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The Essential Hayek

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  1. How we make sense of an incredibly complex world
    Recent innovations have allowed people to read materials using a wide variety of mediums, including iPads, computers, and even phones. But the original and still most familiar format is paper and ink. Yet the complexity of the coordination required to allow people to read even in this simple format is hard to believe. It illustrates one of Hayek’s most profound insights: the ability of society to organize itself based on the pursuit of individual interests.
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  2. Knowledge and Prices

    Imagine yourself standing alone before a gigantic table covered with one billion puzzle pieces. What are the chances that you alone can put these pieces together so that the final result is a coherent visual image—a useful and valuable final result? The answer is “virtually zero.” The size and complexity of the puzzle ensures that putting a central planner (or committee of planners) in charge of assembling the puzzle won’t work.

    In the real-world economy, each owner of private property has incentives to use his or her property in ways that produce the greatest return. Efficiency is improved and a complex pattern of productive uses of resources emerges spontaneously. And because this unintended, spontaneous outcome emerges from the self-interested actions of owners of private property, each of these owners is made better off.

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  3. Individual Flourishing and Spontaneous Order

    If Betty the baker notices that the price of cupcakes is rising relative to the price of white bread, she will shift some of her effort—along with some of her flour, yeast, and space in her oven—from baking white bread to baking cupcakes. The higher price that she can now fetch for her cupcakes is a signal that she can earn more profits by baking and selling more cupcakes. The rising price of cupcakes reflects an important change in consumer wants.

    Prices set in market economies “tell” people just how they can best serve others’ interests. Prices are the single most important sources of information for producers and consumers on what they can expect from others in market economies. A market economy, therefore, expands the ability of each of us to pursue our own goals by harnessing the cooperation of others.

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  4. The Rule of Law, Freedom, and Prosperity

    How can we be sure that free people will not act selfishly in ways that further their own individual interests at the expense of the general welfare? One part of the answer is that in fact we do expect people to behave in their own self-interest. In a market economy, producers want to become as wealthy as possible, but to do so they must compete against each other for consumers’ patronage. This system rewards success at pleasing consumers, and punishes, with economic losses, the failure to do so.

    Another part of the answer is the rule of law—a system of rules that are impartial and applied equally to everyone. Rules of the highway, for example, hold all drivers impartially to the rules of the road, so every driver forms a reliable set of expectations about how other drivers will act. What’s true of the rule of law on the roads is true of the rule of law more generally. This equality does not guarantee equality of outcomes. But it does mean that no person’s or group’s interests are given extra weight or are singled out to be discounted.

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  5. Legislation is Distinct from Law

    The great bulk of law that governs human interactions was not invented and designed by some great Law Giver. Instead, law evolved. Every day we obey a vast set of rules that are not consciously designed. Consider how parking spaces in shopping malls are allocated on busy shopping days. The first person to stop his car near a parking space being abandoned and to put his blinker on in the direction of that space is widely recognized as having established for himself a temporary property right to that space. It is a right that other drivers generally recognize. That is an example of law that is created spontaneously. Law is not always legislated, but it is generally obeyed. Socially beneficial rules of behaviour often emerge and are enforced independently of the state.

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  6. False Economic Security and the Road to Serfdom

    A government committed to protecting people from any downsides of economic change requires nearly unlimited powers to regulate and tax. As long as people can find some way to change their lives for the better, some fellow citizens are likely to suffer falling incomes as a result. The only way to prevent such declines is near-total government control over the economy. Unfortunately, because economic growth is economic change that requires the temporarily painful shifting of resources and workers from older, unprofitable industries to newer ones, the prevention of all declines in incomes cannot help but also prevent economic growth. So achieving complete protection of all citizens at all times from the risk of falling incomes means not only being ruled by an immensely powerful government with virtually no checks on its discretion, but also the eradication of all prospects of economic growth.

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  7. Economic Booms and Busts

    Relative prices are the most important “directors” of economic activity. If the pattern of relative prices accurately reflects the many different demands of consumers as well as the costs of the inputs that can be used to satisfy these demands, then entrepreneurs, investors, and consumers will be led by these prices to act in ways that result in all of the economy’s “pieces” being fitted together into a productive whole. The economy at large will work pretty smoothly. If, for example, consumers come to like oranges more than they had in the past, then the price of oranges will rise relative to the price of grapefruits. Farmers will soon produce more oranges and relatively fewer grapefruits. But if prices become out of whack—when prices in most markets send out misinformation—widespread economic troubles arise.

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  8. The Curse of Inflation

    Even a very moderate degree of inflation is dangerous because it ties the hands of those responsible for policy by creating a situation in which, every time a problem arises, a little more inflation seems the only easy way out. The difficulty of stopping inflation is very much like the difficulty of letting go of a tiger’s tail. The mechanics of doing either task are incredibly easy: just stop printing money (to stop inflation) or relax the muscles in your hand (if you’re holding a tiger by the tail). Yet in light of the anticipated consequences of stopping inflation or of releasing a tiger’s tail, the task in either case is indeed challenging.

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  9. The Challenge of Living Successfully in Modern Society

    Every day, each of us participates in two very different kinds of social arrangements: interactions with people who we know and care about; and strangers—the millions of people in the great global web of economic cooperation. One of the greatest challenges to those of us who live in modern society is to be able to function comfortably within both types of arrangements. The challenge lies in the fact that behaviours that are appropriate in one of these arrangements are often inappropriate in the other, and vice-versa. We use informal, non-commercial decision-making procedures and norms in small-group settings, and formal interactions based on mutual consent and governed by an ethic of kept promises in our interactions with countless strangers. The success and sustainability of modern society requires that each of us be guided by our small-group norms when interacting with people we know personally, yet put those norms aside when interacting with strangers.

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  10. Ideas Have Consequences

    There can be no doubt that ideas have consequences. Ideas about the appropriate role of government determine what government will attempt to do as well as what it must refrain from doing. No society, for example, will follow a policy of free trade if a dominant idea in that society is that trade with foreigners is evil or economically harmful. In contrast, no society will tolerate high tariffs and other protectionist measures if a dominant idea in that society is that restrictions on trade are ethically unacceptable and that free international trade is always economically beneficial. Getting ideas “right”—and spreading those right ideas as widely as possible—is therefore of the highest importance. Widely held mistaken ideas about markets and government will inevitably produce economically damaging policies, while correct ideas about markets and government will foster economically beneficial policies.

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