Persuade and Be Free.

A new road to Friedrich Hayek 

The libertarian age is at hand," declares Alan Eben-stein at the end of his engaging new biography. So we most fervently pray, though the very sainted Friedrich August von Hayek (1899-1992), one of the people who brought it about, would I think be less than confident. Hayek lived through a startling disintegration of liberal societies. He saw socialism triumphant and freedom limited to a handful of nations. By the early 1940s even his fellow Austrian, Harvard economist Joseph Schumpeter, had abandoned capitalism, as had most other intellectuals.

By 1944, when Hayek wrote his most famous if not his most profound book, The Road to Serfdom, most of his academic colleagues were lining up behind state slavery. George Orwell praised the book in part; it elaborated on the same worries Orwell had about central planning: "It cannot be said too often-at any rate it is not being said nearly often enough-that collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitor never dreamed of." When Hayek tried to have The Road to Serfdom published in the United States, it was rejected by three publishers. Orwell's Animal Farm, a rather more vivid approach to the same theme, was in that same heyday of collectivist enthusiasm rejected by eight or nine American publishers, one of whom explained kindly that, "We are not doing animal books this year.

But Hayek gloriously lived to receive the 1974 Nobel Memorial Prize in Economic Science and to witness socialism's collapse. The century's chief political theorist of capitalism became a hero in the former socialist countries. In 1989 the Cato Institute gave Yevgeny Primakov a bronze bust of the author of The Road to Serfdom. The ironies are dizzying.

Hayek had an interesting life, sometimes in the sense of the Chinese curse: May you live in interesting times. He was a child in the Vienna of Freud, a cousin of Wittgenstein, a decorated officer in the horrors of the Italian front in World War I, a witness to hyperinflation and the rise of Nazism, an early proponent of the new quantitative methods in social science, an academic star at the London School of Economics, a media figure briefly in the United States after Reader's Digest published a condensed edition of The Road to Serfdom in its March 1945 issue, and then a pariah in mainstream economics, viewed as merely polemical, no longer an economist.

When he was considered for a job in economics at the University of Chicago in 1946, and then again in 1950 when he was in fact invited to join the university's quirky Committee on Social Thought, the economics department one floor down wouldn't give him an appointment. It was not because he was an anti-socialist-the Chicago School was just forming then, under the agricultural economist Theodore Schultz, and was realizing that it was an anti-socialist outpost-it was because he was thinking beyond economics and econometrics. (Departments of economics haven't changed since 1950.) In the 1950s, he worked on political philosophy at Chicago, then returned to the German-speaking world, and especially his well-named hometown Freiburg, for the final third of his career.

That career can be summed up as a stellar rise to 1944 and a shocking fall, which was followed by a long period of relative and then depressing obscurity, out of which emerged the grand old man of what the Europeans call neoliberalism. Hayek confessed in an interview, "I had a period of twenty years in which I bitterly regretted having once mentioned to my [first] wife after [John Maynard] Keynes' death [in 1946 that] I was probably the best known economist living. But ten days later it was probably no longer true." What happened? Keynes' stock rose after his death, just as the academics were getting cross about the popular success of The Road to Serfdom. A dead saint was hard for Hayek to match. Yet in Hayek's and the century's middle 70s, he began a triumphant old age. Even his health improved. "For a while I tried old age," he said, "but it disagreed with me."

Ebenstein's compulsively readable book gives you a man almost in full. It's a mainly intellectual biography with in triguing personal supplements. It consists of 40 or so little essays, perfect for bedtime dipping-"University of Vienna," "New York," "Robbins" (his pro-Austrian friend at the London School of Economics), "Mont Pelerin Society" (the influential club of neoliberals Hayek co-founded in the darkest days after World War II), "Chicago School of Economics" (of which he was of course no member: He was an Austrian economist, and we Chicago Schoolers looked down on their lack of quantitative rigor), "Mill" (about whom he did important scholarly work), "Law, Legislation and Liberty," "Laureate," "Friedman," "Thatcher," "Opa" (that is, Grandpa), and "The Fatal Conceit" (his last book, a brief against the conceit of excessive rationalism).

We hear about Hayek's first marriage ending in a contested divorce, and of an idyllic second marriage to a boyhood sweetheart and cousin. A big, tall man (he weighed 200 pounds in his prime), Hayek was "aristocratic in temper and origins," but no Prussian. Unlike his senior in the Austrian school, Ludwig von Mises (notice all those vons, sir!), he did not demand sycophancy, nor did he get it much until his Nobel Prize. What comes through is a Viennese sense of humor, sardonic and self-deprecating.

The very non-libertarian Keynes, a sort of friend and certainly an intellectual opponent of Hayek, remarked famously that "madmen in authority...distill...their frenzy from some academic scribbler a few years back." The madmen (and women, if you please) who brought on neoliberalism were Margaret Thatcher, Ludwig Erhard, Jacques Rueff, Luigi Einaudi, Barry Goldwater, and Ronald Reagan. The scribblers from whom their frenzy was distilled were Mises, Ayn Rand, Milton Friedman, and Hayek.

