could just suddenly see you had something here. Was there such a moment at which you said, "Gee, I have got a good
paper going here"? |
| HAYEK: It must have been in the few months preceding that, because I know I was very unhappy about having to give the presidential address to the Economics
Club. Then I hit on that subject, and I wrote it out for that purpose. How long it was exactly before the date [of the address] I couldn't say now, but I do know that the idea of
articulating things which had been vaguely in my mind in this form must have occurred to me when I was thinking of a subject for that lecture--the presidential address at the London Economics
Club. |
| ALCHIAN: Well, that was a very influential article, I must say. There's the [David] Ricardo effect, on which you've done some work. Do you have
any recollections about getting into that? I guess I should go back and say one thing on this bit about use of knowledge and individualism. I would have conjectured that your rent
control article might have had some carry-over on that. If one perceives that, he can begin to see this broader issue. |
| HAYEK: Well, I was recently surprised at how much I had forgotten about that article; I hardly knew any longer that it existed. It must have played a
very important role in my actual thinking, but I find it very difficult to recall now exactly what role it played. It somehow fitted in with my concern with the direction of investment,
and the role which prices and interest rates played in governing the direction of investment. But I cannot at the moment-- Maybe the next time when we talk it will come back. It
usually happens that my mind-- My memory is now a slow process. I usually remember things a little later than I wish I would. |
| ALCHIAN: It'd be interesting to compare that article with the one by [George] Stigler and [Milton] Friedman on the same subject to see what similarities
there are. |
| HAYEK: Oh, they are very similar indeed. If I am not mistaken, they are both reprinted in that pamphlet of the London Institute. |
| ALCHIAN: The IEA [Institute of Economic Affairs]? |
| HAYEK: Yes. |
| ALCHIAN: Oh, I see. I'll check. I'm a trustee of that board, and I should know what they're doing. Let me, then, return for a couple of
minutes to that Ricardo effect, which again came through, I guess, in the capital-value theory. |
| HAYEK: Yes. That was the main result of trying to provide a foundation for
Prices and Productionin elaborating the theory of capital. And it was certainly in the course of working on
The Pure Theory of Capitalthat I became aware of this fact that the price of labor really very largely determined the form of investment--that the more expensive labor was, the more
capital-intensive you made production. Then I think it was a pretty sudden event that made me think that this is the same thing I have been arguing in
Prices and Production, in a slightly different form. The curious thing is that so many people did not see that it was the same argument in a different form. |
| ALCHIAN: I think they're discovering it now. Even the reswitching theory that's coming out of the Cambridge school on the connection between interest
rates and the so-called ratio of labor to capital is essentially the same. |
| HAYEK: You know, I have just published an article in the London
Times on the effect of trade unions generally. It contains a short paragraph just pointing out that one of the effects of high wages leading to unemployment is that it forces
capitalists to use their capital in a form where they will employ little labor. I now see from the reaction that it's still a completely new argument to most of the people. |
| ALCHIAN: They are all arguments. Even the trade bills doctrine of the currency days is still new. You received the gold bar, of which I was
happy to be one of the donors at the Mount Pelerin meeting. Do you still have it? |
| HAYEK: Oh sure, I will sit on that. |
| ALCHIAN: How many ounces was it? Do you remember? |
| HAYEK: No. I don't remember-- |
| ALCHIAN: I got to touch it. We were very smart to make that investment for you. |
| HAYEK: Oh yes, I have a Kuggerand, I have a genuin Doucats--[its] Italian-- which was the trade coin over the last century. I have sold some of
them. |
| ALCHIAN: Now, you collect snuff boxes, I believe. |
| HAYEK: I have been given snuff boxes by various people. |
| ALCHIAN: Do you have anything that you collect, like money, I only mean coins? |
| HAYEK: No, no. Nothing since my boyhood. I used to [be] a stamp collector, inevitably. It was really very early. In a way, I was, of
course, brought up as a collector of flowers, insects, minerals, and so on. In my boyhood, I had a collection of all these. [It was] my introduction to biology and the natural
sciences. And my father had the greatest private herbarium of any botanist in the world at that time; and our apartment was being eaten up by places to keep all his flowers, his
herbarium, which was finally acquired by the University of London. |
| ALCHIAN: Did you have daily duties to go in and water, and do things that you dislike? |
| HAYEK: I pressed flowers-- The new thing was a special box, watertight, in which they were fumigated to keep the insects out, in which I assisted. I
put in some stinking substance-- |
 Table of Contents
 | "Fritz" |
| Rock climbing |
| Alfred Marshall |
| Adam Smith |
| Friedrich von Wieser's lectures |
| Jewish economists |
| Interests as a university student |
| Employment in Vienna |
| Economic club in Vienna |
| Publishing of Hayek's collected works |
| Capital theory |
| Interaction between economic and political structures |
| Work schedule and writing habits |
| Undo writings |
| Knightian theory of bombs |
|
The Road to Serfdom
|
| Collectivist economic planning |
| Thomas Nixon Carver |
| Economics and knowledge |
| Ricardo effect |
| Personal collections |
| Final words |
| Final credits |
|
|
|
