Hayek: A Life, 1899–1950 9780226816838

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Hayek

Hayek A L if e , 1899– 1950

Bruce Caldwell & Hansjoerg Klausinger The UniversiTy of ChiCAgo Press ChiCAgo And London

The University of Chicago Press, Chicago 60637 The University of Chicago Press, Ltd., London © 2022 by The University of Chicago All rights reserved. No part of this book may be used or reproduced in any manner whatsoever without written permission, except in the case of brief quotations in critical articles and reviews. For more information, contact the University of Chicago Press, 1427 E. 60th St., Chicago, IL 60637. Published 2022 Printed in the United States of America 31 30 29 28 27 26 25 24 23 22

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isBn-13: 978-0-226-81682-1 (cloth) isBn-13: 978-0-226-81683-8 (e-book) doi: https://doi.org/10.7208/chicago/9780226816838.001.0001 Library of Congress Cataloging-in-Publication Data Names: Caldwell, Bruce, 1952– author. | Klausinger, Hansjörg, author. Title: Hayek : a life, 1899–1950 / Bruce Caldwell and Hansjoerg Klausinger. Description: Chicago : University of Chicago Press, 2022. | Includes bibliographical references and index. Identifiers: LCCn 2022009835 | isBn 9780226816821 (cloth) | isBn 9780226816838 (ebook) Subjects: LCsh: Hayek, Friedrich A. von (Friedrich August), 1899– 1992. | Economists—Biography. | Sociologists—Biography. Classification: LCC hB101.h39 C37 2022 | ddC 330.092 [B]—dc23/ eng/20220304 LC record available at https://lccn.loc.gov/2022009835 ♾ This paper meets the requirements of Ansi/niso Z39.48-1992 (Permanence of Paper).

To our families, with gratitude

Contents

Introduction · 1

PArT i A viennese yoUTh · 17 1 · A Fin-de-Siècle Wedding · 21 2 · Family Life · 30 3 · At School · 45 4 · Austrian Politics and Anti-Semitism · 57 5 · At War · 69

PArT ii A BroAdening of horiZons · 85 6 · Back at Home in Postwar Austria · 89 7 · The University of Vienna · 103 8 · The Peripatetic Student: Fritz at University · 117 9 · Mises and the Geistkreis · 140 10 · Changes of Scene · 156 11 · The Trip to America · 167

PArT iii The MAking of An eConoMis T · 193 12 · Return to Vienna · 197 13 · Hella Joins the Family · 216 14 · At the Institute for Business Cycle Research · 226 15 · The Young Academic · 241

PArT iv hAyek in 1930s engLAnd · 269 16 · Hayek Comes to LSE · 273 17 · The Encounter with Keynes · 291 18 · Defending Economic Theory and Interpreting Hitler · 307 19 · Socialism and Knowledge · 318 20 · Academic Life at LSE · 334 21 · The Battle for Young LSE Minds · 364 22 · Hayek and Austria · 382 23 · Domestic Affairs · 399 24 · The Hayek Family Debates Politics · 414

PArT v fighTing The sPiriT of The Age · 433 25 · Liberalism: Its Adversaries and Allies · 437 26 · Hayek and London Go to War: The Abuse and Decline of Reason · 464 27 · Cambridge · 493 28 · A Sixpence Penguin Volume: The Road to The Road to Serfdom · 516 29 · Scientism and Popper · 542 30 · The Publication(s) of The Road to Serfdom · 563

PArT vi ChAnging WorLds · 585 31 · War’s End · 591 32 · Postwar Austria · 615 33 · Mont Pèlerin 1947 · 642 34 · Hayek Looks for a Job · 675 35 · 1949—Hayek’s Annus Horribilis · 696 36 · Hayek versus Hayek · 710 A C k n o W L e d g M e n T s · 731 r e f e r e n C e s · 735 i n d e x · 807 Illustrations follow page 268.

Introduction

Some Background: The Biography and the Collected Works In the last decade of his life the Austrian-born British economist and social theorist Friedrich August Hayek accepted an invitation to participate in two interrelated projects, a full biography and a book series that would collect all of his major writings, some lesser-known pieces, and some unpublished materials.1 The American philosopher W. W. (Bill) Bartley III was to serve as both Hayek’s biographer and the General Editor of the Collected Works of F. A. Hayek. Bartley had trained under Hayek’s friend Karl Popper (he was to be Popper’s biographer as well) and had written a biography of Hayek’s cousin Ludwig Wittgenstein, so he was well positioned to undertake the tasks. Bartley did several interviews of Hayek and of his friends in preparation for the biography and edited the first volume in the Collected Works, Hayek’s final book, The Fatal Conceit (Hayek 1988). Then fate intervened: Bartley fell ill, dying of cancer in February 1990 at the age of fifty-three. After Bartley’s death the biography languished, but the Collected Works continued under the editorship of Bartley’s friend and partner Stephen Kresge. Kresge commissioned several scholars to take responsibility for individual volumes, and under his editorship four were published. Bruce Caldwell, an American historian of economic thought, edited two of them, and in 2002 was invited by Kresge to take over the project as the third General Editor. Caldwell was pleased to receive and to accept the offer, not quite realizing all that it entailed. A mere twenty years later (in 2022), the final volume of the planned nineteen was published.2 From start to finish the Collected Works took three General Editors and thirty-four years to conclude. 1. A fuller account of how the two projects came about will be provided in the second volume of the biography. 2. Another volume is underway, one that will reproduce the Hayek-Popper correspondence, but it and any others that may appear were not part of the original plan.

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Knowing the history recounted above, Caldwell was keen to complete the original Bartleyan vision by taking on the role of Hayek’s biographer. He was supported in this both by Kresge, who provided him with transcripts of Bartley’s interviews of Hayek as well as other materials, and by Hayek’s two children, his son Larry (as well as Larry’s wife Esca) and daughter Christine. Larry provided Caldwell with an annotated timeline that Bartley had created and gave him access to his own study, allowing him to rummage through the numerous documents and memorabilia he had accumulated there. Christine provided more materials and sat for several interviews. When it was clear that the biography was going forward, the family kindly provided access to all the existing family correspondence and other materials. Though a small portion was later sold at auction, most of these items have since been deposited at the Hoover Institution at Stanford University, where the rest of Hayek’s professional papers are housed.3 There was one problem with the choice of Caldwell as Hayek’s biographer. Hayek had always insisted that his biographer be fluent in German. Bartley had been so qualified, but Caldwell was not. Caldwell accordingly sought out a co-author who knew both Hayek’s work and the language. Hansjoerg Klausinger, a historian of economic thought from Vienna who had edited two volumes in the Collected Works, was an obvious choice. An invitation was tendered and accepted, and we began work on this book. It has been an amicable, seamless, and we believe fruitful collaboration. This book, then, is the first of a planned two-volume biography of Friedrich A. Hayek. It will cover his life from his birth in 1899 through 1950, when he moved from the London School of Economics to the University of Chicago. The second volume will cover the period from 1950 until his death in 1992. In the rest of this introduction we will talk about how this book differs from others on Hayek, drawing special attention to the sources we used. We will also describe how we went about writing the book and decisions we made in the process. We will conclude by offering a brief introduction to Hayek himself, to whet the reader’s appetite for what is to come. 3. Some of the material had only recently been deposited at the Hoover as we finished this manuscript, so had not been fully processed and assigned box numbers. Other documents having to do with more sensitive issues were in closed boxes. As a result some of our citations for the family items were incomplete at the time of publication, but should be easily found afterward. For the register of the Hayek holdings at the Hoover Institution, consult https://oac.cdlib.org/findaid/ark:/13030 /kt3v19n8zw/.

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Our Goals and Our Sources The extant secondary literature on Hayek is vast. Most books emphasize his intellectual contributions and, because he wrote in so many different areas, usually deal only with a portion of them (e.g., Boettke 2018, Caldwell 2004, Kukathas 1989, Shearmur 1996). There are also a handful of books that focus more closely on his life (e.g., Cubitt 2006, Ebenstein 2003a, 2003b, Hayek 1994, Henneke 2000, Hoover 2003, and Raybould 1998). Finally, there are literally hundreds of articles in collections and in professional journals that explicate and assess his ideas. Despite the history recounted above, it is fair to ask: why write another book on Hayek? Our goal, an ambitious one, was to provide what we hoped will be considered, for this generation anyway, the definitive full biography of F. A. Hayek. We felt that this was a reasonable aim because of our access to sources that were hitherto unavailable to others. The new material that the Hayek family and Bartley and Kresge provided to us and the interviews we undertook gave us the ability to tell Hayek’s story in a way that had never been done before. We sought to combine the new information with what we gleaned from a thorough review of other primary sources—documents and interviews held in archives and other depositories—to try to tell as complete a story as possible. Our book seeks to situate Hayek in place and time and to integrate his life and his work, with “work” including his intellectual contributions, his organization-building, and his efforts to reach a wider public as a defender of liberal ideas. In addition to being complete, we also wanted our biography to be accurate. As anyone who has done biographical work knows, there are many ways that false stories can get embedded in a subject’s narrative.4 Memories are notoriously fallible, but they can also be manipulated, with culprits ranging from the subject to friends and acquaintances to enemies. There have been many stories told about Hayek, by himself and by others, and though it was not always possible, whenever we could we checked them against documentary and other kinds of evidence to confirm or to correct them. This may seem like pedantry, but such care is particularly important when one’s subject is someone like Friedrich Hayek, who was, is, and will remain a controversial figure. We wanted to get his story right. 4. For an earlier example involving Hayek, see Caldwell 1998. The essays in Weintraub and Forget, eds. 2007 explore the problems that surround biographical and autobiographical accounts of economists, and Hacohen 2000, 8–22 provides an extended discussion of those he encountered in writing his biography of Karl Popper.

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Given these ambitions, we should describe how we went about trying to achieve them. When we began this project about a decade ago our first task was to go through the extant primary source materials. The starting point was the Hayek Collection at the Hoover Institution. Currently that collection consists of nearly two hundred boxes that have been deposited in increments over the past thirty-odd years. The initial increments were exceedingly rich, containing all manner of professional (and some personal) correspondence, drafts and final versions of papers he had written, notes (often on 3×5 cards) for projects he completed and those he never started, reviews of his work, newspaper clippings, lectures and lecture notes, photographs, audio files of interviews and lectures, and on and on. More recent increments included the materials we had been given access to by the family, including correspondence but also other treasures: documents, photographs, and objects relating to his early life, his university education, his military service, and his divorce. One can learn a lot from professional correspondence, and we used it extensively, though of course (as is always the case) a good portion of that written by Hayek had to be searched for in the archives of his correspondents, which we did. Our bigger challenge was to learn more about Hayek’s personal life. Hayek helped to some extent by providing autobiographical material of his own, some of which was discovered in unprepossessing places in the Hayek family materials. For example, Hayek’s mother, Felicitas, started a strange “diary” (“Fritzerls Tagebuch”) for her son when he was born, strange because it was written as if baby Fritz were the author. This would provide just an amusing look into late nineteenth-century Viennese cultural practices, except that if one goes to the back of “Fritzerls Tagebuch” one discovers another short diary, this one actually written by Fritz, begun just as the First World War was starting. We have called it his “juvenile war diary” (JWD), and though it is all too brief, it gives a glimpse of the thinking of a fifteen-year-old boy as the world turned toward war, and its discovery was pure serendipity. This is to be differentiated from the “war diary” (WD) he kept after deploying to the Italian front in 1917–18. Another example: As a student at the University of Vienna Fritz kept a list of books he read or planned to read. But a careful perusal of the list shows that he sometimes mixed in comments on classes he was taking and the professors who ran them, as well as, occasionally, personal matters. So we have still another “diary,” of sorts, by Fritz the university student, preserved in his papers (“Diary 1920”). Finally, starting in 1911 and running nearly until the end of his life, Hayek kept a datebook in which he listed the times of appointments, periods when he would be in particular places, departure

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and arrival times when on trips, and the like, invaluable for biographers trying to get times and places right. Later in his life Hayek began to compose more complete accounts. After he was elected to the British Academy in 1944, he knew that someday they would want an autobiographical statement from him, so in 1945 he began writing up some of his memories in an unpublished piece he titled “Autobiographical Fragments” (AF). He added to it in 1961 and again in 1967, and yet again in 1970. When his son Larry married Esca Drury in 1961, Hayek presented the couple with a “Family History” (FH), a serious piece of genealogical work that reached back several generations on both sides of his family. After winning the Nobel Prize in Economics in 1974 he sat for many interviews, and in them he sometimes spoke about his own personal or academic history. The most extensive collection of interviews—there were nine interviewers, among them James Buchanan and Robert Bork—took place in late 1978 and gave rise to a transcript of almost five hundred pages (Hayek 1983a). We should mention another prior biographical account that is in a category all its own. Charlotte Cubitt was Hayek’s secretary from the time he and his second wife, Helene (whom Hayek always referred to using the affectionate Austrian diminutive Lenerl), moved back to Freiburg in 1977 until his death in 1992. Mrs. Cubitt, as she was always called by them, kept diaries of her conversations and interactions with him and his wife, and after his death wrote a book that drew on them (Cubitt 2006). Because she did not know Hayek in his early days, she sometimes got details wrong in the stories she recounted. The great strength of her account is to reveal, in sometimes depressing detail, what everyday life was like in the Hayeks’ household toward the end of their days. Hayek was in poor health for most of his last seven years, and the particulars make for grim reading. But the level of intimacy she reached with both him and Lenerl also offers insights into both people that are unavailable elsewhere. She was privy to private conversations, to arguments, and to “explanations” offered by each party when justifying past and present behavior. Cubitt’s book provides the main source of information about Lenerl as an adult, the other source being Hayek’s daughter Christine, whose reminiscences are colored by the fact that they did not like one another. As to our other sources, Hayek preserved many letters written to him by members of his own family. These include letters from his parents dating back to World War I, from his first wife, Hella, throughout their marriage, from his mother and brothers in the 1930s (when he was in England and they were in Austria and Germany, respectively, and holding very different

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political views), and from his mother and his children after he moved to America in 1950. All except those from his children are in German, and his mother wrote in a no longer used form of cursive writing called Kurrent.5 These provide insights into his family life, but there is one gaping hole: he kept their letters to him, but they, for various reasons and with few exceptions, did not keep his letters to them.6 As a result, for certain episodes we had to extrapolate his side of the conversation. A final family document, also deposited at the Hoover, is a set of reminiscences composed in 1983 by Hayek’s brother Erich, “Erinnerungen aus dem Hause Hayek” (EHH). There is more. There are two vital caches of letters that are in the possession of Hayek’s brother Heinz’s grandson, Richard Zundritsch. The first are from Fritz to his parents during the First World War; the second are letters home when he spent fifteen months in the United States from March 1923 to May 1924. These documents reveal him to be a humorous, perceptive, and entertaining correspondent, as he chronicled and reacted to the strange and interesting experiences he was having. It makes one wish that his family had preserved more of his private correspondence, but it may be that the special circumstances surrounding these letters made them more interesting than would be the case for the more standard family exchanges.7 Final sources of information were the interviews done by Bartley with Hayek in the early 1980s, and those done by Caldwell, chiefly with Christine Hayek, for this one. In preparing for the Bartley interviews Hayek wrote up notes concerning important reminiscences on file cards. Bartley integrated information from these into the timeline that he gave Larry Hayek, which he then passed on to Caldwell. Having trained with the philosopher of science Karl Popper, Bartley playfully titled the timeline the “Inductive 5. All final translations of German into English of family letters and other correspondence were done by Klausinger. The transcriptions from Kurrent were kindly provided by Karl Pechter. Initial translations of some material for Caldwell was done by Alexandra Hecker, assisted by her stepfather, who could read Kurrent. 6. There are postcards from him to Hella and the family in the Hayek Collection in box 184, folders 6 and 7 (FAHP 184.6–7). The reasons that letters were not saved vary. His first wife, Hella, evidently had little interest in keeping any after he left her, and his children may have felt similarly, though often children simply do not care to keep letters from their parents. As for his mother and brothers in the 1930s, after a certain point it may have been dangerous to have his letters around, particularly if, as one supposes, he failed to be discreet about his opposition to the Nazi regime in them. 7. Richard also gave us access to a diary that Lenerl had kept as a child. We thank him and his wife, Caroline, for sharing these family heirlooms with us.

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Base” (IB), an allusion to the Popperian phrase for a set of facts that are taken provisionally as “given” when formulating a theory, because the document contained the “facts” on which the biography would be built. Though reminiscences and memory are always tricky things, we feel that the information contained in the Inductive Base and on the file cards is probably more reliable than, for example, Hayek’s extemporaneous interviews done earlier in life. It appears that in preparing the file cards Hayek when possible checked his memories against appointment books, student records, and other contemporaneous documents. In any event, whenever possible we have noted when differing sources provide conflicting accounts and tried to reconcile them by checking the documents ourselves. Very few people had ever seen the file cards. There were rumors that a copy of them had been made and was sitting in Australia, but further inquiries proved fruitless. Caldwell had asked Kresge about them on a couple of occasions, and he responded, vaguely, that they might be in some boxes he had kept in a storage locker in Berkeley. But as we prepared this volume we did not make use of them, relying instead on Bartley’s interviews and his Inductive Base. Stephen Kresge died on November 12, 2018, and when the storage locker was finally opened in late 2019, inside was found a meticulously documented collection of Bartley’s papers, including interviews and transcripts of interviews with Popper, Hayek, and others, Bartley’s own work on the biographies of both men, and much, much more. One of the entries in the list of contents reads, tantalizingly, “Hayek Original Notecards for Biography.” Bartley’s niece Kathryn Troyan generously agreed to donate the contents of the storage locker to the Hoover Institution, but this took place during the Covid pandemic and the materials at the time of this writing had still not yet made it to the Hoover. Given we have Bartley’s summaries of what the file cards contained, we decided not to delay our project any longer to check his claims against them. It may be that someday some of Hayek’s letters to his family are similarly discovered. If so we wish the next generation of Hayek biographers well in correcting any errors we have made and in bringing the story we have told up to date. The sources of biographical material and the location of the letters cited are collected in a separate section, “Archival Sources,” at the end of the book. The first two chapters of this book deal with Hayek’s familial predecessors and with the various circles in which his family moved in fin-de-siècle Vienna. Those who wish to explore such genealogical details and social networks even further are invited to visit the appendixes to these chapters, which have been placed online (see Caldwell and Klausinger 2021a, b).