Many, including Hayek himself, have noted that the chief theorist against socialism had some of the statist about him. He was no anarchist. Rand, for example, viewed him as "real poison" for his many concessions to the state. Ebenstein argues somewhat strangely that Hayek discovered the link between state-enforced law and real personal liberty. (One would have thought that the entire Western liberal tradition is based on such a notion.)

Hayek always courted socialists and had many leftish friends, the economic historian Richard Tawney, for example. He was certainly no conservative: On the last page of The Constitution of Liberty (1960) he argued that our "hopes must rest on persuading and gaining the support of those who by disposition are 'progressives,' those who, though they may now be seeking change in the wrong direction, are at least willing to examine critically the existing [sic: Hayek was never smooth in English] and change it whenever necessary."

As a student he was much influenced by Friedrich von Wieser, the more leftish of the two who ran Austrian economics. (The other was Eugen Boehm-Bawerk, who was Wieser's brother-in-law. They dominated Austrian economics between 1890 and 1920 the way another such pair, Paul Samuelson and Kenneth Arrow, dominated American economics between 1940 and 1970. The last Clinton secretary of the Treasury and the new president of Harvard, Larry Summers, is their nephew.)

Hayek rejected the notion that equality of results necessarily leads to mediocrity and he was concerned throughout with human dignity. In a radio debate in 1945, for example, he declared flatly, "I am in favor of a minimum income for every person in the country." He approved of the military draft, and wanted ownership of guns restricted. He was green, offering endorsements after his Nobel Prize to the World Wildlife Fund. Hayek admired Marx as an economist, saying of Capital that its "long middle part is really essentially flawless."

I saiah Berlin in his first book, Marx (1939), described Marxism as "not a hypothesis liable to be made less or more probable by the evidence of facts, but a pattern, uncovered by a non-empirical, historical method, the validity of which is not questioned." That doesn't make Marxism "non-scientific." It makes it storytelling. An identical sentence could be written about the most fruitful scientific theory of the past two centuries, Darwinism: a non-hypothesis, a pattern, a historical method, the validity of which is not questioned. The point is you could write still another, identical sentence (in fact I'm positing it now) about the lifework of the 20th century's great anti-Marxist. By his own account, Hayek in his youth almost became a Darwinian biologist.

So Hayek was an anti-positivist, an anti-behaviorist, an anti-most-things-that-passed-for-Science until post-modernism and its revival of The Story as the basic form of organizing and revising knowledge. We are the economic molecules, said Hayek, and can tell our story without having to pretend that only "observation" is real knowledge. Yet as Milton Friedman has remarked, the Austrian method "makes it very hard to build up a cumulative discipline....[In empirical science] if you and I disagree.. .I say to you, what facts can I find that will convince you?" After Hayek's days in the 1920s as a statistical student of business cycles, he lost interest in such arguments. He claimed, for example, in The Constitution of Liberty that, "The rapid economic advances that we have come to expect seem in a large measure to be the result of inequality and to be impossible without it." He gives no shred of evidence, this man who read and indeed wrote knowingly on economic history.

Had he said such a thing in a seminar in the presence of Friedman (as he no doubt did, if not at Chicago then in the annual meeting of the Mont Pelerin Society) Milton would surely have asked, as he always asks everyone, "How do you know?" The doubting Milton would have stayed for an answer, a quantitative one. The great failing of the Austrian School, which Hayek did nothing to help, was its insistence that one form of argument, the non-quantitative, was the only good form. (The great failing of the other schools of economics, by contrast, is their insistence that one form of argument, the quantitative, is the only good form.)

Hayek summarized his own intellectual life as one "discovery" and two mere "inventions." The discovery was that a division of information is as crucial to society as a division of labor, which suggests--Hayek's method would allow him to say implies--that central-plan socialism will work badly. Planners, Hayek understood, simply can never possess adequate information. One of the inventions was the claim in his three-volume Law, Legislation arid Liberty (1973-1979) that certain legislative elections should be restricted to 45-year-olds and that only people who get no benefits from government should vote. You can see that this particular academic scribbler had no interest in political feasibility.

The other invention, more influential, was the suggestion that moneys should compete. A government should not be able to force its citizens to take its money. Contemporary governments, like those in Russia and Argentina, that have adopted the American dollar and thereby have removed their temptations to print too many rubles and pesos, are following Hayek. Here he disagreed with Friedman, who retains a peculiar fondness for a state monopoly of the money supply. The gold standard worked, Hayek would say, because people wanted to do business in gold, or its close substitute called pounds sterling, not because a monopoly of mines had agreed to follow a rule of monetary expansion, or because a wise Greenspan was in charge of the monopoly.

What was really important was his one "discovery," so damaging to the rationalist project of central planning. Hayek's discovery that information is fragmented connects his biologic with his economic thinking: a "neuron, or buyer or seller" in a brain or in an economy "is induced [by evolution, not by magic] to do what in the total circumstances benefits the system...to serve the needs of which it doesn't know anything at all." He described in an interview with Jack High (reproduced in another good introduction to Hayek, Stephen Kresge and Leif Wener's edited Hayek on Hayek [1994]) how in the 1930s "my whole thinking on this started with...joking about economists speaking about given data." Hayek realized the term was an absurdity: "Data" means in Latin "things given," so the phrase means "given things given." But given to whom? Not to the central planners, certainly, but dispersed in each individual's mind, and gatherable only by dickering in the market.

