91. Why Is F.A. Hayek So Important?

Who is F.A. Hayek? Tuttle Twins readers might remember him from the Road to Surfdom book, but why is he so important? Today, Connor and Brittany talk about this brilliant economist and why his legacy is so important to economic and individual liberty.

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Links:

• Keynes v Hayek: Two economic giants go head to head
• Road to Serfdom 
• Keynes vs. Hayek Rap Videos 
• Teach Your Students About the Free Market
• Road to Serfdom Liveblog

Here’s a transcript of our conversation:

Brittany: Hi,  Connor.

Connor: Hey, Brittany.

Brittany: So today I wanna dedicate some time, or a whole episode actually, it’s you discussing one of my favorite economists and personal heroes, a man named Frederick A. Hayek, or F.A. Hayek, as he sometimes called Tuttletwins. Readers probably know already the book Road to Serfdom that is about the TuttleTwins experience. But that title’s actually based off, an F.A. Hayek book, also called The Road to Serfdom, though Serfdum is spelled differently. But he was a very important economist during the mid-century, and a great hero of people who love individual liberty and hate central planning, especially when it comes to, you know, big governments taking over. and this was really important because at the time that he became prominent, the people becoming ever more favorable towards central planning and socialism, which is another thing we’ve talked about in past episodes. And Hayek’s work kind of reminded Americans about the threats of central planning and socialism. And he also kind of bravely told the world something they didn’t wanna hear. And that was socialism and fascism. Another ism that we’ve talked about in a past episode were inevitably the same thing. They all led us to less freedom. They all led us down the road to serfdom, as it were. So, Connor, I know you are a fan of Hayek as well. He’s kind of a superhero to people in our space. So what are some things that you love about him?

Connor: What I really like about, F.A. Hayek is that he talked about the price system, and that sounds kind of like

Brittany: Nerd alert

Connor: Yeah, seriously. But, here’s why it matters. It, so much have to do with price. It has to do with knowledge. And, if you think of our book, the TuttleTwins and the Road to Serfdom, we talk about central planning and how a few people can’t control the actions of many other people because they just don’t know what’s right or what’s best for those people. They don’t know about, you know, unintended consequences and what might happen if, you know that centrally planned decision is enforced on everyone else. They just don’t know for people of different ethnicities or different, you know, income, like if they’re low income, or if they’re rich, or if they’re rural or urban or black or white. Like they just don’t know how their decisions are going to affect all these different people with different circumstances. Right? Single moms retirees, like one person or a group of people, cannot know all those things. And so it’s a knowledge problem, right? People lack knowledge,

Brittany: Which you think we had an episode on knowledge problems too, earlier on as well,

Connor: Right? Right, right. So the whole point here is that knowledge is dispersed. This is what F.A. Hayek talked about. Knowledge is everywhere. And, so this kind of theory of knowledge, right? That, sometimes we can’t even, articulate our knowledge. What that means is we can’t express it, we don’t even understand it. It’s just kind of in our brains and, in our hearts. And we kind of act based on that knowledge that we can’t even write down in an essay and try and convince other people. But it is knowledge that we have and that’s going to cause us to maybe buy something different or save our money or open a bank account or get two jobs. And, so our knowledge of the things within our control, or in our community or, that we can observe, all that knowledge is kind of stuck in our brains. And sometimes we can pull it out and share it with someone else in a conversation or in a tweet or, you know, in a video or whatever. but knowledge is kind of everywhere. And all kinds of people have little bits of knowledge, right? The guy who makes sausages for a living is going to have a very specialized kind of knowledge about everything it takes to put together a sausage. Now, of course, like we read about in the miraculous pencil, right? He doesn’t make the sausage himself. He works with many, many, many other people together, but he kind of knows what the different parts are and, and what it’s gonna take. And I don’t have that knowledge, right? Even, let’s say I’m a butcher, right? And I, slaughter animals all day long. I don’t know what it takes to make, you know, different kinds of sausages and how hard that work is. And so I don’t have that knowledge. So centrally planning sausage production as an example, would fail because the person making those decisions doesn’t know how the whole process works. He doesn’t have all the knowledge of all the other people in the process. They have the knowledge, right? And our, back to our pencil story, right? Someone who is cutting down trees has a lot of knowledge about what it takes to cut down trees quickly, right? And efficiently, but also grow new trees. So there’s always trees to cut. That person has that knowledge really well. But if we were to have a pencil president, right, someone in charge of pencil production, right? That person would not have that knowledge, would not have all that knowledge, maybe a tiny bit, but wouldn’t have that deep knowledge. And so we can’t make the best decisions. So here’s how that connects to prices. the sausage maker, right? He knows that, well, I’ve gotta buy all these materials and it’s gonna take me this much time. Cuz with my knowledge, I know how hard it is to do all these different steps and make different little spices or flavors or whatever. And because of that, I know that I need to charge this much to make it worth my time to buy all the, you know, the raw meat and the machinery and, hire people and have a building and everything else. And I need to be able to pay all those people, but then still sell sausage and earn a profit so it makes sense for me to spend my time doing this. Otherwise, I’d be, you know, wasting time and money and so forth. And so prices are how people apply their knowledge. Like I know how hard it is, to, let’s say, build a website. I know what it takes. And so I’m gonna set a price at a level where it makes sense for me to use my time because I know all the stuff I’m gonna have to do, and the person hiring me to build their website doesn’t have that knowledge. And so prices are kind of how I communicate to other people in the market. The complexity of something, the difficulty, and what its kind of value, you know, can be. And so prices are really a way to see, like where knowledge is. If something is really specialized, like, creating a watch with all the little gears, you know, and stuff inside of it, right? That may have a higher price than a digital watch, which may be more simple. and so Hayek talked a lot about how prices are so important because that’s how the economy can kind of balance itself. And people communicate, you know, and you can negotiate, right? It’s like, oh, your, meat costs, you know, double the other guy you need to, you know, lower your price. But, they have the knowledge of that. they have all the knowledge of what they’re having to buy and what they’re having to pay money for. And so all the prices kind of adjust along the way as people negotiate or competition happens, right? So like, if all the business starts going to one butcher, then maybe another butcher is gonna lower his prices to incentivize people to buy his meat instead. And the sausage maker is gonna know that he’s gonna have the knowledge of who those butchers are and so forth. And so prices are just kind of, it’s like the language of the free market, right?