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Some Decisions We Made in Writing This Biography As we moved from doing the research to preparing the text, we had some additional decisions to make. We had a tremendous amount of material. What to leave in, and what to leave out, in telling Hayek’s story? Our initial drafts included everything, a necessary first step, for only if one can see the whole field does one start to see the narrative threads emerge. In April 2019 we attended a two-day manuscript conference organized by Peter Boettke at George Mason University in which we received invaluable feedback on ways to improve our first completed draft. We then began the long process of editing and reshaping the manuscript to bring it to final form. We cut certain things we deemed inessential and put other materials in appendixes (Caldwell and Klausinger 2021a, b). Another part of the effort was to try to blend our two different writing styles: Klausinger is the more austere stylist, while Caldwell tends to the breezy. We also decided to end this volume in 1950 rather than 1946, so five more chapters had to be written and integrated into what we had done so far. A final cause for delay was that we kept stumbling across new documents in the material provided by the Hayek family that we felt should be included. Hayek was a controversial figure, so another decision was whether to engage with the existing critical literature.8 By and large we decided not to do so. In presenting his intellectual contributions, our goal as historians was to show the context in which he developed his ideas, to identify to whom he was responding, and to suggest why he embraced some projects and abandoned others. Simply stated, we sought to reveal what he did and said, and to explain what motivated him. To accomplish that, we had to enter his mind, to see the world as Hayek did, and invariably that shapes the sort of narrative one produces. In particular it means that, with few exceptions, we did not attempt to provide a critical assessment of his thought or to respond to his critics. It may be noted that if we had, this already long volume could easily have grown to twice its current length. But it led one of the readers for the Press to say of our book that it “indirectly (but intentionally) . . . offers a contemporary liberal critique of neoliberalism scholarship” and that it is “more of an authorized biography than a critical one.” Though we think that both comments are broadly fair, in our own minds our goal was simply to tell Hayek’s story as best we could. As historians of economic thought, we both are comfortable with ex8. That literature is diverse, but most of it targets his ideas and his role as a defender of “neoliberalism.” Some representative examples are Mirowski and Plehwe, eds. 2009; Peck 2010; Stedman Jones 2012; and Mirowski and Nik-Khah 2017.

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plaining the evolution of a person’s thought and placing ideas within the context of the times in which they developed. By definition, though, a biography deals with a subject’s life, not just his ideas, and explaining people is a different ball of wax. Though we were well familiar with his intellectual contributions, neither of us had ever given much thought to Hayek as a person, and it was only slowly that he began to come into view, as we studied his relationships with his family, friends, and colleagues, as revealed through professional and personal correspondence, interviews, and the like. Lives are sometimes messy, and Hayek’s was no exception. Though we received much help from the Hayek family, they did not vet the manuscript before its publication. We had to decide about how deeply to go into certain sensitive personal and familial matters, always a tricky thing when one has developed a relationship with the people the details of whose family life one is revealing to the world. In the end, we decided to hold very little back. We show, for example, that both of Hayek’s parents participated in different ways in the antiSemitism that was commonplace in the Vienna of their day. We also tell the story of the divergence of his political views from those of other family members during the critical decade of the 1930s, when he lived in England and they in Germany and Austria. All this is relevant for understanding the milieu in which Hayek came of age, his process of maturation within that environment, and indeed the development of certain of his political commitments. From early on Hayek pushed back against his family on such matters. Everyone familiar with Hayek’s work knows that his defense of liberalism ran very much against the “spirit of the age” in which he lived. It makes his stance all the more poignant to realize that it also directly opposed the views of some members of his immediate family. The most sensitive issue that we treat is his divorce from his first wife, Hella, which he initiated to be able to marry Lenerl. We decided to go into that painful episode in intricate detail for three reasons. First, it was evidently the central event in his personal life, something that was lurking in his mind for years before it happened, and which had profound consequences for his life and the lives of everyone around him going forward. Second, all the documents surrounding the divorce have now been deposited in archives, so are publicly available. But they are scattered. Besides those that have recently arrived at the Hoover Institution, key documents are also located in the papers of Lionel Robbins at the London School of Economics (LSE) and John Nef at the University of Chicago. Unless one has consulted all the materials, it is easy to miss things, and even to be led astray. For example, the Hayek Collection contains a letter that Hayek wrote to Hella that is dated July 13, 1950. Unless one also visited the

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Robbins papers at LSE, one would not realize that it was actually sent over three months later, and contained a crucial handwritten addendum that, when Hella showed it to Lionel, led to the final break between Hayek and his best friend. The Hayek archive also contains what appears to be a typed letter from Fritz to Hella, dated December 21, 1948. But the document is actually a typed-up compendium of two letters he sent her, one from 1948 and the other from 1950. There have been other treatments of the divorce that have only touched on some of the materials now available, and even in those that drew on more sources, sometimes mistakes were made (Hoover 2003, 188, 192–95; Howson 2011, 704–6; Ebenstein 2018).9 We felt that his biography was the appropriate place to offer the definitive treatment. Finally, it seems that Hayek, too, may have wanted this story told, or at least would not have opposed its telling. After all, his letters to Hella written in December 1948 and February 1950 were found in his papers typed up in a single document, parts of which were corrected in his hand. We do not know the story behind why he preserved his letters to Hella in this way, but he knew there was to be a biography, and the document was in his papers. We think he was leaving this paper trail for a reason, no matter how bad their contents may have made him look to some observers. In any event, our decision was to offer as full a treatment as the materials allowed us to provide.

Hayek: A Snapshot and a Preview The first salient fact about Friedrich Hayek is that he was born in 1899 and died in 1992. His was a twentieth-century life. As a child his first car ride, a quick trip around Vienna’s Ringstraße, was in one of the first automobiles. As a youth he took up downhill skiing, then a new sport, a modification of the more traditional Nordic cross-country one. Had World War I not ended when it did he would have joined the pilot academy and flown planes, themselves relatively new inventions. As an economist he was a participantobserver in the hyperinflation that followed the First World War, the Great Depression, the rise of the welfare state, and the stagflation of the 1970s. As 9. The account of the divorce in Hoover 2003 is one of the most complete of those we mentioned, but also contains some errors. Hoover cites as a source the “Cubitt Archive.” This consisted of materials Hayek’s secretary had photocopied from the divorce file and later shared with him. Unfortunately, Cubitt did not realize that the typed-up document she provided to Hoover contained two letters from Fritz to Hella, not one. Fritz’s original handwritten letter to Hella of February 16, 1950, that establishes that fact has been deposited at the Hoover Institution.

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a liberal he watched the rise and fall of various forms of fascism on the continent. He also witnessed the creation of the Soviet Union, its expansion to control much of Eastern Europe, and its ultimate dissolution. He lived through the transformation of his own profession from the (mostly verbal) study of political economy into the (mostly mathematical) science of economics. Like John Maynard Keynes, whom he knew, he was an economic theorist who used virtually no mathematics to express his ideas. He was made fun of by some mean-spirited colleagues for his lack of mathematical acumen (the Austrian tradition in economics was largely a verbal one), yet his treatments of what he called “phenomena of organized complexity” or “spontaneous orders” anticipated subsequent theoretical developments for which the mathematics had not yet been developed. His contributions to economics were impressive, even if they did not always impress his economist colleagues—though they frequently did. There was a brief time in the 1930s when Hayek was considered the chief economic rival of Keynes, who was destined to become the most famous economist of the twentieth century. Their competing models of the economy and theories about the causes of, and remedies for, the business cycle held the attention of the profession as a whole, until Keynes penned The General Theory and swept the field. Hayek and Ludwig von Mises are justly famous for their critique of socialism, though for decades most economists thought that they had lost the so-called socialist calculation debate. It took the collapse of the Soviet Union and the East bloc for the power of their arguments to become more widely recognized and accepted. Though he stuck to prose, scholars working in the more technical economics of information invariably invoke as a key precursor his 1945 article “The Use of Knowledge in Society,” a phenomenon that itself gives rise to the question of whether Hayek’s “knowledge” and the profession’s “information” refer to the same thing. His 1970s essay The Denationalization of Money challenged the wisdom of granting a central bank a monopoly over the issuance of money and became a foundational work for those who explore alternative monetary regimes. Hayek might be considered one of the last of the political economists. With some justice he called his most famous work, The Road to Serfdom, a political book. His two biggest contributions, The Constitution of Liberty and Law, Legislation and Liberty, incorporated history and political theory in exploring the set of economic, political, juridical, cultural, and social institutions that are most conducive to the establishment of a successful liberal democratic order. He did important work in the history of ideas and in social science methodology. He wrote a book on the foundations of

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theoretical psychology. He even tried to explain, in his last book, why so many people seemed to detest the free market system, even though it had brought about manifold increases in both wealth and personal liberty. This brief summary does not include all of the projects that he started, or thought about, but never finished. He was perpetually coming up with new ones. Some were books, of course, and some of these were multivolume works, at least as planned: a big book on money, a two-volume treatise exposing the abuse and decline of reason, a volume on the economic calculus, this last complete with a penciled-in book cover. He hoped someday to offer a lecture course titled “An Overview of the Evolution and the System of Sciences (for Students of all Faculties)”—a project gargantuan in scope, and this was when he was twenty years old. He wanted to organize a grand debate on the feasibility of socialism, dubbed the Paris Challenge—this was when he was in his late seventies. He aspired to create a Central European University, a three-year residential college for postgraduates that would educate future leaders of the region about the merits of a liberal free market democratic order—he thought about some variant of this over and over again. There were few limits to the range of his ideas or of his ambitions. Hayek was a cosmopolitan citizen of the world but he did not start out that way. His origins in Vienna were distinctly upper middle class, and his horizons there accordingly distinctly limited, at least until he went to university, where he learned from his new friends among the Jewish intelligentsia just how circumscribed his education had been. He spent fifteen months in America, mostly in New York City, when he was in his early twenties. He hated it, but later ended up visiting the country frequently, even living in Chicago for twelve years, dedicating the book he wrote there “To the unknown civilization that is growing in America,” an ambiguous dedication that was probably intentional, for he always was a bit ambivalent about the States. He fell in love with England before he set foot on its soil, though he came to realize that the England of the nineteenth century that he revered had all but disappeared in the twentieth. He left it in 1950 under a cloud, and never lived there again. Virtually every summer he returned to the mountains of his native Austria, the one place on the planet he felt completely at home, but the time he spent in Salzburg, from 1969 to 1977, was a disaster. Before and after his sojourn in Salzburg he and Lenerl lived in Freiburg, Germany, both times in the exact same flat. It was there that he died. Given the many places he lived, Hayek was a perpetual stranger, a man who, on his own admission, had only a few close friends. That may have suited him just fine: when he described himself as a loner in an interview, he did not say it wistfully, he was merely observing himself and stating a

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fact (IB 38).10 If he did not make close friends easily he certainly was not lacking in social skills. Hayek not only seemed to know everyone, he got along with all sorts of people. When his daughter Christine was asked if he was the “absentminded professor” type, she said that, quite the contrary, he was very good company (at least outside of the family), recalling as evidence his behavior at the summer schools that were held in the small Tyrolean town of Alpbach in the late 1940s, where she remembered him smiling and laughing and enjoying the stimulation of the intellectual and social interaction. And indeed later in life he lamented that his loss of hearing made him appear less sociable than he actually was (Hayek 1994, 135). But it is also a fact that toward members of his own family—his first wife and children—he was often rather reserved. His father, August, once supposedly said that being intelligent and taciturn was a family trait among the males, and that well described August himself. This may have been how Hayek thought men were “supposed” to behave, but it may also have been offered as an excuse for aspects of his own interactions that he later came to regret. Hayek had a knack for being in the right place at the right time. He knew (or, in the case of its founder, Carl Menger, had at least seen) all of the principals of the Austrian school of economics: his grandfather was a climbing friend of Eugen Böhm-Bawerk, Friedrich von Wieser was his teacher, Ludwig von Mises was his mentor, and Joseph Schumpeter wrote letters of introduction for him to economists he knew in America. He came to America just as its leading economist, the institutionalist Wesley Clair Mitchell, was about to become the president of the American Economic Association. Hayek sat in on his classes and took back with him enough knowledge to become the head of a business cycle institute. He arrived in England just at the right time to challenge Keynes, but also to participate in Lionel Robbins’s Grand Seminar at the London School of Economics, where the formalism for most of what we now think of as intermediate microeconomic theory was developed. He went to the University of Chicago just as the Chicago School of Economics was taking shape—and he may well have played a role in its creation, scholars differ on that—yet he went there to join the Committee on Social Thought, not the Economics Department. Some consider Hayek the prophet of the rugged, independent individual. He would have demurred—he insisted in his essay “Individualism: True and False” that the individualism he was interested in was a theory of society, one that started from the premise of people “whose whole nature and character is determined by their existence in society” (Hayek 2010 [1946a], 10. As noted earlier, IB refers to Bartley’s “Inductive Base.”

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52). But there is less controversy about his own independent streak. It was there from the beginning, and, as we will see in the chapter on his early education, not always with salutary results. But one sees it most forcefully in the fact that, throughout his life, Hayek so often disagreed with people, always politely but always firmly. When people failed to see the world the way that he did, his response was to try to reformulate the argument, the better to change their minds. In his famous essay “Two Types of Mind,” he distinguished between the master of the subject, someone who knew every detail of a literature and all of the arguments, and the puzzler, someone who would keep coming back and rethinking a set of claims, adding new insights along the way. Hayek would use the distinction many times, and placed himself squarely in the camp of the puzzlers (Hayek 1975). He was often repetitious in his arguments, the natural fate, one supposes, of the puzzler. But another reason he kept repeating himself was that he kept encountering the same old arguments, ones he thought he had disposed of, arising again and again. Perhaps this is the fate, especially, of a liberal puzzler who lives for nearly a century. In any event there were many puzzles to engage him. * * * The biography ahead is separated into six parts, each carrying its own introduction, so the preview here will be cursory. Part I, “A Viennese Youth,” traces the early days of our protagonist in fin-de-siècle Vienna. We explore his family life and his somewhat erratic path through the Austrian educational system, and end with his experiences as a young soldier on the Italian front during World War I. Part II, “A Broadening of Horizons,” recounts his days at the University of Vienna, where both the professors he encountered and the friends he made had a profound influence on his further intellectual development. After finishing his first degree he broadened his horizons further by becoming better acquainted with Ludwig von Mises and spending fifteen months in America. In part III, “The Making of an Economist,” we show Hayek’s movement into the adult world, as he marries, finds a job at the Institute for Business Cycle Research, and takes the necessary steps to prepare himself for a life in the academy. Part IV, “Hayek in 1930s England,” the longest in terms of chapters, tells the story of how Hayek managed at the young age of thirty-three to secure a named university chair at the London School of Economics. This decade was a period of great creative productivity for Hayek, but also one of frustration, as he fought battles on many academic fronts and struggled to bring his own work on capital theory to a conclusion, all while living in a strange new country. It did

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not help that it was also a painful period personally: he came to regret his marriage to Hella, and he found the political stances taken by his brother and mother on the continent increasingly noxious. In part V, “Fighting the Spirit of the Age,” we explore Hayek’s war effort, a great two-volume work that would expose the intellectual origins of the twentieth-century collapse of Western civilization in the writings of nineteenth-century socialists, positivists, and their followers. Though he never finished the larger project, it led him to the publication of The Road to Serfdom, his best-known book and a work that brought him international fame. Part VI, “Changing Worlds,” examines Hayek’s activities in the five years following World War II, as he sought to form a society of like-minded individuals who would dedicate themselves to rebuilding the foundations of liberalism, and to take the steps necessary to divorce Hella and marry Lenerl. He was ultimately successful in both endeavors, but the second one required him to leave his beloved adopted country of England to settle in a truly new and different world, the United States.

· Part I · A Viennese Youth

In part I we will explore the period from Friedrich Hayek’s birth in 1899 through his service in World War I. He grew up in fin-de-siècle Vienna, a period and place of enormous creative tensions, but also of enormously destructive political, religious, and ethnic divisions. If one thinks in terms of those divisions, Hayek’s family was conservative, Christian (though mostly nonpracticing), and culturally German (his father would quote from the great German writers at length and from memory at the dinner table). Though his family’s ennoblement made them members of the so-called second society, and their status was that of the upper middle class, their lifestyle was anything but ostentatious. Hayek’s father August’s chosen field was medicine—he was a district physician—but his passion was botany. In a tradition that was common at the time in Vienna, he worked to make a respectable living (which was supplemented by income from his wife’s endowment—hers was the wealthier family), then devoted the rest of his time to botany, organizing meetings, creating an herbarium, giving lectures. He pursued this interest single-mindedly and, fully supported in this decision by his wife, made it a family affair. Weekends and summers were spent by the family Hayek collecting specimens, exploring different habitats, always out in nature. It is little wonder that one of Hayek’s two brothers became an anatomist and the other a chemist, and that of his own two children, one would become a medical doctor and the other an entomologist specializing in the study of beetles. And it is little wonder that throughout his life Hayek would return to the Tyrolean mountains each summer to find his center. His family was fully embedded in an extended intellectual and academic community, one that included extended family members and acquaintances, in Vienna. In trying to understand the world that the young Hayek inhabited, part of our task will be to explore the variety of intersecting circles that made up such an important part of his environment.

