A Case Study of the Pioneers
Chapter 4: Friedrich von Hayek and the Austrian Influence
The wide-ranging work of Nobel Laureate Friedrich von Hayek (1899–1992) provided a crucial link in the evolution of the American attitude toward laissez-faire, both analytically and sociologically. The Swedish Royal Academy of Science recognized his analytic contributions when it awarded him the Nobel Memorial Prize in Economic Science in 1974 for his ‘profound and original’ work in economic theory. The official announcement noted two theoretical contributions: his work on business-cycle theory and his ‘analysis of the functional efficiency of different economic systems . . . [in terms of] how efficiently all the knowledge and all the information dispersed among individuals and enterprises is utilized’. Each contribution served as theoretical justification for separate cases for laissez-faire, both of which influenced the thinking of the American pioneers. The first case originated in Hayek’s early work extending the Austrian monet-ary theory of the business cycle, an analysis that Lucas cited as a precursor of his own research (Lucas 1977, p. 215). The second case arose out of later research on knowledge and the character of a dynamic equilibrium, an analysis Hayek perceived as an extension of Knight’s earlier work on uncertainty (Hayek 1937, p. 34). This research served as the theoretical underpinning of the second case for laissez-faire that Hayek presented in the best-selling tract The Road to Serfdom (1944). The Austrian method Hayek drew on in making both cases became an integral component of Buchanan’s theory of public choice. Hayek also carried on an important sociological role after Simons’s death. The two had begun...
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