Brittany: I like that

Connor: of how we communicate our knowledge to one another. Yeah, maybe I should hashtag that or something.

Brittany: I think even his prices want him to the Nobel Peace or not Peace prize, the Nobel Prize. I’ll have to look that up and I’ll put something in the show notes. But he, I mean, he was so renowned that he did win a lot of, or people were recognizing him. That’s kind of, to me, what makes Hayek so important is a lot of times these ideas are considered on the fringe, right? People don’t, there’s just a select few people, maybe a majority or minority that kind of likes them. But with Hayek, he was like making these ideas pretty cool. And we’ve talked about his rivalry. He had a rivalry with another economist, John Maynard Keynes, who we have talked about before. And we’ve even linked to some of their, when I say some of their rap videos, not them the actual men but actors who replayed, who played them and kind of did like a rap battle. And one part is they had different approaches to how to get the economy going after the war or after the depression, excuse me. And Keynes thought that the war was great because at least everyone was employed like, yey, look at all this employment. And then, you know, you would say, yeah, but we only have employment because we’re out like bombing people. Like you need people to build, you know, build the bombs to build the planes. Like that’s not real. That’s not real growth. So the two of them went back and forth for a long time. And one thing I wanted to include in the show notes, cause I think it’s a little bit nerdy but really interesting, is there’s an article about their actual debates that they did. BBC Radio has this great little, I think it’s a podcast about it, so that’s really fun. I’ll put that there. But the cool thing also is, Hayek was not American or, or English, he was from Vienna, Austria, but he loved Western culture so much because he admired the emphasis on the individual so much so that they called him an Anglo Lio file, which is a word that means like obsessed with, with England, with Britain, with the Western, you know, the culture associated with kind of us and England. But he changed his name from Frederick cuz he didn’t want people to know where he was from because he was so obsessed with, his culture. So fun little trivia about F.A. Hayek. The whole reason he changed his name to F.A. instead of Frederick was because he wanted people to think he was one of them. So that’s kind of an interesting little fact in case you,

Connor: it wasn’t at Frederick, right? it was like, it was Fredrick and it was spelled in a way that was clearly, people would see that, you know,

Brittany: Accents yeah, go on.

Connor: I was gonna say, so, you know, being an Austrian, there’s this connection to the Austrian school of Yes. Of economics, right? help our listeners understand, we don’t need to go into any depth here, but when, when we start learning more about free market economics and not all economics, is in favor of free markets. There’s plenty of economists who argue against free markets. You pointed out one that was kind of the arch nemesis of the time, with F.A. Hayek, and that was John Maynard Keynes. we would say another one today is Paul Krugman, who writes,

Brittany: He’s like the Keynes at the Keynes of the modern era.

Connor: Yeah, yeah. He’s like the heir, the kind of, follower of John Maynard Keynes. And so these people are economists, but they use arguments that very much support kind of the government, controlling the economy and manipulating things centrally planning, for example, where Hayek kind of advocated something different. And so Brittany, help us understand a little bit like why is it the Austrian School of Economics? What does that mean? And what’s maybe one or two other examples of schools of thought and economics, just to contrast of bit?