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That world was changing as Hayek grew from a child into a young adult, and not always in good ways. As the monarchy slowly lost its grip on society, an age of increasingly raw and nasty mass politics began. Racial, religious, and ethnic intolerance became normalized, as various segments of society were wooed by politicians and parties that sought to gain power by demonizing their opposition. Fanaticisms of many varieties, Marxist, fascist, anti-Semitic, pan-German, and nationalist, were on offer. Compounding the problem, these explosive political competitions played themselves out just as the Western world was headed for the most horrific war it had ever witnessed. Hayek would fight in that war, but much of our focus will be on earlier and more innocent times. We will see that from the beginning the young Hayek stood out from his peers. He was bright enough to be thoroughly bored with schoolwork, with perhaps predictable unfortunate consequences. He also had an independent streak that, again, did not always serve him well. It would become more pronounced as he became an adult, as he gradually moved further from the influence of his family and milieu. One sees it perhaps most dramatically in some of the decisions he made as a young soldier at the Italian front. As one of the authors of this biography remarked to the other on reviewing the evidence before us, “it is amazing that he made it out of the war alive!”

·1· A Fin-de-Siècle Wedding

On Tuesday, May 24, 1898, a newly minted municipal physician named August von Hayek, aged twenty-six, wed Felicitas von Juraschek, the twentythree-year-old daughter of a prominent, and wealthy, university professor and civil servant, in Vienna’s Votivkirche. The couple had been engaged about six months, and their nuptials were announced in Vienna’s liberal newspaper, the Neues Wiener Tagblatt. The ceremony was followed by a multicourse feast, with sherry, a local white wine, medoc, and champagne complementing the various courses. Their wedding photograph, executed by Carl Pietzner, whose studio carried the imperial seal (“K.u.k. Hof- u. Kammer-Photograph” is also engraved below the picture), shows a serious, thin young man looking directly at the camera, and an equally serious wife looking at her spouse, her hand resting on his, which rests on a chair. Regarding descent and profession both families belonged to that social stratum referred to in Austria as the “second society” of lower nobility, in contrast with the “first society” of higher nobility comprising the ruling houses, princes and earls. Within the lower nobility there were three ranks, the lowest level—that bestowed on the Hayek family—carrying the predicate of nobility “von” (or the title Edler). Above them were the knights (Ritter)—the Juraschek family had attained this level—and at the top of lower nobility the barons (Freiherren). In the Austrian monarchy the award of titles of lower nobility had proliferated during the nineteenth century. Between 1804 and 1918, dates that mark the foundation of the Austrian Empire and its demise, roughly eight thousand people had been ennobled, mainly—in descending numbers—officers, civil servants, businessmen, and artists and scientists (Wandruszka 1971; Waldstein-Wartenberg 1971). Of the leaders of the Austrian school of economics, many either belonged to the lower nobility or during their lifetimes were elevated to it, as indicated by the “von” in the names of the nobles Menger, Mises, and

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Hayek, the knight Böhm-Bawerk, and the barons Wieser and Haberler (cf. Streissler 1988).1 Just off the Ringstraße, the Votivkirche was an appropriate venue for members of the second society to be married. It looked ancient (it had been built in neo-Gothic style) but had been completed in 1879. In February 1853 a young Hungarian apprentice tailor tried to assassinate the twenty-threeyear-old Emperor Franz Joseph, who was out for a walk on the city ramparts, by stabbing him in the neck. The emperor’s thick collar helped to deflect the blade, and he was able to recover in a few weeks. The church was financed by subscriptions from thousands of donors and built to praise God for preserving the emperor’s life (Johnston 1980, 92–93, 122).2 The Votivkirche was the first of many buildings built in the historicist style that were erected in the massive redevelopment of the city that took place in Vienna beginning in the middle of the nineteenth century. In 1857 the emperor issued an edict calling for the city fortifications to be torn down and for a connected series of wide boulevards to be put in their place. Lining the new Ringstraße would be the various seats of government, as well as cultural and educational centers like the imperial opera house and theater, various museums, and the university. Each edifice had its own style, and for many the construction of the Ringstraße and its many buildings, both public and private, became a visual symbol of the brief triumph within the Empire of constitutional government and the cultural values associated with liberalism.3 Though both families were of the second society, full members of the bourgeoisie and of the intellectual elite, we can get a better sense of where each fit by tracing back to the respective ennoblements.4 The Hayek line 1. In 1919, after the demise of the Empire, the Republic of Austria abolished the nobility and all its titles, so that “von” had to be deleted from the names of the nobles. Hayek’s occasional use of the “von,” and its frequent use by others, with varying intents, will come up again. 2. The tailor was hanged. Older Viennese residents may still recall the (typically Viennese) saying that refers to the incident: “Auf der Simmeringer Had hat’s ein Schneider verwaht. Es geschieht ihm schon recht, warum sticht er so schlecht,” that is, “At the Simmering Heath [the execution site] a tailor is blowing in the wind. This serves him right, why did he fail with his knife?” 3. The classic citation linking the architecture of the Ringstraße with liberalism is Schorske 1981, chap. 2, but for a more recent account that challenges some of his claims, see Judson 2001. For more on the brief liberal moment in the AustroHungarian Empire, see chapter 4 below. 4. See Caldwell and Klausinger 2021a for a more detailed genealogical account of August’s and Felicitas’s families. In this and the next chapter the basic biographical

A Fin-de-Siècle Wedding 23

was the more ancient. August’s great-grandfather Josef (1750–1830) had been the steward of a large estate in Moravia and in that capacity developed two modern-style textile factories that ultimately employed several hundred people. He became a partner in the operations, which led to his acquiring both a substantial fortune and, in 1789, ennoblement. On his death his estate was divided among his children. His son Heinrich, August’s grandfather and the only male heir, inherited his father’s mansion in Brünn as well as other property and securities. In 1840 he moved to Vienna to become a secretary in the Ministry of Police (k.k. Polizeiministerium), a position “where he probably had to work for only two or three hours each morning” and that allowed him to lead the “life of a gentleman” (Hayek 1994, 37). August remembered his grandfather “as a tall thin figure, blue-eyed and clean shaven, wearing a fair wig, very good-natured and devoted to his duty, intelligent and taciturn (as the Hayeks were generally supposed to be), but somewhat given to bursts of indignation” (Hayek, “Family History,” henceforth FH).5 Whatever his other personal characteristics, under his watch the family fortune was gradually but definitively depleted, with much of it gone by the 1860s (Hayek 1994, 38). After finishing his gymnasium education Gustav, August’s father, started on a naval career but (apparently owing to financial exigencies) later switched paths. After passing the requisite exams, he found a position at the newly founded Landstraßer Gymnasium. Though only a gymnasium teacher, Gustav established himself early on in scientific circles, writing a four-volume handbook of zoology (G. von Hayek 1877–93) and editing a biological atlas (G. von Hayek, ed. 1885). His most public achievement was in the field of ornithology. After joining an ornithology association (Ornithologischer Verein) in 1882, he quickly was elected its secretary and editor of its newsletter. Under the auspices of Crown Prince Rudolf, who also had an interest in the field, he organized an ornithological exposition in Vienna in April 1884, an event marked by visits by Rudolf himself, Archduke Rainer of the royal family, and the Emperor Franz Joseph (Holzleitner 2013). Despite such honors, after retirement Gustav was forced to suppleinformation is drawn from the various entries in Österreichisches Biographisches Lexikon. 5. “Family History” refers to a history of the Hayek family that Hayek offered as a wedding gift to his son Laurence when he married Esca Drury. The history lacks page numbers so none are given when it is referenced. Except where noted what follows draws on this invaluable document and on the reminiscences by Hayek’s brother Erich, “Erinnerungen aus dem Hause Hayek” (1983), henceforth EHH.

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ment his meager schoolteacher’s pension with journalistic work on popular science. It was the sort of challenge—balancing scientific curiosity and ambition with the realities of earning a living—that his own son, August, would also have to confront. In 1871, Gustav married Sidonie Marie Anna, née Mayerhofer von Eisfelden. They had two sons, Friedrich’s father, August Gustav Josef (born December 14, 1871), and his uncle Paul Gustav Heinrich (born December 13, 1875). Whereas the Hayeks had only recently arrived in Vienna, Sidonie’s family on both her father’s and her mother’s (the Bergenstamm dynasty) sides had deep roots in Viennese society. August grew up in rather modest living conditions owing to his grandfather’s losing most of the family fortune and to his father’s failure to receive a hoped-for inheritance from his grandfather’s unmarried sisters (Hayek 1994, 38). August’s financial burdens were further exacerbated because he felt obligated to help “his not very gifted younger brother to complete his legal studies” (IB 9). For secondary school August attended the Landstraßer Gymnasium, where his father was teaching biology. After that he chose, mostly for financial reasons, the study of medicine, which he concluded in 1895 with a doctorate. In contrast to her husband, Felicitas von Juraschek came from a family that was a well-established part of the upper-class bourgeoisie, their status due in part to her father’s having married well, twice. Consequently, “in the early years of their married life [when] money must have been pretty scarce the small salary of my father . . . was at first just about equaled by the income from my mother’s small fortune,” apparently an inheritance from her deceased mother, Johanna Stallner (AF 1).6 Though Felicitas von Juraschek brought considerable wealth to the union, her family had experienced much personal tragedy, and indeed the two were connected. It was Felicitas’s grandfather, Franz Ritter von Juraschek (1809–1868), a military officer, who was knighted for his service at 6. Hayek began writing “Autobiographical Fragments,” hereafter cited as AF, when he was elected to the British Academy in 1944. He added to it subsequently, and the draft in the archives carries the date November 1967. Franz von Juraschek’s wealth derived not only from his marrying relatively rich wives, but also from his salary as a high civil servant—he eventually became the director of the Statistische Zentralkommission, the Statistical Office of the Austrian part of the monarchy—and from the royalties he received for editing a book (Brachelli 1907) on the statistics of Europe (Bartley interviews, Feb 11, 1983). Its author, Hugo Brachelli, was a colleague from the statistical office and incidentally the father of the first wife of Ludwig Reitz, who was to become the second husband of Beate von Juraschek.

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the siege of the fortress Arad, located in present-day Romania. His son, also named Franz, studied law and philosophy in Graz, where he met and married Johanna Theresa Stallner, a wealthy “lady of Graz society,” in 1873.7 Felicitas was born to them on March 13, 1875, and Beatrix (Beata or Beate) followed on July 20, 1876. Meanwhile Franz had acquired his venia legendi (right to teach) in Graz in 1875 in constitutional law, to be followed later by one in statistics, and began an academic career. All that unraveled when his wife gave birth to twins in October 1879. One of the twin daughters was stillborn, and Johanna herself died from complications less than a month later—we will see that during this period, even among the upper classes, childbirth and the period directly following were often dangerous for both mother and child. Franz and his three daughters, Felicitas (aged 4½), Beata (3½), and the infant Ida moved in with the mother of Johanna, Johanna Christine Stallner. The children spent the next few years there, looked after by their grandmother while their father pursued his academic career at Czernowitz. When he moved next to a position at Innsbruck, his sister Helene watched over them. It was at Innsbruck that Franz met the Austrian economist Eugen Böhm von Bawerk, with whom he would occasionally go mountain-climbing. At some point Franz Juraschek met Ida Pokorny, who ultimately became his second wife. Her father, the botanist Alois Pokorny, was the first director of the Sperl Gymnasium, one of those with a majority of Jewish pupils, and, like Gustav von Hayek, he taught biology and became a lecturer at the University in Vienna. Franz and Ida wed on May 24, 1885, in the Vienna Votivkirche. A notable witness at their marriage was the Vienna professor of geology Eduard Suess (1831–1914), a former pupil of the Sperl Gymnasium. An outstanding figure in science as well as in public life and politics, his election as the rector of the University of Vienna three years later would, owing to his Jewish descent, cause violent student riots that led to his resigning prematurely. The happy couple with Franz’s children from his first marriage, whom Ida treated as her own, remained in Innsbruck, and that summer Franz was appointed to an ordinary professor chair at the university there.8 Everything seemed at last back on track. It would not last. 7. As noted in Caldwell and Klausinger 2021a, Johanna was the link to the Wittgenstein family. Her father’s sister, Marie Stallner, married Jakob Kalmus. Jakob and Marie’s daughter Leopoldine (Poldi) married Karl Wittgenstein and was the mother of Ludwig. 8. The terms “extraordinary professor” and “ordinary professor” in contemporaneous Austrian universities roughly corresponded to “associate professor” and “full professor” in Anglo-Saxon usage. At the time extraordinary professors were noto-

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Not two months after their marriage Franz’s daughter Ida, who had not yet celebrated her sixth birthday, died suddenly while on summer vacation at the Villa Stallner in Hochenegg, near Cilli (then part of the province of Styria, now in Slovenia). The next year Franz’s wife became pregnant with twin boys, Johann and Rudolf. She gave birth on December 27, 1886, and Johann did not survive the day. This tragedy may also have contributed to the death of Ida Pokorny’s father, Alois, who was visiting the couple for Christmas and had a stroke; in any event, he died two days later. But this was not all: the second twin died about a month later. These events were doubtless contributing causes of the family’s departure from Innsbruck for Vienna in 1887, where they settled into a magnificent ten-room top floor flat in the first district, across from the Opera where the Ringstraße and Kärntner Straße meet. The family would live there until 1910 and have three children of their own, Felicitas’s half-sisters Margarete and Gertrud and half-brother Franz. Though not much is known about the youth of Felicitas von Juraschek, we do know that her education was the typical one bestowed on girls from upper-class families, that of a MädchenLyzeum, an extended form of secondary school. In any event, with the move to Vienna the family tragedies were finally at an end, and in true fin-de-siècle style, they were replaced by merriment. The Juraschek home became famous for dancing parties (or “jours”) that were regularly arranged there for almost two decades. “My maternal grandfather . . . used, as it was the practice, to give for the daughters of his two wives dancing parties . . . Other professors’ daughters and promising young academics were the main participants. As a result, a number of later professors were her early dancing partners and remained friends of the family well known to me . . . I don’t know how my father, then a young doctor, got into this circle; but in consequence, even before he himself became a Privatdozent for botany, his friends were also largely university people in a great variety of subjects” (IB 3). August and Felicitas, Fritz’s parents, met at these dancing events at the Juraschek home, and although they were always under the watchful eyes of her parents, they agreed to get married, at first keeping it a secret from Felicitas’s parents because of fear that they would not approve her marrying someone from a less well-to-do family (EHH). The wedding took place on a Tuesday in May, a strange day of the week for a wedding, until one realizes that the date (May 24) and location for the ceremony duplicated that of Felicitas’s father’s marriage to Ida Pokorny riously ill-paid. The position of extraordinary professor must be distinguished from the mere title that was just honorary and regularly conferred on lecturers after a few years of teaching.

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thirteen years earlier. Slightly less than a year later, on May 8, 1899, their first child, Friedrich August Edler von Hayek, was born. According to the entry in the parish register of St. Rochus in Landstraße, the birth took place, as was common at the time, in the presence of a midwife in a room in their flat in the Messenhausergasse at the corner of Landstraßer Hauptstraße.9 He was—to their great delight—the first grandchild born to both grandparents. Friedrich was baptized almost a month later with his greatgrandparents August and Sidonie Mayerhofer acting as godparents. His mother immediately bestowed on her son the nickname of Fritz, an act he always resented: “there are few Christian names which I like less than my own . . . it reminds me too much of the Fritz, the Prussian emperor” (Hayek 1983a, 397). Using the familiar Austrian diminutive of Fritzerl, Felicitas kept track of the first year of his life in a fictitious diary, “Fritzerls Tagebuch,” written by her but from her son’s perspective.10 At 4,030 grams (8 pounds, 14 ounces) and 55 centimeters (21½ inches) he was a big newborn, and he kept growing: by the end of the year Fritzerl’s weight had increased to 10 kilograms (22 pounds). Fortunately, in the first months he was spared the usual diseases that for so many proved fatal. “Fritzerls Tagebuch” records family gatherings, gifts received, and other minutia of daily life, as well as more important events like the arrival of Fritz’s brother Heinz in October 1900. The diary ends—somewhat abruptly, so possibly some part of it is missing—with Christmas 1900. Perhaps with two children the idea of a diary just for Fritzerl made less sense. The diary does provide some insights into the rhythms of their family life. In the two years covered, 1899/1900, Fritz and his mother, accompanied part of the time by August, spent their summers mostly with Felicitas’s relatives in Hochenegg. There they were welcomed by great-grandmother Johanna Stallner and by a host of uncles and aunts.11 There were also excursions to the Styrian resort of Gaishorn, later a favorite location for them to spend the summer holidays, and regular visits, during spring and fall, to the Jurascheks’ small summer house in Neuwaldegg on the outskirts of Vienna. Fritz was presented early on to various family friends, including the Magg family with their son Walter, who was slightly older than Fritz, and also the distantly related Eisenmenger-Bitterlich family. There he met 9. See the register of 1899, 51, no. 151. 10. The “Tagebuch” may be found in FAHP 171. 11. Hayek would later recount that he felt “burdened by old grandaunts” and that the one person whom he knew best among the Stallner relatives was his granduncle Moritz Stallner, “a typical country gentleman,” who had represented Cilli at the Styrian Diet (Bartley interviews, Feb 9, 1983; Hayek erroneously speaks of him representing the “Salzburg Diet”).