Dickering, or as Adam Smith put it, "the propensity to truck, barter, and exchange one thing for another" is "a necessary consequence of the faculty of reason and of speech." Smith was vividly aware of the faculty of speech, but nonetheless confined his system to the more behavioral and observable and quantitative division of labor. Hayek, who first came upon the idea (Smith's and the inklings of his own) when attempting during the Great War to lead men in an Austrian brigade speaking a dozen different languages, nonetheless confined his extension of Smith to the division of information.

This is a fault. know, for example, that I like purple dresses. You as a dressmaker need to acquire that information if I am to be served. Good point, and a very great obstacle to central planners, who have no good way of getting information, as Hayek expressed it in his famous essay of 1948, about "particular circumstances of time and place," such as that Deirdre likes purple.

Right. But let's go all the way: Why would you want to serve me, or I you? It is, I would claim against Friedrich Hayek and Israel Kirzner and others of the Austrian School who have taught us so much about alertness and information, the division of persuasion, not only of labor and information, that runs a modern economy. "By pursuing profit," Hayek wrote, we are as altruistic as we can possibly be, because we extend our concern to people who are beyond our range of personal conception." Yes, I entirely agree, as did Smith. But if the dressmaker merely has the "information" that I like purple, she can ignore it unless something leads her will. Profit and the other persuasive resources of language make her "pay attention," as we say.

Adam Smith expressed the linguistic character of market persuasion this way: "If we should enquire into the principle in the human mind on which this disposition to trucking is founded, it is clearly the natural inclination every one has to persuade. The offering of a shilling, which to us appears to have so plain and simple a meaning, is in reality offering an argument to persuade someone to do so and so as it is for his interest. ... And in this manner every one is practicing oratory on others thro the whole of his life."

The baby's crying in a family, the instinct of workmanship at the factory, the threat of dismissal as a housekeeper, the lure of profit in making dresses, the offer of a shilling: These are all persuasions to courses of action, connecting heart and hand. Without persuasion, the theory of economics is incomplete. And so it is incomplete without an account of language, language viewed not merely as "conveying" or "communicating" information originally "dispersed" (in Hayek's terminology), but language as rhetoric--that is, as capable of moving us to action. The socialists' favored form of speech is an order: "Go mine coal." The Austrian economist's favored form is an informative statement: "I like purple." Neither of these quite do the economic task. You can be in the right job, and know exactly what 'to do. But unless the boss or the culture or the market or you yourself in the council of your soul has exercised sweet talk on your will, there you sit, ready to work. Enlightened, yes, but unmoved.

Completing the Austrian system in this way makes clearer that it is a system for a free society. If something called the division of "labor" is the sole key to economics, then the authoritarian claim to improving the way labor is assigned sounds plausible enough. Let's see. We will need 1,657,987 coal miners next year if we are to produce 18,987,876 metric tons of steel. Or so at least it seemed to intellectuals in the 1930s. The socialist hope sounds much less plausible if, as in Hayek, the key is a division of information. But as the Hollywood Nazis say, "Vee have vays" of extracting information, maybe, short of giving people their freedom. Or so it seemed to the intellectuals plugging "market socialism" in the 1950s.

But if an economy depends on a division of persuasion, an ability to exercise sweet talk with a variety of people every day, and with people we have never met, then it is suddenly clear why personal freedom, the dignity that comes from owning private property, and the quantitative miracle of capitalist economic growth have pretty much gone together.

The intellectual defenses of a new age of libertarianism need sweet talk, a unity of word and number, story and metaphor, on the lips of free men and women. The story of Hayek's astonishing life and work says just that: Persuade and be free.

Deirdre McCloskey ([e-mail]) teaches economics, history, and English at the University of Illinois, and economics, philosophy, and art and cultural studies at Erasmus University, Rotterdam. Her latest books are How to be Human *...* Though an Economist (University of Michigan), and Measurement and Meaning in Economics: The Essential Deirdre McCloskey, (Edward Elgar) both published this year.

As the author of works such as Knowledge and Persuasion in Economics and If You're So Smart: The Narrative of Economic Expertise, longtime REASON Contributing Editor Deirdre McCloskey is an expert on "sweet talk"-the language of persuasion that she believes to be a driving force of the economy. In this issue, she reviews a new biography of Nobel-winning economist and social thinker F.A. Hayek (1899-1 992), the man who has perhaps most influenced her own work. (See "Persuade and Be Free" on page 52.) Ironically, McCloskey remembers being less than impressed with Hayek the first time she encountered him in person. "He was a dull speaker," she recalls. "I viewed him then the way most American economists trained in the mainstream techniques did, as a relic of an earlier method in economics: before math. I have since repented." Indeed, her theory on "sweet talk" springs from what she considers Hayek's most important insight: The economy is not just about "housing and machinery; it's also about the content of peopl e's minds."