Brittany: Yeah, so the Austrian School of Economics is really individual based, and a lot of, like mainstream economists, call it like very, very microeconomics. But a lot of Austrians would not say that it is micro meaning. It’s like the very smallest unit, right? Of society would be the individual. But most Austrians would not consider it microeconomics. It could be an offshoot, but, so it’s people making decisions based on what people actually do or not making decisions, letting the individual make decisions. There’s a man named Buro Fanesis who we will talk about in a later episode, and he was kind of a Hayeks, I don’t wanna say mentor, he was kind of his mentor, but Mises is a little bit more on the end of, individualism than even F.A. Hayek was. So you kind of have bearing degrees. You have, Friedman who was kind of a Chicago school, he was more, he was still with us on less government, you know, intervention, less central planning focused on the individual, but not quite as extreme as Mises. And Hayek was kind of in between the two of them. But the Austrian school focuses on something called praxiology, which is the study of human action. So not what a central planner thinks you should do, not charts and graphs telling you how they predict humans are going to act, but actual empirical evidence saying this is how this human act that we each have a personal preference. Connor, you might like a different, you know, flavor of chip than I, like, I might go to the store and I’m only going to get barbecue chip. That is true, by the way, that is my favorite chip. But you might have a whole different thing, right? You might have a different personal preference. So the Austrian School really focuses on how individuals make those choices, which as an individualist I think is really cool. But the Chicago school is another one that’s like I said, Friedman. And then you have, what are some other ones? So you’ve got, I mean, ’cause they don’t call themselves Keynesians, do they?

Connor: Yeah. Yeah. But I would kinda call it that, right? Like the Keynesians School of thought, for sure.

Brittany: Yeah. And that’s probably in all the colleges, I would say for most of the colleges you’re going or you’re gonna get full on Marxism, you’re gonna get, you know, one of those. But it’s hard to find an Austrian or even a Chicago, Thomas Tull. So he is kind of claimed by both schools. He’s another modern economist, but Chicago economists claim him and Austrians claim him. So he kind of plays a tug of war in between the both.

Connor: Yeah, I, think that’s right. And, it’s interesting, right? Because you kind of see how economics, is affected by people’s political views. If you think that the government is good and that people should be able to be controlled and the government should be able to tell people what to do, then your, kind of perspective on economics or the market, is going to be more Keynesian. And why, well, what is economics like? So if you, learn from our free market rules, economics course, we’ll link to this on the show notes page as well, but it’s, free market.Tuttetwins.com, and this is learning about free market economics for the whole family, kids of all ages, and the parents as well. And so if you’re following that, you understand, and you’ve learned that economics is really just humans making choices. That’s really what all of this boils down to. The charts and the grass and everything are just kind of a, not a distraction, but they’re just another way to try and understand why people, and, large numbers of people make the decisions they do. Like you said with chips, Britney, maybe, you know, millions of people like, lays and many, many more millions of people like ruffles. And, so we can put that on a chart, you know, and kind of analyze that and look at the curve and blah, blah, blah. But really it boils down to thinking like, okay, well, people make those choices based on their preferences, and they pay a certain amount of money because they decide that there’s enough value being given to them, right? Like if, Ruffles started charging, you know, a hundred dollars per bag of potato chips and Lays kept theirs around three or four, then chances are that chart would look a little different, right? People would start to say like, it’s not worth a hundred dollars, I’m gonna go buy the $3 bag. And so people change their mind. They, change their behavior, their decisions based on what other people do. In this case, the bosses over at Ruffles who decided to change the prices, right? people make decisions and those decisions affect other people. And so then those other people maybe change their decisions or their behavior based on what’s happening. And so that is economics. Now, if you are, if your political view, if your view of government is that people should be free and they should be free to make choices and the government shouldn’t control them, then you’re going to support a free market. Because all that really means is that people should continue to be free to make their choices, not just about, you know, what color of paint they want to use on their house, or if they want to have a lemonade stand in their front yard, or, know, you know, if they wanna be able to have chickens or, you know, whatever, right? Those are kind of political or liberty-type things. but also like people should be free to have a store selling things they want and at the prices, they want and not be controlled. And so that’s why Keyne Zionism, this idea that the government should control the economy is believed by people who believe that the government should just control people and should try and manipulate people. So this is exactly what Hayek talked about, is exactly what, we talk about in the Road to Serfdom book, sharing those same ideas, the dangers of central planning, the dangers of collectivism, treating people as big groups of people that all behave the same way. Because really, like you said, Brittany, we’re individuals, so we should be individualists. We should allow people to be free to make their own choices and not say, oh, well you all live in this one area, therefore we’re gonna treat you all the same, or make you all do the, like, no, people are totally different, even if they live in the same house. They should be free to make different decisions if they want to. So, as check out the show notes page for today, we’ll link to some of the information about F.A. Hayek. we’ll link to the free Market Rules curriculum. If you’d like to check that out, head to Tuttletwins.com/podcast. Make sure you’re subscribed to the show to keep listening. Until next time, Brittany, we’ll talk to you later.

Brittany: Talk to you later.