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“great-aunt” Lisi (Elisabeth) Fleischhacker, her daughters (Lilli Eisenmenger and Grete Bitterlich), and their respective daughters (Gerterl and Lieserl). In September 1900, Grete gave birth to Helene (Lenerl) Bitterlich, who was to become a frequent companion in Fritz’s youth and, eventually, his second wife. Given that Hayek as an adult often referred to Lenerl simply as his cousin, it should be emphasized that she was a very distant cousin, indeed, one of the third degree, that is, she and Fritz shared one pair of great-greatgrandparents. The common ancestor was one Anton Groppenberger (1761– 1831), ennobled with the predicate “von Bergenstamm,” and the Hayek and Bitterlich families derived from two of his daughters, Sidonie and Wilhelmine, respectively. Sidonie married a Mayerhofer and was the one great-grandmother present at Fritz’s baptism in 1899. From Wilhelmine the line of ancestry would run through her daughter Elisabeth, who married a Fleischhacker, and their daughter Margarete, who married Friedrich Bitterlich, an officer of the Austrian army, and these were Lenerl’s parents. The Bitterlich family was prominent in Vienna’s artistic circles. Friedrich’s father Eduard and his brother Hans Bitterlich, as well as Eduard’s brother-in-law August Eisenmenger, contributed to Vienna’s Ringstraße architecture, as both painters and sculptors. Fritz (and perhaps as important, Lenerl) would have been reminded of this often, just living in Vienna. For example, on a walk through the inner city through the famous Volksgarten, a public park, one would encounter the monument of Empress Elisabeth, created by Lenerl’s uncle Hans Bitterlich in 1907. Fritz’s birth year of 1899 marked the fifty-first anniversary of Emperor Franz Joseph’s accession to the throne of the Austro-Hungarian Empire. Just one year had passed since the assassination of his wife, Empress Elisabeth. Franz Fürst von Thun und Hohenstein was the prime minister of a short-lived cabinet that struggled, like those before and after, with the appeasement of both German and Czech nationalist forces. The City of Vienna was overseen by Karl Lueger in his third year as mayor, a position he had eventually won in 1897, finally overcoming the emperor’s delays and resistance. Viennese cultural life had just experienced, in 1896, the foundation of a new art association, dubbed the Secession because of its break from the conservative Künstlerhaus; the Burgtheater, Vienna’s first theater, was under the unremarkable direction of Paul Schlenther; and in June 1899 the composer Johann Strauß, the “Waltz King,” died. In these and other respects Fritz Hayek was very much born into fin-desiècle Vienna, the final stage of a golden age of security that foreshadowed the desperate impasse into which the conflicts within and outside the mon-

A Fin-de-Siècle Wedding 29

archy would evolve slowly, but inevitably.12 All this is evident in retrospect. Equally evidently, the young Fritz Hayek would not have had any idea of it. More important for him was the daily routine of family life, which itself was dominated, as we will see, by the scientific interests of his father. We will see too that the Hayeks were part of several overlapping circles, consisting of relatives, friends, and colleagues, an academic and scientific elite within Vienna. As Herbert Furth would later put it, “‘everybody’ in Vienna’s small intellectual ‘elite’ knew ‘everybody’ else” (Furth to Gottfried Haberler, May 11, 1984).

12. For more on fin-de-siècle Vienna, see Zweig 2009 [1943], Janik and Toulmin 1973, Morton 1979, Schorske 1981, and Beller, ed. 2001. For recent revisionist interpretations that soften the notion of the inevitability of the Austrian monarchy’s decline, see Rumpler 2005, Judson 2016, and Beller 2018.

·2· Family Life

August’s Passions and Unfulfilled Ambitions Like many nineteenth-century cities, Vienna was not a particularly healthy place to live. As late as 1867 a quarter of all deaths were caused by the “Morbus Viennensis,” the name attached to tuberculosis (see Junker 1998, 31– 40), and as we have seen, even among the moderately wealthy the risk of mortality at birth was high for both mothers and infants. An important step in trying to improve public health was the establishment in 1889 of compulsory health insurance, or CHI. In his own medical work, after briefly trying to establish a private practice, August decided to combine a more modestly paid CHI general practice with a position in the City of Vienna’s health office. At the time this office employed both municipal physicians and, at a higher level, district physicians. The former’s tasks were mainly to provide medical services for the poor and to perform postmortem examinations, the latter’s included carrying out various health examinations. August’s career at the health office advanced steadily. He began working in the third district, was raised to the position of senior physician in 1903, and in 1905 was assigned as a district physician to the fourth, and four years later to the fifth district. In 1913 he was made a senior district physician, and eventually in 1924, two years before his retirement, moved to a position in the central organization with the title of “Physikatsrat.” Besides his work August also spent time representing the interests of physicians as a member of the board of the semipublic Vienna Chamber of Physicians and as vice president of the Verein deutscher Ärzte (Association of German Physicians)—more about which below. District physicians were required to have their residence in the district to which they were assigned, so August’s promotions meant that the family had to move several times. Their first move was an improvement: in 1905 they left the rather nondescript location of Messenhausergasse 3 in the third district, where the Landstraße neighborhood started to give way to the slum-like quarter of Alt-Erdberg (Achleitner 1980–, 3: 113–14),

Family Life 31

for the fourth district and Kolschitzkygasse 23, located in an area near the Drasche Park. (The house at Kolschitzkygasse was destroyed during World War II.) When August was again reassigned in 1908, the family moved to Kleine Neugasse 7, in the fifth district, Margareten, a district with a distinctly lower reputation, basically an almost homogeneously working-class neighborhood (3: 163). The family was once more forced to move in winter 1914, this time because, as a result of his careless handling of petrol drums in the garage, August was given notice by the owner of the house. The flat they found in Margaretenstraße 82, not far from the former residence, was at first considered a temporary solution, but the onset of war and its aftermath made moving from it impossible. Though it was a rather large flat of about two thousand square feet, the living conditions were nevertheless crowded because part of it was used as an office for August’s s practice. Fritz’s mother stayed there well into the 1930s (IB 18).1 Yet, as his son later recounted, “as soon as the earning of some extra money had ceased to be a matter of great urgency, my father seems to have given up all serious attempts to build up a private practice, and, content to rise gradually in the hierarchy of the M. O. H. [Vienna health office], devoted all his spare time to his beloved botany” (AF 1). That August’s passion was not the practice of medicine, the field that earned him his living, but other scientific pursuits, mimicked both the temperament and the behavior of his own schoolteacher father, Gustav, though Gustav also provided a cautionary tale for his son. After retirement Gustav’s income had been reduced to a third of his former earnings, which necessitated his move from the third district to a much smaller and cheaper flat in Mostgasse 6 (EHH). To supplement his modest pension, Gustav would work late into the night writing popular science articles, which required him to consume enormous amounts of strong black coffee. This habit was blamed for his later bad health—by the time he came to know him, he seemed to the young Fritz a “mental and physical wreck” (IB 9)—and to avoid a similar fate August would take an ice cold shower every morning. Better to shock the system into alertness with icy water than with caffeine seems to have been his reasoning. The financial conditions of the Hayek family put them at best on the fringe of the upper middle class—in particular in comparison to the situation of the Juraschek family and also to that of earlier generations of 1. The third and fourth districts both border the first district, which comprises the inner city. Though the character of neighborhoods can often change within a few blocks, it still should be noted that the flats in the fourth and fifth districts that Fritz would have remembered were all within a half mile of each other.

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Hayeks. Indeed, “The households of my parents, and even more so that of my paternal . . . grandparents were endeavors to keep up a standard which they could not really afford” (IB 7). One sees evidence for these claims in the modest residences in which they lived. That said, conditions were never dire. Although Felicitas did some household work, making outfits for the children and mending their clothes, they also retained two servants in the home, usually a cook and a housemaid. Of course at the time the employment of servants was neither an aristocratic privilege nor an indicator of superior wealth. As noted in other sources—e.g., the biographical account of the family of one of Fritz’s future friends, the Jewish lawyer Max Mintz (Perloff 2004, 94–95)—this was normal for upper-middle-class households. August’s love of botany fed an aspiration that would go unfilled, to gain a chair at the university.2 Immediately after receiving his doctorate in medicine, he began studies at the Faculty of Philosophy of the University of Vienna, finishing in 1901 a doctoral thesis on plant geography supervised by professors Richard von Wettstein and Julius von Wiesner. In 1906 he acquired admission to lectureship (Habilitation) for the field from the University of Vienna, which was extended in 1912 to systematic botany. After having obtained in 1922 a lectureship on plant geography from the Vienna Hochschule für Bodenkultur (now the University of Natural Resources and Life Sciences), he started teaching there, too. He became active in the Zoologisch-Botanische Gesellschaft or ZBG (Zoological and Botanical Society) and the Naturwissenschaftlicher Verein der Universität Wien (Scientific Association of the University of Vienna), and hosted informal meetings of botanists in his home. The University of Vienna awarded August the title of extraordinary professor (außerordentlicher Professor) in 1916, and eventually in 1926 appointed him to an extraordinary chair. Yet this honor turned into a “big disappointment” (EHH) when the ministry refused to grant him any remuneration, so that in the end his position remained an unpaid one (that is, save for the fees paid by the students who took his courses). Fritz’s father’s passion for science and botany, and his frustrated academic ambitions, both left their mark on his family. All three of his sons would become professors, two of them in the natural sciences (anatomy and chemistry). Ever the outlier, Fritz would study society.

2. On August von Hayek’s scientific career see Vierhapper 1929, K. v. Fritsch 1929, and the documents at the Archive of the University of Vienna, AUW, PH RA 1801 (doctoral exam file), and AUW, Senat S 394.455 (personal file).

Family Life 33

Family Life The family soon grew. Heinrich (always called Heinz) was born on October 29, 1900, and Erich on July 9, 1904. There was always a distance, and this starting from an early age, between Fritz and his younger siblings. Fritz was a precocious child. One of his earliest memories was of sitting in his parents’ bed, listening while his father read to his mother articles from popular scientific monthlies: “accounts of polar and African exploration (I believe from Brehm,3 of which I later became an avid reader) and the beginning of flying and other technological advances” (IB 9). He learned to read even before he started school and remembered first realizing the fact when he was able to decipher words on the torn-up newspapers that households would use for toilet paper. It appears, too, that his mother, in particular, doted on him, or as he later bluntly put it in a private conversation, she loved him more than his brothers (Cubitt 2006, 50). The result was that in social gatherings where adults were present Fritz preferred their company to that of Heinz and Erich: “although my brothers were one and a half and five years my junior, the division was always between the eldest and the two younger ones” (IB 6).4 Hayek stated his memory of his parents’ relationship simply and directly: “My parents were exceedingly well suited to each other and their married life appeared, not only to me, one of unclouded happiness” (AF 1). There is little reason to doubt this account. Felicitas was a devoted wife, and she also loved to be outdoors, a true Naturfreundin.5 She fully supported her husband in his scientific ambitions and interests and clearly enjoyed accompanying him on his scientific expeditions to identify and collect plant species, more of which soon. In his remembrances Erich cited from the address to his wife by which August introduced his last will and testament (written in 1921): “Before I make my disposition about the little that I possess, I feel compelled to thank the good angel of my life, my dear wife, for all she has been for me. She was the sun of my life, at her side I experienced the happiest hours of my life, and she ever faithfully stood by me, in good and bad times.” The frequent moving, the districts in which they lived, and the cultural 3. Brehms Tierleben was a best-selling zoological encyclopedia. 4. One sees this too in family correspondence. Fritz’s mother, Felicitas, and, as we will see below, even occasionally his first wife, Hella, when referring to Heinz and Erich, would call them “the boys.” 5. “She was an enthusiastic Naturfreundin and was particularly happy to go on the botanical excursions, and also to attend the Nachsitzungen [private meetings] after lectures in the zoological-botanical society” (EHH; cf. IB 4).

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habits of his class at the time explain why virtually all of Fritz’s childhood memories revolve around family members and events. He had very different impressions of his two paternal grandparents, Sidonie and Gustav, who lived nearby at Mostgasse 6 when Fritz was aged nine through fifteen. By then Gustav was suffering from arteriosclerosis: “The picture of my grandfather I have preserved is rather one of fear of the invalid, delicately cared for by my grandmother, by the barrack-room language reemerging from his navy days, with which he would suddenly demand opportunity to satisfy his physical needs, yet a figure treated with reverence by my parents” (IB 9). His wife, Sidonie, on the other hand “was a very vivacious and for her generation unusually educated woman . . . [who] seems to have entirely lived for her family and to have kept close contacts with a wide circle of relations [and] friends” (FH). Gustav was to die in 1911, but Sidonie lived on to the ripe old age of eighty-two, finally expiring in 1927, only one year before her son August. As for his mother’s family, Fritz of course never knew Felicitas’s mother, who had died when Felicitas was a child. He seldom mentioned his greatgrandmother Johanna Stallner, though he would have known her, as she died in March 1909. Franz von Juraschek and his second wife, Ida, were another story, of course. One of Fritz’s fondest childhood memories was of the regular family gatherings in the Juraschek flat, a place that Fritz thought of as a second home. These festive events took place at least every other Sunday and included a large number of people. Fritz would also enjoy extended stays there when his parents were traveling. Ida was remembered particularly fondly: she was later described as “the wisest woman, the most admired woman in the family, who really devoted herself to good work of one kind or another,” particularly looking after the grandchildren (Bartley interviews, Nov  4, 1983; AF 3). We should perhaps pause here to note that Hayek’s reminiscences of his family life, and particularly of the roles played by his mother, grandmother Sidonie, and step-grandmother Ida, uniformly fit into a rather traditional and perhaps idealized mold. All three women seemed quite happy to sacrifice any interests of their own and to put the well-being of their spouses and families above everything else. Whether this was the idyllic view of a child that was carried into adulthood as a memory, a true-to-life description, or a later reconstruction of the way that he thought things should be we cannot know. But the image seems to have provided a model for him of what he considered “proper” wifely behavior. There is some irony here, as this seems well to describe the behavior of his first wife, Hella, but much less that of the person he divorced her for, Helene. It should be noted that, for

Family Life 35

what it is worth, some of the above reminiscences took place after he had divorced Hella and married Helene, so perhaps there was also an element of wistfulness in his characterizations. Christmas was a special time of year for the family to gather at the Juraschek flat. One of the earliest writings of Fritz that were preserved was his 1907 letter to the “Christ Child in heaven” which comprised his Christmas wish list: Dear Christ Child! Please bring two tin soldiers, dragoon and artillery, a Matador wooden model kit, a map jigsaw puzzle of Europe, and three books, that is, an atlas, a book on plants, and a volume by Karl May. Fritz.6

The Juraschek home was also perfectly located for viewing such public events as the parades that accompanied the celebrations of Emperor Franz Joseph’s fiftieth crown jubilee in 1908 and of his eightieth birthday in 1910 (IB 7). Franz von Juraschek’s death in January 1910 had obvious dismal consequences. Franz was not very old when he died: it was less than a year before that the entire family—the three Hayek boys were in matching sailor suits, sewn by their mother—sat for a formal portrait to celebrate his sixtieth birthday (IB 22). But not long afterward the intimate family gatherings in the splendid setting of the Juraschek home came to an end. In 1911 the building that housed the Juraschek flat was demolished and replaced by Hotel Bristol, which sits there today. The widow Ida eventually moved with her son Franz and stepdaughter Beate to a residence in Josefstädter Straße in the eighth district, where she stayed for the rest of her life. Fritz also remembered interactions with more distant relatives, especially (given their prominence, both then and now) those with members of the Wittgenstein dynasty. Apparently the most intimate relationship was that between Fritz’s mother and her second cousin and eldest Wittgenstein sibling, Hermine (whom they called “Aunt Mining”). Among the Wittgensteins Hayek remembers her as the only really familiar figure and as a frequent visitor to the Hayek home, at least until the mid-1920s (see Hayek 1992a [1977a], 178; Hayek to Wilhelm Baum, Jan 29, 1984; Bartley interviews, Feb 28, 1984). Other encounters were more fleeting, and provide images of the substantial differences in wealth that separated the two families. Fritz met 6. FAHP 174.10. Karl May (1842–1912) was a German writer of best-selling adventure novels.

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“Aunt Kalmus” (Marie Kalmus, née Stallner, the grandmother of Ludwig and the sister of Fritz’s maternal great-grandfather) when his mother took him, still a preschool child, “to the luxurious apartment of an extremely old lady” (Hayek 1992a [1977a], 177), and he remembered her less “as a person but for the not before seen splendor of her dwelling” (IB 5). At the age of six Fritz also made the acquaintance of Ludwig’s mother, Leopoldine Wittgenstein (“Aunt Poldi”): “For many years the name meant to me chiefly the kind old lady who . . . had taken me for my first car ride—in an open electromobile round the Ringstraße” (Hayek 1992a [1977a], 177). The memorable experience took place because Fritz’s school at the time was directly across from the Palais Wittgenstein, itself located at Alleegasse (now Argentinierstraße) 16 (see Janik and Veigl 1998, 1–7). He was waiting for his mother to pick him up after school, and apparently Aunt Poldi recognized him and tendered the invitation. The car was an electric Morgan, and Fritz got to sit next to the chauffeur (Bartley interviews, Feb 9, 1983). More regular contacts between the two families may also have arisen from the coincidence that the Swiss cottage of the Juraschek grandparents in the Vienna suburb of Neuwaldegg adjoined the park of the Wittgenstein summer palace.7 The Wittgensteins’ main residence, located behind Vienna’s Karlskirche, was also in the Hayek family’s orbit. Indeed, “before 1914 I had heard much of (though being too young to attend) their famous musical soirees at the ‘Palais Wittgenstein,’ which ceased to be a social center after 1914” (IB 16). Even as late as 1930 Hayek’s wife Hella could report to him that “the boys” (meaning Heinz and Erich Hayek) had been invited to a ball at the Palais (Hella to Fritz, Mar 3, 1930). In Vienna’s second society there were plenty of overlapping circles, a vast network indeed, and those who wish to explore the full extent of the Hayek family’s web of interactions may consult the appendix to this chapter (Caldwell and Klausinger 2021b). But one of the closest friendships that will be mentioned here was with the Magg family. Felicitas had attended school at the Mädchen-Lyzeum with Helene (“Nelly”) von Hohenbruck. They graduated from the same class in 1891 and remained lifelong friends. In 1896 Nelly married the lawyer Gustav Magg, and their second child, Walter, born in 1897 and hence two years Fritz’s senior, would become Fritz’s closest boyhood friend. Fritz was an athletic child, participating in a wide range of sporting activities. As a young boy he enjoyed tennis, social dancing, and ice-skating— 7. The Wittgenstein Palais was located at Neuwaldegger Straße 38 (Janik and Veigl 1998, 166–70), and the Juraschek cottage at Geroldgasse 2, both in the seventeenth district.

Family Life 37

these were also occasions for meeting other members of the Vienna elite8—and during school football (soccer). His favorites, though, were mountaineering and skiing, activities he would continue to enjoy through much of his adult life (IB 56). His companions for these outings that took place throughout his childhood and youth were his brothers, schoolmates like the Magg brothers, and, for dancing, some distantly related peers, e.g., Gertie Eisenmenger and at times Helene (Lenerl) and Elisabeth (Lieserl) Bitterlich.

August’s Influence Within the nuclear family, August’s influence and interests were a dominant force, at least while the boys were young. Nearly every day after he finished his medical duties August would go either to the botanical institute or to the zoological-botanical society, to work in the plant collections there or in the library. After he got home and the family had had dinner, the usual routine, as Erich recounted, was for him to read to them all: “After dinner Papa often read to us: Goethe, Schiller, Grillparzer, Shakespeare, but also more modern stuff like e.g. Wildgans. Our literary interests were supplemented by a subscription to seats in the Burgtheater . . . Thus we youngsters relatively often visited the Burgtheater. Music was cultivated to a lesser extent, we had our piano lessons, but due to lack of success—possibly because of insufficient practicing—they were gradually abandoned” (EHH; cf. IB 13).9 The after-dinner sessions also impressed Fritz, who recalled, “mainly literary readings (or recitations: my father had an extraordinary memory and could quote from a long epic like Schiller’s ‘Lied von der Glocke’ [Song of the Bell] from memory): poems and plays, chiefly of the German classics read to us at the dinner table until we had to go to bed. I believe this went on into the war . . . though the justified suspicion that we had not yet done our homework for school more and more prevented it” (IB 8; cf. Bartley interviews, Feb 11, 1983). From these reminiscences it is clear that within the ethnic distinctions that were so prominent in the late Austro-Hungarian 8. “In Vienna a very important thing was skating. All through the winter. The Eislaufverein was a sort of meeting place; it was an expensive club, in a way; an upper class affair. So much so that my parents found it advisable to become members only relatively late. I went from early skating efforts developed at the local cheap places, and then it was clear that if one wanted to be in society, one had to go to the Eislaufverein.” Bartley interviews, Feb 11, 1983. 9. Now mostly fallen into oblivion, Anton Wildgans (1881–1932) was a well-known contemporary author and 1921/22 and 1930/31 the director of the Vienna Burgtheater.

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monarchy, the Hayek household identified firmly with the German literary and cultural tradition. Owing to this early influence, in his teens Fritz became an avid reader of German literature, becoming a “great Goethe fan” and remaining one for the rest of his life (Hayek 1983a, 48–49). Indeed, “An India paper edition of his works was the first and (though, alas, incomplete) . . . expensive book acquisition, and its volume containing the various versions of Faust accompanied me as the only book in my map-bag throughout the war” (IB 18). Sunday hiking excursions into the Vienna woods were regular features in spring and summer when the weather was good, and a time for further instruction, as the family set about identifying and collecting plants, minerals, and insects (AF 3). As Hayek later admitted, his father was “an extraordinarily educated man who gave us boys a kind of education which I certainly did not pass on to my children” (IB 8). We will see that the contrast between the father’s and the son’s parenting styles alluded to here is, if anything, a bit understated, though it also may be that August was compensating for the rather narrow and uninspiring education provided by the Austrian school system. The Sunday nature walks sometimes caused friction with school authorities, who had a semicompulsory requirement that pupils attend mass. Fritz’s parents “held no religious beliefs” and never took him to church (though Sidonie von Hayek apparently occasionally “made a few efforts in that direction,” AF 3).10 He described his family’s commitments by noting that he had “a grandfather who’s an enthusiastic Darwinian; a father who is also a biologist; a maternal grandfather who evidently only believed in statistics, though he never spoke about it; and one grandmother who was very devoted to the ceremonial [aspects] of the Catholic church but was evidently not really interested in the purely literal aspect of it” (Hayek 1983a, 20; in order of appearance these were Gustav and August von Hayek, Franz von Juraschek, and Sidonie von Hayek). Fritz’s children’s Bible “disappeared mysteriously, when I got too much interested in it,” and apart from a short period between ten and twelve he never developed strong religious feelings. Indeed, “By the age of fifteen I had convinced myself that nobody could give me a meaningful explanation of what he meant by the word ‘god’ and that it was therefore as meaningless to assert a belief as a disbelief in God” (AF 3). 10. In both Hayek, AF, 3, and in the Bartley interviews, Nov 4, 1983, Hayek says it was his “maternal grandmother” who was devoted to the ceremonial aspects of church. But in the extended discussion in the Bartley interview it is clear that the person he was talking about was his paternal grandmother, Sidonie.

Family Life 39

One of the most important, and remembered, parts of Fritz’s childhood was his family’s annual summer vacations, always spent in the countryside. These took place from the time of Fritz’s birth to the outbreak of war and combined both recreational and scientific (usually botanical) activities. At the time, it was typical for moderately well-to-do households to spend most of the summer at some resort in the countryside, and even to move part of their household there. Within its financial constraints that was also the Hayeks’ practice: “at least after I went to school, mother went away with us boys for the whole two months of school vacation, taking one servant and all the necessary equipment (sent by rail freight) with her, to keep house in some rented rooms or apartment, while I suppose the cook looked after father—who could join us only for three or four weeks” (IB 5). Up to 1914, with the occasional exception of a visit to friends or family, the Maggs in Miesenbach or the Stallner home in Hochenegg, their favored summer vacation spots were all in Styria, the crownland located directly to the south of Lower Austria (and Vienna), and in particular in the Styrian part of the Enns valley: Öblarn, Gaishorn, and for a long time the favorite destination of Schladming, at the foot of the Dachstein mountain. All of these places were within a distance of some thirty miles from each other. The choice of location accommodated all of the family members’ preferences: It permitted August to pursue his explorations of the Styrian flora while at the same time offering opportunities for leisure activities like swimming, hiking, and mountaineering.11 The parents (Felicitas even more than August, given her own father’s Innsbruck experiences with Böhm-Bawerk) and all the sons were enthusiastic climbers so must have found very attractive the mountains in the vicinity of Schladming. For Fritz “the high point” of these vacations was “the three years (1908– 10) when we lived in a farm house half an hour up on the southern slope of the valley, the ‘Spreizenberger,’ then accessible only by oxcart and, though adapted for summer visitors, agriculturally still a pretty primitive and almost self-supporting peasant’s farm to which the cobbler and other craftsmen came once or twice a year . . . for some days’ work, while the inhabitants visited the village [Schladming] (really an old mining ‘town’) only on Sundays” (IB 10). It was there on an earlier occasion that Fritz remembered “at a little more than four years of age” following in the footsteps of his father by collecting and pressing flowers (IB 6). Erich’s reminiscences of the 11. In August von Hayek’s (1908–56) magnum opus on the flora of Styria one not only finds the destinations where the family spent their summers, it also attributes the discovery of a plant near Hochenegg to “F. v. Hayek” (vol. 1, 1908–11, 1063), that is, to Felicitas.

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Spreizenberger farm were less idyllic: A wound from a children’s game led to severe blood poisoning that caused the family to fear for his life (EHH). The trips to the mountains helped reinforce Fritz’s already developing independent streak. It was there one winter around 1910 that he and Heinz first took up skiing, at the time a new sport, and something his parents never did. Cross-country skiing was well known in Scandinavia, of course, but around the turn of the century people began to try downhill skiing in places in Switzerland and Austria. Like most people at the time, Fritz was self-taught (“you bought a book and went out onto the slope and tried according to the book to ski”), and once he had mastered the sport he, and then he and Heinz, would go on skiing adventures, off on their own at a relatively young age. By the time they were young adults all three brothers were accomplished skiers and ski mountaineers (Bartley interviews, Feb 11, 1983). The usual pattern for the summer months changed in the second decade of the century. Of course the onset of war, and afterward the lingering postwar misery, took its toll. But another perhaps even more important event occurred in 1910 when August, on a solo excursion to the Sanntaler Alpen in Lower Styria, contracted a foot infection that led to blood poisoning that nearly killed him (IB 17). In any event 1911 was the last time the family spent the whole summer in Schladming; afterward vacations were mostly spent in some parts of the Salzkammergut or in Tyrol. During the war years, 1916 was the only time that Fritz spent the summer holidays with his parents. After the war, there were only brief excursions together, in 1919, 1921, and 1922. This evidently marked the end of other activities jointly undertaken with his father; indeed, Hayek would later say that age fifteen or sixteen marked his point of “quasi-independence” from August (IB 25; Bartley interviews, Feb 11, 1983).

Fritz’s Home Schooling, Mostly in Science Fritz’s scientific education extended beyond the summer adventures in the mountains as a child. His father’s preoccupation with botany brought Fritz into contact very early on with the world of science in general. From an early age he began collecting not only plants, but also insects and minerals.12 When he got older he helped his father care for a remarkably large 12. “I was brought up collecting things. Not only plants. Insects. Minerals. Our apartment was of course practically swamped by my father’s and my herbarium; what little space there was was taken up by our collections of insects, minerals, and similar things, in which he trained us.” Bartley interviews, Feb 11, 1983; cf. AF 6.

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private herbarium and indeed in time developed his own. He also helped to organize his father’s collection of rare specimens of pressed plants. When Fritz reached about age thirteen, August began to bring him along to lectures at the Zoologisch-Botanische Gesellschaft, or ZBG (IB 13). These outings, and even more so the private meetings of botanists, the “floristischen Zusammenkünfte” (Vierhapper 1929, 138), taking place from 1913 at the Hayek home every other Thursday, introduced Fritz to the groups of scientists in his father’s ambit. At the age of fourteen Fritz began to support his father’s work further by acting as a photographic assistant. In the family keepsakes there still exists a scrapbook from 1914/16 created by Fritz containing photographs of various plants, mainly taken while on excursions to the Vienna woods and Schladming. Fritz’s development also mirrored to some extent his father’s transition from a focus on taxonomy to plant geography, even leading him later to claim that his father’s “exploration of how plant, animal, geological and climatic circumstances combined to determine the flora of a region has probably had a lasting influence on my thinking” (IB 14). Also at the age of fourteen or so, Fritz’s scientific interests gradually began to extend beyond botany. The first detour led him to paleontology. It happened more or less by accident, when Fritz heard lectures at the ZBG presented by the family’s close friend Othenio Abel, who at the time was himself just turning from botany to paleobiology (IB 15, 18–19; see also Svojtka 2011). This, though, proved only a transitory stage. Abel in a lecture on the evolution of the horse also convinced Fritz, once and for all, of the validity of Darwinian theory. Fritz also discovered and gained a growing appreciation for the work of Gregor Mendel through the lectures at the ZBG by Mendel’s biographer Hugo Iltis (IB 16, 18–19). Thus the ground had been prepared when August introduced his son to the theory of evolution by putting into his hands “the two heavy volumes of DeVries” (AF 6–7).13 But these readings were just beyond his grasp. Had it occurred a little bit later, he might have stayed with biology and not turned to the study of social phenomena: “The subject has retained for me an unceasing fascination and work in that field would probably have satisfied an inclination I had towards the patient search for significant facts . . . for which I had to find an outlet in occasional dabbling in biographical, genealogical and similar amusements” (AF 6–7). We will see that some of his “biographical amusements” turned out to be quite fruitful.

13. In another version it was Weismann’s Deszendenztheorie (Hayek 1983a, 21–22). See De Vries 1901/1903 and Weismann 1902.

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It was not always just science. Around age fifteen Fritz began expanding his reading interests. Having already digested Schiller, Goethe, and Shakespeare (in the German translation by Schlegel and Tieck), he turned to some of the Spanish and French dramatists of the seventeenth and eighteenth centuries, ancient Greek tragedies, and more modern authors like Henrik Ibsen. It was at this same time that he developed his lifelong interest in the theater. The latter afforded him yet another outlet for his passion for collecting. He saw his first play, Wilhelm Tell, at the Vienna Burgtheater on June 24, 1911. He mounted the announcement from the newspaper, complete with cast members, on a sheet of paper. He continued his record-keeping in subsequent years. When he did not have the announcement from the newspaper to mount, he wrote out in longhand the title and date of the performance, as well as who played each of the main roles. In 1915 he saw fifteen plays. The number increased to forty-one in 1916 and was supplemented with seven concerts, one of them in December 1916 featuring Paul Wittgenstein. Fritz continued to go to the theater right up to the time he left for the Italian front, and his habit of keeping theater and concert programs never ended. His collection would grow into the hundreds as he moved from Vienna to London to Cambridge to Chicago.14 Not too surprisingly, Fritz also made a juvenile attempt to write tragedies himself, drawing on “rather violent and more or less erotic historical themes” (AF 7; Hayek 1994, 37–38; IB 23), the most important of which was about Andromache, the widow of Hector and slave of Achilles’s son.15 In later years he recognized that his efforts were connected with the gradual appearance of sexual feelings. There is one which occupied me most, for quite a long time; was a play about Andromache. With all the implications, very obscure, and only half understood. But ending in a magnificent scene—which indeed would be theatrically very effective—Andromache is the slave of Achilles’s son, wandering out from the castle onto the sea, onto a rock extending out in the sea, and the sun rises and she runs up to the sun, “It’s you, it’s you, my Hector.” 14. See FAHP 199 for Hayek’s collection of theater programs. His lifelong devotion to the theater only slowly came to an end when hearing problems interfered with his ability to understand the actors’ lines. 15. The Austrian novelist Robert Musil (in The Confusions of Young Törless, 2014 [1906], 11) wrote of gymnasium pupils: “at this age boys  .  .  . have generally read Goethe, Schiller, and Shakespeare, perhaps even modern writers. That then comes out of their fingertips, half digested, in writing. Roman tragedies appear  .  .  .” In Fritz’s case it was a Greek tragedy.

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And she falls into the sea . . . But the beginning and the end were all I ever wrote. (Bartley interviews, Feb 11, 1983)

The folded-up text to Fritz’s “Andromache” was found inside one of his appointment notebooks and is preserved in his archives (FAHP 121.4). Given his comment that his enthusiasm for the theater was associated with his sexual awakening, it is interesting to note that tucked away among his theater programs from this period was the captivating picture of a beautiful young performer of his day, possibly the opera singer Maria Jeritza. The adult Hayek recalled two other incidents from his childhood and teenage years when he became aware of his own sexual feelings. When he was age ten or so, he dreamed that he was wrestling with his guardian angel, who suddenly transformed from a boy to a girl, and he realized “how much more pleasant it was to imagine that it was a girl” (Bartley interviews, Feb 9, 1983). He also remembered that his acquaintance with the insect paleontologist August Handlirsch had the unintended side-effect that in Handlirsch’s daughter he encountered “the first woman to arouse strong sexual longings” in him (IB 18–19). That said, he also recounted that his had been a rather “puritanical” upbringing (Hayek 1992a [1977a], 176). From these few recollections and reflections it seems clear that Fritz had the usual unrequited schoolboy crushes and a romantic image of love, but no sexual encounters or real girlfriends. Having grown up with no sisters and having attended all-boys schools from age six, he had limited exposure to girls outside of his family contacts. * * * Given the overwhelming emphasis on natural science subjects in the Hayek household, how was it that when he was older Hayek would become a student of society? He did not settle on that decision until later, but we can note the presence of some early influences in that direction. A philosophy teacher in his last year in gymnasium introduced him to Aristotle’s writings on economy and society, which may have sparked some interest. As the war progressed, he and his friend Walter Magg debated and discussed current events, including problems of economic organization, politics, and the various threats to social stability that some of the more extreme groups posed (AF 7). Fritz’s interest in this new field of knowledge led him to ask for a book on the general foundations of the civilization of the present age, that is, Die allgemeinen Grundlagen der Kultur der Gegenwart (Lexis, ed. 1905), for both his birthday and again for Christmas in 1915, but this was a wish that remained unfulfilled (IB 15).

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We have talked here about the education of Friedrich von Hayek but not mentioned a word about his formal schooling. Therein lies a topic of some interest. As was true for most of his life, Hayek seemed to learn more on his own than through formal studies. We will see how he came to develop this particular skill in the next chapter.

·3· At School

My school career was, to put it mildly, undistinguished. (AF 4)

• We will see that Hayek’s reminiscence about his childhood educational experience was, if anything, an understatement. His dismal performance is easy to understand in retrospect—his independent streak, which bordered on stubbornness, did not serve him well in the heavily structured Austrian school system—but still must have been unsettling for the family. To tell the story, we will begin with a description of the “reformed” school system he encountered, then explore how he fared in it.

The Austrian School System The Austrian education system that Fritz entered reflected some of the liberal reforms, and attendant tensions, that had reshaped life in the Habsburg monarchy in the nineteenth century. The so-called Thun-Hohenstein reform of 1849 had established freedom of teaching at the universities and put an end to the supervision of lower-school education by the Catholic church—a point that remained controversial between liberal and clerical parties up to the end of the monarchy and beyond.1 The school reform act of 1884, which remained valid by and large for the next hundred years, stipulated eight years of compulsory school attendance. In some (mostly rural) areas, all eight years could be taken in elementary school (Volksschule). In most urban areas, five years of elementary school would be followed by 1. The programmatic groundwork for the Thun-Hohenstein reform was laid by Franz Exner, whose role as the founder of the Brunnwinkl community is discussed in Caldwell and Klausinger 2021b. See Coen 2011, chap. 1.

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three years in the higher-level Bürgerschule. More academically inclined male pupils would after their five years of Volksschule (or after four years and an admissions examination) enter gymnasium. The gymnasium consisted of eight years of classes, to be finished with a final exam that entitled one to enroll at a university. Another controversial aspect of the Thun-Hohenstein reform was to require that gymnasium teachers obtain an academic degree, which over the decades had the intended effect of drastically reducing the number of clerics among gymnasium teachers. It also opened up job opportunities for those who had completed university study but despaired at the prospects for achieving a university position. It was not uncommon for Privatdozenten, university lecturers who had acquired a license to teach, to teach at a gymnasium. Indeed, this had been the case for three members of Fritz’s family: his grandfather Gustav von Hayek, his maternal step-grandfather Alois Pokorny, and his great-uncle Wilhelm Schmidt had all at some time worked as gymnasium teachers while pursuing their scientific ambitions. In the Austrian monarchy, and similarly in Germany, the gymnasium curriculum was dominated by the fields of classical (or “humanistic”) education, with the exception of the Realschule, which prepared matriculates for engineering studies. This changed in 1908 when, much to the delight of people like August von Hayek, an alternative to the prevailing classical type of education was introduced with the Realgymnasium. This new type of gymnasium put stronger emphasis on scientific subjects, including mathematics, biology, and physics or chemistry, and replaced Greek, the second classical language (in addition to the inevitable Latin), with a modern language, usually French. The language requirement in the classical gymnasium was substantial: over the course of eight years more hours were assigned to Latin than to all the scientific subjects combined (49 versus 44), while in the Realgymnasium the order was reversed (44 versus 55). The written parts of the final exam covered German, Latin, and Greek (or in the Realgymnasium, French), but mathematics was not deemed worthy of a written exam. Any aversion that Austrian economists might feel toward a mathematical approach to their subject might well be due to the peculiarities of their Austrian gymnasium education. A gymnasium education was strictly for boys. The public school system offered girls only the basic education provided by the eight compulsory classes in primary and secondary school, any extension beyond that being left to private initiative (Laube 1930: Friedrich 1999). It was in response to these conditions that a new type of school for girls, called MädchenLyzeum, began to be established—Vienna got its first in 1871. While these provided girls six more years of schooling after the first six of basic educa-

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tion, it did not entitle its graduates to pursue further academic studies, only allowing them to enter such fields as elementary school teaching, nursing, or pharmacy work. In 1892 another new type of school (gymnasiale Mädchenschule) was established that prepared girls for the university-entrance diploma, which they could receive after passing an exam at a public gymnasium (in Vienna at the Akademisches Gymnasium). The well-known school reformer Eugenie (Genia) Schwarzwald (1872–1940) founded her own Lyzeum in Vienna in 1900 and the first Realgymnasium for girls in 1911. It took a few more years before women were admitted to university studies (E. Berger 2007). At the University of Vienna the Faculty of Philosophy was the first to admit female students in 1897, followed by Medicine in 1900, and Law in 1918, after the demise of the monarchy. Most if not all of the younger women within Fritz’s and the Hayek family’s ambit took advantage of the new opportunities in female education that had slowly opened up to them owing to the activities of the Austrian women’s movement.2 The gymnasium system reflected the various class, religious, and cultural divisions present in the city. For most of the nineteenth century Vienna was composed of the “Inner City,” or first district, and then eight “inner districts” that had evolved from the agglomeration of small towns lying outside the former town wall. In 1891 the borders of the community were extended by incorporating ten more districts, the “outer districts,” which were populated less densely and had a more rural character. Still later the area on the other side of the Danube would be incorporated. Although there was a goal to provide the same level of secondary and higher education to all parts of Vienna, all the elite schools were in the first and inner districts. Even there, the reputations of the various districts and their schools differed markedly. The first, fourth (Wieden), and ninth (Alsergrund) districts, where most of the wealthy bourgeoisie lived, were regarded as the most prestigious, while others, like the third (Landstraße), had a more mixed reputation, or the fifth (Margareten), were mostly inhabited by members of the petty bourgeoisie, lower civil servants, and workers. The districts also differed with regard to denomination: the first, second (Leopoldstadt), and ninth (Alsergrund) districts had a high share of Jews in the population, with Alsergrund being the residence of the prosperous and Leopoldstadt that of poor immigrants from the East, the muchmaligned Ostjuden.3 2. See Caldwell and Klausinger 2021b for more on the Hayek family’s connections to the Austrian women’s movement. 3. On the Vienna districts and their reputational ranking see Seliger and Ucakar 1985, in particular 793.

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Though each might be known for specific distinguishing characteristics, in general the prestige of the inner-district gymnasiums mirrored the social ranking of their dominant populations. The two state schools of the inner city, the Akademisches Gymnasium and more recently established Franz-Joseph-Gymnasium, as well as the Schotten-Gymnasium, a private Catholic school, were considered excellent. The same was true for the Theresianum, an institution that was preferred by the aristocracy and that attracted a large share of pupils from outside of Vienna. The Landstraßer and the Elisabeth-Gymnasium were also well respected. Most of the schools in the outer districts were generally considered second-rate, or worse (Beller 1989; Komleva 2009). All the elite schools could point to prominent graduates who would later be important for Fritz. The Austrian school economists Eugen von BöhmBawerk and Friedrich von Wieser had attended the Schotten-Gymnasium together. Economists Ludwig von Mises and Hans Mayer and the legal scholar Hans Kelsen were in the same form at the Akademisches Gymnasium, passing their exams in 1900; two decades later they would all be teaching at the University of Vienna. Joseph Schumpeter attended the Theresianum, as had before him Fritz’s grandfather Gustav von Hayek. Of course, the ideal behind the reform propagated by Exner in the 1840s, and the reality of school life in 1900, diverged widely. This will become obvious from Fritz’s recollections but probably was nowhere better expressed than in the reminiscences of the Austrian novelist Stefan Zweig, who recalled “a constant surfeit of tedium, . . . compulsion, dreary boredom . . . I can’t remember one of my school friends who did not hate the way in which our best interests and intentions were inhibited, bored and suppressed” (Zweig 2009 [1943], 51–55).4 For Zweig and his friends the solution consisted in acquiring the kind of knowledge that they deemed worth knowing outside school, “extramurally,” and it seems that the young Hayek did the same.

Fritz Hayek at School Fritz entered elementary school in September 1905, at the age of six. The family was then living at Kolschitzkygasse 23 in Wieden, and the school Fritz attended was nearby at Alleegasse 11. The Alleegasse was one of Vienna’s most prestigious streets outside the inner city, lined with the mag4. For an example of a novel addressing the plights of Austrian gymnasium education, see Friedrich Torberg’s Der Schüler Gerber (Torberg 1930).

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nificent houses of wealthy members of the bourgeoisie, most famously the Wittgenstein palace at no. 16, which we recall occasioned Fritz’s ride around the Ringstraße with Aunt Poldi. Lenerl Bitterlich, her father, and grandmother lived at no. 19, only a stone’s throw away from Fritz’s school. It was a five-year elementary school for boys combined (at the same location) with an eight-year school for girls. After three years the Hayek family moved to a residence in Kleine Neugasse 7, which required Fritz to change schools for the fourth form (Hayek 1994, 42). Like all precocious children, Fritz often felt unchallenged, and it started early: “At elementary school I was partly bored because I already read fluently when I entered, at the same time handicapped by a certain untidiness and clumsiness of hand; but already it appeared that my interest could not be readily directed to what happened to be the order of the day” (AF 4–5). Perhaps sensing that his son was unchallenged, August was keen for Fritz to take the entrance exam that, if passed, would allow him to enter gymnasium a year early. The months he spent practicing parsing to prepare for the exam were not pleasant ones, but they allowed him to enter gymnasium after the fourth form (IB 10). Given his poor performance to come, it is only fair to point out that the Realgymnasium that August had selected for him was the third school that the ten-year-old Fritz had attended, and the second in two years, his having switched elementary schools only the year before. Such frequent change can of course be disruptive. AT The k.k. frAnZ-JosePh-reALgyMnAsiUM5 The Franz-Joseph-Realgymnasium was doubtless attractive to August for two reasons: first, it had an excellent reputation, and second, it had switched just the year before Fritz’s entrance from the classical type of gym5. After the 1867 compromise between Austria and Hungary, described in more detail in the next chapter, there existed two types of institutions, joint ones for the whole monarchy and separate ones for its two parts. The joint institutions, which covered foreign relations, the military, and the joint financial affairs, were denoted by the prefix “k.u.k.,” the separate institutions for the Austrian part, Cisleithania, by the prefix “k.k.” Education was not a joint affair, so the Austrian schools were “k.k.” The k’s in the prefix referred to the emperor’s various but in the two parts distinct titles, “kaiserlich-königlich,” that is, “imperial-royal.” The information on the various gymnasiums that Hayek attended is primarily taken from the respective Jahresberichte (Annual Reports); on the Franz-Joseph-Gymnasium see also Nowotny, ed. 1972 and on the Akademisches Gymnasium, Winter 1996.

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nasium to the more scientifically oriented Realgymnasium. August would choose the same school for both of Fritz’s brothers, Heinz and Erich, who passed their final exams in 1918 and 1923. The family was prepared to pay what was necessary to educate the boys. The annual school fee amounted to 100 Austrian crowns, and if we assume that August’s annual earnings were comparable to that of a gymnasium teacher, for all three brothers together this would have come to about a tenth of his annual income.6 The Franz-Joseph-Gymnasium had been founded in 1872 to complement the other high school in the first district, the increasingly overcrowded Akademisches Gymnasium. Located at Hegelgasse 3, at the turn of the century it was a rather small school, its atmosphere having been characterized as “the family house at the Hegelgasse” (Nowotny 1972, 10). When Fritz entered the school for the 1909/10 year, its numbers had increased to 375 students in ten classes. By that time the school building at the Hegelgasse was itself becoming cramped, so in 1912 it moved to nearby Stubenbastei 6–8, where it is still located (now as the Bundesgymnasium Stubenbastei) today. Most of the school’s pupils came from German-speaking, well-to-do families. With regard to religious denomination, the Franz-JosephGymnasium like the Akademisches Gymnasium, but unlike those in other districts, had in 1909/10 almost equal shares of Catholic (45%) and Jewish (40%) pupils. While in schools in the second and ninth districts the share of Jewish pupils reached almost 90 percent, it was much smaller in the other inner and especially in the outer districts. To put these numbers into perspective, it should be noted that the definition of being Jewish by religious denomination was narrower than that by “descent,” a distinction that in the near future would turn out to be crucial. The numbers also confirm that a disproportionately high share of children from Jewish families attended gymnasium. In any case, August’s choice of school indicates that the quality of the school had greater weight with him than any discomfort he may have felt about Fritz and his other sons coming into contact with Jewish children. When Fritz was in the first form in 1909, among his schoolmates there were some boys he already knew from his family circle and the circles associated with it. Nelly Magg’s son Walter, his closest friend, was in the second form. The next year Walter’s brother Herbert Magg and Fritz’s brother Heinz were to join. In the higher forms he could have met his uncle Franz von Juraschek, only four years his senior, his distant cousin Hans Eisen6. Sandgruber (2013, 16) estimates the income of a gymnasium teacher in 1900 at 3,000 K. Erich Hayek (in EHH) states his grandfather Gustav’s earnings as a gymnasium teacher were 7,200 Fl (“Gulden”), that is, 3,600 K.

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menger, and Fritz von Wettstein, the son of Richard von Wettstein. To mention just a few other students (all of them of Jewish descent), we find Georg Tugendhat, the future translator of one of Friedrich Hayek’s early important articles (Hayek 1929b, trans. 1931c), future Geistkreis member Felix Kaufmann, and Viktor Zuckerkandl, the nephew of the professor of anatomy Emil Zuckerkandl and his wife Bertha, the host of a famous Viennese salon. Even among the teachers there was a name familiar to Fritz: Eduard Castle, who taught German and history at the Franz-Joseph-Gymnasium, had become his uncle after marrying Margarete von Juraschek in February 1909. Unfortunately, the first two years at gymnasium did not go well for Fritz. Both his ability and his boredom were obvious, and infuriating, to his teachers.7 Copies of school certificates from his first two classes at the Franz-Joseph-Realgymnasium show that in the first form, he finished all his subjects, with the exception of biology (excellent) and of religion and sports (good), with a grade of “pass.” In the second form he ended up failing his drawing test, something he later blamed on “a pedantic drawing master who attached more importance to perfectly straight lines and cleanliness than skill in free drawing, which I did not completely lack” (IB 10–11).8 He was allowed to retake the drawing test, where he turned the failing grade into a pass, but only on the condition that he leave the Realgymnasium that his father so liked, where drawing was a compulsory subject, to attend a humanistic gymnasium, where it was not (Bartley interviews, Feb 9, 1983). August’s frustration was further exacerbated when it proved difficult to find a suitable successor school.9 In the end, Fritz transferred to a gymnasium in one of the outer and poorer suburbs of Vienna (Meidling), apparently the only one that had a place open at the time (IB 11).10 The change was a step down in more ways than one. Evidently, a gymnasium in the outer districts could not match the fine reputation of the Franz-Joseph-Gymnasium. But worse, from August’s perspective anyway, 7. Cf. his comment in AF 5: “At the gymnasium I exasperated most of my teachers who justly reproached me for not using my intelligence and lacking ambition. The fact was that I followed all teaching easily enough and could get up any subject at the shortest notice, but did practically no homework because my interests were always elsewhere.” See Hayek 1994, 42 for a similar reminiscence. 8. His school records were found in the archives of the BG Stubenbastei. 9. He expressed his frustration in a letter to his wife; see August to Felicitas, Aug 11, 1911, a letter kindly provided to us by Richard Zundritsch. 10. We can note in passing that for unknown reasons Fritz’s friend Walter Magg also left the Franz-Joseph-Gymnasium after second form. He continued, however, at a school of comparable excellence, the Akademisches Gymnasium.

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it was a gymnasium of the classical type, with a more limited science curriculum. The move also meant that Fritz’s only language instruction would be in Greek and Latin. This served him well when he would later quote from ancient texts, but it also meant that he would have to pick up living languages on his own. He never learned French properly, and the Italian he picked up during the war was basic and vernacular, so in the end it was only the third foreign language that he learned, English, that he came to speak well (Hayek 1983a, 72). AT The MeidLinger k.k. CArL-LUdWig-gyMnAsiUM The school whose third form Fritz entered in September 1911, aged twelve, was the k.k. Carl-Ludwig-Gymnasium, located at Rosasgasse 1–3 in Meidling, Vienna’s twelfth district. The differences from what he had become accustomed to during his first two years of school were striking. Part of it was a simple matter of logistics: whereas the Franz-Joseph-Gymnasium had been within walking distance, less than half an hour away, Meidling was more than two miles (3.5 km) distant, possibly compelling him to use a tram. But much more important was the difference in his peers. There were more Catholics, fewer Jews, hardly anyone from his own social class, and few who competed with him intellectually.11 The two exceptions were Karl (Ludwig) Edler von Bertalanffy, the future system theorist and, later, Hayek correspondent, who was in the form directly below Fritz’s own, and Friedrich (also Fritz or Friedl) Schreyvogl, who in 1914/15 was a student in Fritz’s parallel class. Fritz would meet the latter again at the University of Vienna.12 Fritz did not adapt well to his new environment. He again neglected his studies, trying to do as little as possible to get by. Though he was often at the bottom of his class, the other students knew he was smart, dubbing him Lex (short for lexicon) for his apparent wide-ranging knowledge on nearly any subject (except, perhaps, the one then being taught) (AF 5; IB 26). Fritz would spend five years at the Carl-Ludwig-Gymnasium. Though 11. School documents show that in the 1914/15 year Fritz was the only pupil in his class from a noble family. The school as a whole enrolled 80 percent Catholic and 15 percent Jewish students, though because he was in the class in his form where all of the Jewish students had been placed, they made up about 30 percent of his classmates. 12. In certain original sources “Schreyvogl” is rendered as “Schreyvogel.” Schreyvogl would become an author and theater critic; the patriotic lyrics he produced for performances at the gymnasium during the war foreshadowed his later German nationalist leanings.

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his performance was horrible he usually made it through a form by cramming for a test, the Fortsetzungsprüfung, that was given to candidates at the end of the year who were on the borderline. In the fourth form, however, he failed three subjects—Latin, Greek, and mathematics—so was not given the opportunity to sit for the exam. Instead he had to repeat the form (Hayek 1994, 42; see also AF 5). Fritz finished his second try at the fourth form in summer 1914, and a few months later World War I began. The onset of hostilities had consequences for the school. From January 1915 onward the gymnasium had to share its building with another high school, the Staats-Realschule of the fifteenth district, whose building had been rededicated to serve as a soldiers’ hospital. Gymnasium teaching alternated daily between morning and afternoon. In addition, some teachers and pupils in the final classes were drawn into military service. Fritz completed the fifth and sixth forms in the usual manner, but he then got another piece of bad news: with all of the shuffling of teachers in and out, the master of whom he had run afoul in 1913 was set to take charge of his form again, so the decision was made for Fritz to switch to yet another gymnasium (Hayek 1994, 42). Luckily for him, Fritz’s circle of friends in his teenage years had not been completely circumscribed by his attendance at the rather middling Meidling school. Because his two brothers were pupils there, he was able to keep up contacts with friends at the Franz-Joseph-Gymnasium. Moreover, in September 1914 the Akademisches Gymnasium building was taken over for use as a hospital. Classes were moved to the premises of the Stubenbastei, which brought about more opportunities for contact with old friends. This facilitated renewed contact with his closest friend, Walter Magg, until the latter left for military service in 1916. Others who attended the Akademisches Gymnasium included J. Herbert Fürth, Max Mintz, and Franz Glück, all future participants in the Geistkreis founded by Fritz and Fürth in 1921. In addition, there were the Mark brothers, whom Fritz had known at elementary school (Hayek to Furth, Aug 27, 1981). Additional clues about Fritz’s circles of friends during his school years can be gleaned from the diary kept by Helene Bitterlich, then thirteen years old. In early 1914 she noted her favorite companions for ice-skating, and among others mentioned Fritz, Franz von Juraschek, Walter Magg, Julius Overhoff, and “the big and the small Kronfuß,” two brothers from the Akademisches Gymnasium—the younger one, Karl Kronfuß, repeatedly won the Vienna junior championship in ice-skating (Lenerl’s diary, Jan 5, 1914).13 13. We thank Richard Zundritsch for allowing us access to Lenerl’s childhood diary.

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AT The k.k. eLisABeTh-gyMnAsiUM Founded in 1878, the Elisabeth-Gymnasium was originally intended to provide higher education for the children of the well-to-do residents of the fourth district, Wieden, but space constraints forced the school to move in 1894 to Rainergasse 39 in the poorer fifth district. Although Fritz’s new schoolmates came from wealthier backgrounds than those in Meidling, there were no strong links to families representing the Jewish intelligentsia as would have been the case at the Franz-Joseph or the Akademisches Gymnasium. The only one of his classmates that had a prominent name was Max Hussarek von Heinlein, whose father (of the same name) served three times as minister of education and was to become the penultimate prime minister of the Austrian monarchy (from July 25 to October 27, 1918). Max and Fritz became friends and would go to the Italian front together. When Fritz joined the Elisabeth-Gymnasium’s seventh form, he did not expect to be there very long, which may also have played a role in the decision for him to switch schools. In peacetime, gymnasium graduates got special privileges in the army. They were permitted to enroll in a voluntary one-year service that trained them to become officer cadets, followed by a period in the reserves, instead of the general obligation of two years’ service in the Austrian military. Shortly after the outbreak of war these regulations were changed to accommodate the increasing need for officers and soldiers. New regulations for “wartime exams” (Kriegsmatura) were introduced in Austrian gymnasiums. Pupils who had turned seventeen were permitted to finish the seventh form early with an exam, then begin an abbreviated period of military training for officer-cadet. After half a year of training, they were allowed to return to eighth form for a mandatory time of four weeks and then—in a sort of summary evaluation, without the usual written and oral exams—were awarded the Kriegsmatura, which entitled them to study at the university. Immediately after completing these “exams,” the graduates resumed regular military service and were sent into combat. This was indeed the route that Fritz took. He finished the seventh form with an exam in mid-February 1917, and after six months of military training returned in October 1917 for the eighth form and wartime exams. Though he spent only about six months in the seventh form, Fritz made two crucial discoveries there. Though he continued to be bored by his school subjects, he discovered other new worlds through reading. He would later count this brief period as “one of the intellectually most active of my life” (IB 24). He also learned that he could teach himself a subject that he might

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be interested in, or that he needed to know in order to pass the later supplemental exam to obtain his Kriegsmatura, by gathering up the relevant literature and then diving quickly into it. Luckily for him, the Kriegsmatura ended up being more or less a formality: “It is not clear that I would otherwise have made it without great difficulties” (AF 5). Even so, he still managed to get in trouble with the school authorities, this time for surreptitiously reading a socialist pamphlet while in religion class (AF 8). He took his final exams on October 16 and 17, passing them with the lowest possible grade short of failing: pass by majority of votes. (The other grades were pass with distinction and pass by unanimity of votes.) By the time that his mother received the written exam certificate and wrote to Fritz with his results, he had left Vienna and was heading for the Italian front (Felicitas to Fritz, Nov 2, 1917). * * * Hayek would later sum up his rather inauspicious academic beginnings as follows: Although at school generally regarded as intelligent but lazy and always a voracious reader, I do not think that I was then of the “intellectual” type and my ambition was directed more to becoming efficient in handling the practical problems of life than in scholarship as such. Whether it was photography or skiing, various kinds of collecting or even the utilization of books to collect information, I used my intelligence mainly to acquire techniques or to master the theoretical foundations of practical activities rather than because I was interested in intellectual problems as such. I had a strong desire to equip myself for the practical tasks of life, to learn how to organize things and particularly my own affairs, in short, to be efficient. For some time my conscious model was the firebrigade horse, ready at the shortest notice without loss of time, for any eventuality and trying to simplify and mechanize the routine of life as much as possible. Though little of that interest has remained, I believe a certain capacity of dealing quickly with practical problems has stood me ever since in good stead. (IB 21)14

While there may be some elements of putting the best face on a bad situation in these remarks, a more charitable reading would be that the passage shows that, if nothing else, Hayek’s self-knowledge was pretty good. As we 14. See Hayek 1994, 44, for a slightly modified version; cf. also 1983a, 23.

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noted in the introduction, Hayek often referred to himself as a muddler rather than as a master of his subject, a characterization that we think is accurate. He was always ready, and indeed sometimes impatient, to explore new areas on his own. His formal schooling in Vienna, and his reaction to it, surely bear some responsibility for that trait. He did not do a good job learning the subjects he had been assigned, but he did apparently learn how to learn, and to adapt quickly to new circumstances.

·4· Austrian Politics and Anti-Semitism

Before moving to Fritz’s wartime experiences, we must deal with a final aspect of fin-de-siècle Viennese society, the complex interplay of ethnic, religious, economic, and political tensions that gave rise to increasingly virulent varieties of Austrian anti-Semitism. Though the roots of European anti-Semitism are diverse and long-standing, at the end of the nineteenth century in the Austro-Hungarian Empire certain variants of it were inextricably linked to the extension of the franchise and with it the rise of mass parties. It is one of the tragic ironies of this story that many of the reformminded advocates of the extension of democracy, themselves anything but anti-Semitic, ended up enabling political parties with anti-Semitic platforms to gain political power. This had the further consequence of “normalizing” the prejudice among the larger population. All of this is important for understanding the climate of the time and the social pressures experienced by various groups before, during, and after the war, in the society at large and particularly within the university system. We will see at the end of the chapter that the Hayek family itself was not immune to the normalization that took place, and indeed, in the case of August von Hayek, participated in it. This background will be crucial for understanding their family dynamics after the war and again in the 1930s, when Friedrich Hayek was living in London and defending liberalism while the rest of his family, whether living in Germany, Austria, or Shanghai, was increasingly under the sway of Hitler’s Germany.

Fin-de-Siècle Austrian Politics The year 1867 marked the creation of the dual monarchy, the AustroHungarian Empire. It was from the beginning itself a rather strange amalgam, an apt metaphor for the complicated political, ethnic, cultural, and

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religious rivalries that had plagued this part of Central and Eastern Europe for centuries. The Ausgleich or Compromise of 1867 established two capitals, two cabinets, two parliaments, and separate interior policies, but a single emperor (Franz Joseph I) and a common foreign and military policy. The Constitution of December 1867 transformed the Empire into a constitutional monarchy. In the same year the Staatsgrundgesetz was enacted, which guaranteed citizens of the Empire a set of rights, among them equality before the law irrespective of language, nationality, or religion. The effect of these changes on ethnic divisions was limited. The Compromise of 1867 for a time placated the Hungarians, an important group within the Empire, but at the same time it fanned the nationalistic impulses of others, chief among them (in terms of population size, if not ardor) the Czechs. And though discrimination against Jews was legally terminated, we will see that in everyday life it continued. The year also began the reign of the Liberal (or Constitutional) Party, the party of the liberal bourgeoisie. It would have a brief life: it was voted out of office in 1879 and by the election of 1897 had lost all political influence.1 The party itself bore no small share of the blame. The Liberals’ base was always rather narrow, composed of wealthy property owners, industrialists, and the intelligentsia, the latter consisting of the liberal professions, the higher ranks of the civil service and military, the judiciary, and teachers. When the series of liberal governments in Cisleithania, the Austrian part of the Empire, ended in 1879, their failure to strengthen their appeal was manifest. Instead of trying to deal with pressing issues like the conflicts between the various nationalist movements within the Empire, the party instead sought merely to retain its own power and privilege by, for example, opposing such things as extension of the suffrage, free trade, and any and all proposals for social reform. The speculative crisis of 1873 and ensuing depression, which lasted until 1879 but whose impact could be felt into the 1890s, further undermined their support. The end result was a fragmentation of the Liberal Party’s already narrow base just as it was being overwhelmed by the emergence of a number of mass parties. With the rise of more radical German nationalist parties, what remained of the Liberals split into three factions: the mostly unreconstructed “old” Liberals, the leftish Democrats, and the Social Policy Party. The mass parties to which the Liberals in the end succumbed were the 1. On Austrian politics in the fin-de-siècle Empire, see Boyer 1981, 1995; Hanisch 2005, especially 117–53; Höbelt 2015; and Rumpler 2005. The following discussion draws on all of them.

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German nationalists, the Christian Socials (under a variety of names), and the Socialists (the Social Democratic Labor Party). One way to characterize the three emerging political camps is to identify four cleavages along which the parties defined themselves: urban vs. rural, (Catholic) church vs. state, laissez-faire vs. social reform, and finally German vs. Czech, which represented one of the key ethnic divisions. The opposition between urban and rural areas mirrored the difference between the economic interests and cultural attitudes of Viennese high, middle, and petty bourgeoisie and those of Alpine farmers. The clash between church and state was most visible in the fight over the control of education, where earlier liberal government reforms banning the influence of the Catholic Church, though contested by the clergy, remained largely untouched. The third division covered a wide spectrum, ranging from those arguing for the preservation of the status quo to moderate adherents of social reform to advocates of fullscale socialism. The nationality problem in the multiethnic Empire that composed the fourth cleavage deserves further elaboration. Note first that of the whole population of Cisleithania in 1880, classified according to the language mainly used, 37 percent were German, 24 percent were Czech, 15 percent were Polish, 13 percent Ukrainian, with smaller shares of Slovenes, Italians, Croats, Serbs, and Romanians (Höbelt 2015, 161). Next, of the seventeen crownlands (provinces) of Cisleithania only seven (mainly those that now make up the Republic of Austria) had an absolute majority of Germans, and some of them (Tyrol, Styria, and Carinthia) at the time included southern regions that are now parts of Italy and Slovenia with strong Italian and Slovenian minorities, respectively. On the other hand, there were large German minorities in the provinces of Bohemia, Moravia, and Silesia. Yet owing to an electoral system that at every level privileged the wealthy and better educated, the numeral minority of the German population nevertheless achieved predominantly German representation in the relevant political bodies. Until the final years, when general manhood suffrage was introduced in Cisleithania, there was a German majority in the parliament (the Reichsrat), and the cabinets and central bureaucracy were similarly dominated by Germans. During the liberal regime this sort of dominance was taken for granted, and among the liberal bourgeoisie the supremacy of German culture was accepted as a matter of course. However, the situation became different with the emancipation of the non-German nationalities. Especially in Bohemia and Moravia the opposition between a mainly German bureaucracy and its Czech subjects sparked tensions. As the Germans increasingly felt on the defensive, German nationalism

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became an overarching element of a new radical political movement that differentiated itself from the old liberals.2 Among the evolving mass parties the German nationalist camp made its political position evident in its motto, “not liberal, not clerical, but national.” It originally appealed to a wide spectrum of voters, among them even latter-day socialists like Viktor Adler. But the movement radicalized when the leading pan-German, Georg von Schönerer, added an “Aryan paragraph” excluding members of Jewish descent to the party’s bylaws. Although Schönerer’s successes in party politics remained moderate, his ideas left an irrevocable imprint on German nationalism in Austria by introducing a “racial” type of anti-Semitism into party politics. German nationalists came in different varieties. The more moderate type, similar to the Liberals, believed that the political supremacy of the Germans within the monarchy was legitimate, even in the provinces where Germans were a minority. In contrast, the most radical type, Schönerer’s pan-Germans, agitated for a union of all German-speaking regions, even those outside Germany and Austria, within a pan-German Reich led by the Hohenzollern dynasty. Great Germans occupied an intermediate position, aiming at the union of (or at least at close cooperation between) Austria’s German provinces and the Reich. They were ambivalent on the question of how the quest for Great Germany could be made to cohere with loyalty toward the Habsburgs. They also toned down Schönerer’s violent fight against Catholicism that had climaxed in his “Los-von-Rom” (Away from Rome) movement. Among voters, the German nationalists proved most successful in the provinces with a minority of German speakers, e.g., Bohemia and Moravia, and in the border regions and small towns of Upper and Lower Austria. What after the turn of the century became known as the Christian Social Party was largely the work of a single person, Karl Lueger (1844–1910). He started his political career as a Liberal, then became a Democrat, then finally forged various coalitions, ultimately positioning his movement— under names like “the Anti-Semites” or “United Christians”—in the 1880s and 1890s as a Viennese, mildly clerical, anticapitalist party. It was in favor of a “cultural” type of German nationalism, ready to accommodate assimilated Czechs but not Jews (Boyer 1995, 211–35). In Lueger’s hands the combination of Catholicism and a variant of an2. If we were to locate the Liberal party within this larger matrix, it stood for an urban, anticlerical, capitalist, and moderately German nationalist clientele, while its progressive offsprings, the Democrats and the Social Policy party, distinguished themselves by the quest for social reform.

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ticapitalism that favored a petty bourgeois constituency (shopkeepers, craftsmen, and the like) produced a version of religious and economic antiSemitism that in Vienna and beyond proved more attractive to voters than the racial anti-Semitism of the Great German parties. As one historian aptly summarized, “Lueger’s anti-Semitism was opportunistic, economic, religious, and cultural” (Pauley 1992, 41). Having won four elections in two years but having been prohibited from taking up his post by the emperor, Lueger had his ultimate triumph in 1897, when Franz Joseph finally relented and allowed him to become mayor of the City of Vienna, a position he held until his death in 1910. Only after 1900 did the party extend its outreach beyond Vienna and Lower Austria to the Austrian parliament by forming the Reichspartei, a sometimes uneasy coalition with farmers and Catholic conservatives from the Alpine regions. This constituted the core of what became in the First Republic the Christian Social Party, which, although it lost the City of Vienna, kept its leading role in the federal government throughout the interwar period. The Socialist movement, though its base in the population was growing, was for most of the time in question underrepresented in the assemblies at all political levels. The Socialist Democratic Labor Party (SDAP) had been founded at the Hainburg party congress of 1888/89 that was chaired by Viktor Adler. The party’s main aim through its early years was the introduction of universal male suffrage, which it achieved in 1905 for the Austrian parliament but not for most of the diets or for the Community of Vienna. The extension of the franchise allowed the Socialists to become the strongest party in the Reichsrat in 1911. Despite its cosmopolitan orientation, however, it could not escape the nationality problem and itself split up along nationalist lines into various factions. Similarly, although the party in principle rejected anti-Semitism and some of its leaders, like Adler himself, were of Jewish descent, its agitation against capitalists often made use of anti-Semitic stereotypes. After 1918 the Socialists were for a short time part of a federal coalition government but after 1920 were confined to their reign in the capital, “Red Vienna.” In fact, from 1919 up to the present day all the democratically elected mayors of Vienna have been members of the Socialist Party.

The Varieties of Austrian Anti-Semitism It is a sobering fact that the sudden rise of political anti-Semitism after 1882 was a result of the partial democratization of Austrian politics. (Pauley 1992, 36)

•

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Though there always were periods of sheer terror for Jews who lived in Austrian territories, throughout the second millennium it was still regarded, at least in relation to many other places in Europe, as a relatively attractive region to settle.3 Often this was the result of self-interest on the part of their hosts. Rulers who sought social improvements recognized the economic value of having Jews in their communities: the Catholic Church banned usury, but Jews were permitted to engage in money and credit transactions that brought economic benefits to society while sidestepping the prohibition. This is not to say, of course, that the old types of religious-based antiSemitism were extinguished. Particularly during times of economic upheaval or disasters like the Black Death, Jews were the first to be blamed: Shylock moneylenders were taking advantage of good Christians in bad times; the plague was caused by Jews poisoning wells in order to wipe out Christianity; the list of potential offenses and resulting retaliatory abominations goes on and on. The severity of the imposed restrictions depended largely on who sat on the Habsburg throne. It was not until the latter half of the nineteenth century that conditions looked like they might change more permanently for the better. Indeed, Franz Joseph’s reign was viewed by many of the Jews of Austria as a kind of golden age. Reforms that had been passed earlier in the century were solidified and codified in 1867. By then Jews could own land and live where they pleased; they could enter professions, build factories, found banks, and even employ Christians as servants. Some were ennobled. Assimilation, for purposes of either marriage or career advancement, was commonplace. Acculturation proceeded apace. There were, though, some clouds on the horizon. The newer and often more efficient factories of Jewish industrialists competed with older Gentile establishments. Large retail distributors—the original department stores—many of them Jewish-owned, put pressure on small individual shopkeepers. The very success of the Jews of Vienna attracted other Jews to the city, their population more than doubling (from 72,588 to 146,926) between 1880 and 1900. The new emigres were not like their sophisticated and acculturated precursors. They came not from Moravia, Bohemia, or Austrian Silesia, but from Galicia and other points east. These Ostjuden were orthodox in appearance and culture, spoke Yiddish rather than German, and were accustomed to living in their own separate communities, a practice they were content to continue in their new environment. Some were fleeing Russian pogroms, others simply escaping the crushing 3. This section draws on Pauley 1992, 11–74.

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poverty  of their homelands. For the Viennese, though, the new arrivals looked and acted strange. Worse, the many who were peddlers also competed with existing tradesmen, artisans, and shopkeepers. These were the petit bourgeois “5 guinea-men” who in 1882 gained the right to vote and very quickly fell under the spell of the charismatic Karl Lueger, who was quick to blame the Jews for any economic problems they faced. This is not to say that Austrian anti-Semitism was limited to the lower middle classes. Though members of the bourgeoisie might find simply embarrassing the crude religious anti-Semitism that they associated with Catholic peasant culture and times gone by, they were prime candidates for the more “scientific” racial anti-Semitism that began to be promulgated by various scholars in France and in German universities.4 Racial anti-Semitism began to take hold in Austrian universities in the late 1870s, spread in part by influential books written by professors at the University of Vienna. One of these was Theodor Billroth, a professor at the Faculty of Medicine who argued in a book published in 1875 that Jews constituted a separate race whose characteristic flaws made their overrepresentation in medicine—about half the teaching staff at the Faculty were of Jewish descent—a danger to society. (Of course, the “overrepresentation” of Jews in fields like law and medicine was due to their exclusion from other professions.) His racial claims carried the authority of science, and though Billroth later recanted, the damage had been done. Student fraternities began banning Jewish students in the 1880s, and by 1890 all such groups in Vienna had bans in place.5 And it is no coincidence that the positive reception by Gentile students of such arguments occurred during a time when the effects of the depression were still being felt and the enrollment of Jewish students was exploding. As one historian of the period bluntly summed up: “Non-Jewish students in both Austria and Germany saw their careers threatened by the shortage of jobs and blamed their new Jewish classmates” (Pauley 1992, 30–31). By the turn of the century anti-Semitism had been more or less normalized in Austrian universities. The professional classes, in short, were anything but immune, and this included the Hayek family. 4. As Dinnerstein 1994, chap. 3, documents, anti-Semitism also intensified dramatically in the United States in this period, with diverse sources and among various classes of society. 5. Again, a similar move to ban Jews from Greek fraternal societies also occurred at many colleges in the United States, beginning in 1878 at the City College of New York (Pauley 1992, 33).

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The Hayek Family We can begin with the paternal grandfather, Gustav von Hayek, who in the decade prior to Fritz’s birth had a brief but intensive attempt at a political career after having turned away from ornithology.6 In 1894 he appeared as a speaker before the Politischer Fortschrittsverein “Eintracht” (the Progressive Political Association “Unity”) in Landstraße, for which he had been elected vice-chairman. This was the very same association that had formed the initial political base for Karl Lueger’s movement, in opposition to the Liberals who at the time were still in control of the City of Vienna (Boyer 1981, 221). In February 1894 Gustav was chosen to run for Lueger’s Anti-Semites in the election for the District Committee of Landstraße. He was narrowly defeated as a candidate in the second curia, and in another attempt lost crushingly in the first. Though this ended his attempt to gain elective office, only one year later, in the elections for the Vienna City Council, the Lueger party’s challenge was successful, carrying for the first time the Landstraße seat of the second curia. This election marked what Boyer characterized as “the collapse of the Liberals and the Antisemitic conquest of Vienna” (316). As someone who had gotten his medical training at the University of Vienna in the 1880s and early 1890s, Fritz’s father, August, was also not immune, indeed anything but. By this time a majority of Viennese doctors were Jewish, at least if defined by descent rather than religion (Beller 1989, 37). August became a member of the semi-official corporation of the Ärztekammer (Vienna Chamber of Physicians), an organization that included both Gentiles and Jews. His direct engagement with anti-Semitism derived from his participation in another medical group, the private Verein deutscher Ärzte in Österreich (Association of German Physicians in Austria).7 The Verein, founded in 1905, represented the anti-Semitic (or “autochthonous”) minority of the medical fraternity in Vienna.8 The bylaws of the Verein included its own Aryan paragraph, stipulating that membership was restricted to persons of “German lineage.” August was a founding member of the Verein and was elected chairman of the section comprising the fourth, fifth, and tenth Vienna districts. This was no passing phase. 6. See the reports in Reichspost, Feb 11, 1894, 5; Neue Freie Presse, Feb 20, 1894, 6; and Reichspost, Apr 11, 1894, 9. 7. On the following see Hubenstorf 1995 and 2004, and the Verein files in ÖStA/AdR, BKA-I BPDion Wien VB # XIV 550. See also Neugebauer 1998. 8. See Neues Wiener Tagblatt, May 24, 1903, 6, and Reichspost, Oct 30, 1926, 8.

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His affiliation continued for the rest of his life, and indeed from 1920 to 1924 he served as vice president and afterward until his death as a member of the board. Not much is known, or documented, about specific activities of the Verein in the 1920s. The president when August was vice president was Ernest Finger (1856–1939), a professor at the University of Vienna and the director of the Second University Clinic for Dermatology and Venerology at the Vienna General Hospital; he had also been president of the Chamber of Physicians for some time. Although Finger adhered to pan-German ideas, he was a moderate when compared with another member, Gustav Riehl (1855–1943), the director of the First University Clinic. While Riehl prided himself in 1938 of being able to pass on his clinic “free of Jews,” Finger during his directorship had at least permitted the habilitation of three candidates of Jewish origin. In its later years, the Verein apparently moved ever closer to the Austrian Nazis: its members presented papers at the infamous Deutscher Klub on topics like “racial science” and “racial hygienics” (that is, eugenics), and it promoted fighting against the “Jewification” of the medical profession.9 These were, however, events that all happened after August’s death. August’s activity in the Verein was evidently driven by his concern over the growing presence of Jewish members in the medical profession. Whether this reflected parochial economic interests, acceptance of Billroth’s bizarre racial theories, or simply the everyday anti-Semitism that was ubiquitous at the time cannot be known. There is at least casual evidence that his prejudice was somewhat limited in its scope. Recall that August’s first choice of gymnasium for all three of his sons, the FranzJoseph-Gymnasium, had an enrollment of about 40 percent Jewish students. Furthermore, among his academic contacts August appears to have shown little animus toward Jewish colleagues. We know from Fritz’s “juvenile war diary” (JVD) that his father was on speaking terms with “Hofrat Frankfurter” and “Dr. Figdor,” two Jewish members of the academic community.10 9. See Wiener Neueste Nachrichten, Nov 14, 1933. 10. The “juvenile war diary” will be discussed in the next chapter. Salomon Frankfurter was the director of the library of the University of Vienna (and incidentally also the uncle of Felix Frankfurter, the famous justice of the US Supreme Court). Dr. Figdor most probably referred to Wilhelm Figdor, one of August’s botanist colleagues, a lecturer on plant physiology and a co-founder of the Vienna Vivarium (see below). Dr. Figdor was, moreover, the nephew of Fanny Figdor, Ludwig Wittgenstein’s paternal grandmother.

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It may be worthwhile to ask to what extent anti-Semitism colored those scientific circles in which his father moved and into which Fritz was introduced as a teenager. With few exceptions, the scientists Fritz would have encountered at his father’s botanist gatherings and at the presentations he attended at the Zoologisch-Botanische Gesellschaft were Gentiles. In these biologists’ circles the botanist Richard Wettstein (1863–1931) and the paleontologist Othenio Abel (1875–1946) were among the closest friends of the Hayek family. Although Wettstein, the leading figure in botany at the University of Vienna and August’s teacher, was characterized in his obituary as a liberal, with German nationalist and democratic leanings, who disliked the sort of anti-Semitism espoused by German students’ fraternities, it was added that nevertheless he “had never been a friend of the Jews” (Janchen 1933, 100–101). Abel had been a frequent participant in the Juraschek dancing parties (see IB 3, 15, 18–19) and also regularly met the Hayek family during the summers spent in the Salzkammergut (see, e.g., Felicitas to Fritz, Aug 15, 1917, and August to Fritz, Aug 24, 1918). In the interwar period, Abel contributed to the Nazification of the University of Vienna through his organization of a secret society, meeting at the Bärenhöhle (the bear’s den, the name of the room of the paleontological seminar), which sought to prevent the appointment of Jews and leftists and to further that of conservatives and pan-Germans (Taschwer 2015b). Another prominent figure who moved in the ambit of the Hayek family was the botanist Fritz Knoll (1883–1981). Knoll succeeded Wettstein in his Vienna chair and became the first rector of the University of Vienna under the Nazi regime, from 1938 to 1943 (see Taschwer 2013). There were Jewish members in the ZBG too, yet, with the exception of Hugo Iltis, the eminent biographer of Gregor Mendel (IB 12), few of them presented their work there. However, there existed an innovative group of biologists centered at the Biologische Versuchsanstalt (Institute for Experimental Biology), called “Vivarium” and situated near the Vienna “Prater” (see Taschwer 2016, chap. 4), whose members were mostly Jewish. The zoologist Hans Leo Przibram, the botanist Wilhelm Figdor, the chemist Wolfgang J. Pauli (the father of the future Nobel Prize winner), and the physiologist Eugen Steinach were directors of its departments, and Paul Kammerer (of whom more below) was among the younger scholars who found employment there. Thus, while academic biology was a largely “Christian” affair, the Institute constituted a sort of Jewish fringe. Indeed, Hayek (Bartley interviews, Nov 2, 1983) remembered it as an almost “purely Jewish group” that was “much disdained” exactly for that reason. So how much of this affected young Fritz as he was growing up in the first

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and second decades of the new century? He gave a few hints in various interviews. Recall that his mother’s “Aunt Kalmus” married a Jewish banker, and one of their children (“Poldi”) after marrying a Wittgenstein became the mother of Ludwig. Hayek remembered some of his other great-aunts indignantly complaining that their father had “sold his daughter to a rich Jew . . . which did not prevent the most artistically minded spinster of the next generation greatly to benefit from the generous patronage of the Wittgenstein cousins” (IB 5–6). (The spinster was probably Dorothea Hauser, a daughter of one of those great-aunts, friend to Hermine Wittgenstein, and apparently a gifted painter.) So Fritz was indeed exposed to anti-Semitic remarks by relatives as he was growing up. Probably less than one would expect from his father’s position in the Verein, however. This is owing to a “peculiar situation” regarding Franz Juraschek’s second wife and Felicitas’s stepmother, the much-beloved Ida Pokorny, who was suspected of having some Jewish ancestry, perhaps based solely on the fact that her uncle was married to a woman of Jewish descent. Anyway, this possibility “was quite sufficient to make any anti-Semitic expression in the family absolutely taboo. And yet there was an under-current [of] anti-Semitism.” At least as an adult Hayek recognized that though his father might not ever utter an anti-Semitic remark, he was “very active” in an organization that was committed to a “defending of the non-Jewish doctors against the Jews” (Bartley interviews, Mar 29, 1982). So the absence of explicit statements did not make the underlying anti-Semitism any less evident; hence his later reference to the “tacit anti-Semitism” of the household (Hayek 1983b, 10). Outside the family and its associated circles, as a teenager Fritz became aware of a more radical anti-Semitism developing in Vienna. Having perused pamphlets of various sorts that were distributed on street corners at the start of the war, among them those of “radical socialist,” Catholic, and “extreme nationalist and anti-Semitic” groups, he was exposed to what he in retrospect identified as harbingers of National Socialism. There was no idea and scarcely a phrase new to me when, some ten years later, I skimmed through Mein Kampf . . . [I] could not believe that the stale phrases of the lowest class socialism would ever appeal to any . . . But to my regret it convinced me that the whole “philosophy,” if it deserves the name, of national socialism was of Austrian, and I fear, even specifically Viennese origin, where among the mixture of nationalities the pride of being of German stock, and the resentment of the conspicuous success of the Jews, created the detestable brew which Adolf

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Hitler had absorbed only a few years earlier and exported to Germany. (IB 20–21)11

Perhaps understandably, as an adult in his many interviews Hayek only occasionally alluded to the anti-Semitism he witnessed in his own family, though he did mention how pervasive it was in postwar Vienna. We will see that once he went to university, and perhaps even before, he began to distance himself from the prejudices of his family and time.

11. On the Austrian origins of Hitler’s worldview, see Hamann 1999; for a diagnosis of the origins of anti-Semitism in the German Reich similar to Hayek’s, see Aly 2015.

·5· At War

On June 28, 1914, Archduke Franz Ferdinand of Austria and his wife Sophie were assassinated by a Bosnian Serb nationalist while visiting Sarajevo, an act that precipitated a chain of events that culminated in the Great War. It took place on a Sunday, and Fritz, Erich, and their father (Heinz was at an air show with the Maggs) were returning from a hiking outing when they heard the news: “we accidently ran into Hofrat Frankfurter at 3 pm in the Hinterbrühl tramway, he told Papa that in Vienna extra editions of newspapers were distributed because the crown prince and his wife . . . had been murdered in Sarajevo . . . Only when we had reached Baden in the evening, Dr. Figdor, one of Papa’s acquaintances, confirmed the horrible fact” (JWD, Aug 1, 1914).1 Fritz wrote these lines just over a month later, three days after July 28, the day that Austria-Hungary declared war on Serbia. Fritz apparently decided to keep a “war diary” to document the consequential times ahead, but he did not stick to it: his diary has only five pages of entries from 1914 and three from 1916. In the month that followed the murders the danger of war still appeared distant, so the Hayeks saw no reason to depart from their usual summer holiday schedule, spending time with the Maggs in Miesenbach, with Papa joining them on the weekends. However, after the Austrian ultimatum to Serbia and the mobilization of the Austro-Hungarian army, their planned August vacation in South Tyrol had to be canceled, and the family returned to Vienna. Fritz reported to his diary that crowds of people there were filled with martial spirit, cheering officers and soldiers when they appeared in front of the Ministry of War (Aug 1). Their hope was that a swift victory would help to revive an ailing monarchy. 1. As noted in the introduction, Hayek kept two diaries during the war, one before deploying, the other afterward. To distinguish them, we will refer to them as his “juvenile war diary” (JWD) and his “war diary” (WD).

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Two years later much had changed.2 The war had approached a kind of stalemate, accompanied by horrific losses in every sector of combat. The eastern front was stabilized after an initial advance and then retreat, in France the war of attrition persisted, and the successes of the Central Powers in the Balkans in 1915 had been counterbalanced by Italy’s entry into war on the side of the Allies, which gave rise to a third front in the South and a series of battles on the Isonzo River. The year 1916 also marked the end of the long reign of Emperor Franz Joseph; his death in November was taken by many as a portent of the fate of the monarchy. That year the military situation confronting Austria-Hungary grew ever more precarious. There were setbacks on the Italian front, with the loss of the town Görz (Gorizia) in the sixth battle of the Isonzo. The provision of food and other essentials to both the military and the civilian population began to deteriorate rapidly, and the increasing dependence of Austria on its German ally further fed feelings of despondency. These developments so evident in retrospect did not penetrate the martial musings of young Fritz Hayek. Soon enough, though, reality would intervene.

Preparing for War As we noted in chapter 3, when his birth cohort of 1899 was finally drafted soon after he had celebrated his seventeenth birthday, Fritz elected to sit for a wartime exam, to be followed by entrance into cadet school. He spent January and early February studying, then took and passed his exams in mid-February. We know from his datebooks and his collection of handbills that he also spent this time engaging in leisure activities, including trips to the theater and to the Eislaufverein for ice-skating.3 In March he began a six-month stint at cadet school, where he trained for service in an artillery regiment. From the fact that Fritz continued to attend concerts, readings, and the theater (there are programs from nine events in March and seven in April), he likely was assigned to the cadet school in Vienna. As was common practice, after spending the first two months at the barracks Fritz was permitted to live at home. This policy meant that the family rather than the 2. The following description of World War I from the point of view of the AustroHungarian monarchy draws mainly on Rauchensteiner 2013; see also Bihl 1989 and Höbelt 2015. 3. From 1911 until 1990 Hayek kept a datebook in which he listed such minutiae as the times of appointments, periods when he would be in a particular place, departure and arrival times when on trips, and so on. These datebooks may be found in FAHP 121–23; the one for 1917 may be found in FAHP 121.3.

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state had to bear his cost of living, not a trivial point in a time of increasing food shortages. In the summer of 1917 the Hayek family tried to maintain a pretense of normalcy, vacationing in some of their favorite mountain locales. Fritz, though, spent most of the time in Vienna, living with his step-grandmother, Ida von Juraschek, who was herself doing volunteer work as a head nurse at the Rudolfinerhaus, a private Vienna hospital that had been turned into a military hospital, and preparing for final exams at the cadet school. When he got leave for one week in mid-August he visited his family, joining his brothers and friends for a climbing tour. By then Fritz’s father had been drafted into the army, which needed physicians, and on the very weekend of Fritz’s visit August got orders to depart for Kowel, a town in the Russian territory (now part of Ukraine) conquered by the Central Powers, where he served as the regimental doctor. August would stay there until February 1918, when he was moved to Wladimir Wolynski, another nearby Ukrainian town, where he was responsible for attending to the medical needs of Italian soldiers in a POW camp. Fritz returned to duty, passing the officer’s exam at the beginning of September, ranking ninth of seventy-six candidates (datebook entry, Sept 6, 1917). Fritz’s last task before heading to the front was to return to the ElisabethGymnasium for a month of schooling followed by final exams. The regiment to which he had initially been assigned was stationed at the Russian front where the fighting had ceased, but he was able to get around this: “silly young men as we were, anxious still to see some real fighting, a school fellow who served with me in the same regiment got an uncle, who commanded an artillery regiment on the Italian front, to claim us for one of his regiments” (IB 26; see also Bartley interviews, Feb 9, 1983). The friend in question was Fritz’s classmate from the Elisabeth-Gymnasium Max Hussarek von Heinlein, whose uncle Franz served as lieutenant colonel and commander of the field artillery brigade 58 at Gorizia.4 The brigade was divided into several regiments; at first Fritz and Max were assigned to different batteries of the field artillery regiment (k.u.k. Res. Feld Haubitzen Regiment) 58. Then in February 1918 Fritz joined Max’s battery, which was then part of the renamed field artillery regiment 158.

Life at the Italian Front Most of what we know about Fritz’s experiences at the Italian front is based on two sources, his “war diary” (WD) and his correspondence with his par4. See the documents in the Austrian War Archives, ÖStA/KA Pers REL 51.

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ents.5 The former, unfortunately, is not very informative. Though Fritz began it with extensive descriptions of events and of the immense damage to the landscape that he witnessed, after about two weeks the entries became much more laconic, like those of a datebook. He would note things like the locations of his battery, the types of service he was ordered to perform, and similar facts, in entries that scarcely exceeded one line per day. There is also a gap in the diary, with no entries from October 6–24, 1918. The booklet in which he kept his diary also contained his notes about the working of various types of artillery, abbreviations to be used in sending messages by Morse Code, symbols used on maps, and, perhaps the most incongruous of all, over sixty stanzas, four lines each, of Italian verse, so it clearly had multiple purposes.6 In another sense, though, the diary perhaps is informative. Its perfunctory nature indicates just how tedious life could be at the front. And as we will see, this will indeed be confirmed in his letters to his parents. Among the things that Fritz carried with him to the front was a military ID containing the usual personal information but also listing who should be notified in case of his death. Fritz requested that his grandmother Ida von Juraschek be informed first by telegram, and only afterward his parents by a written letter. This was probably something that he and “Nina” secretly agreed upon when he stayed with her during the summer of 1917. The two sergeant-cadets, Max and Fritz, first went to Laibach (Ljubljana), where they stayed for just two or three days, listening to the cannonade of the twelfth battle of the Isonzo (WD, Nov 1, 1917; IB 26). By the time they arrived at their assigned position, however, the battle was over and their battery gone in pursuit of the retreating Italians (IB 26). They had just narrowly missed the breakthrough assault of the Austrian army, strengthened by German forces, in the twelfth battle of the Isonzo. Like the western front, the Italian campaign along the Isonzo River had been a long war of attrition. The casualty count (including killed, wounded, and missing/POW) associated with the first eleven battles was more than one million for the Italians and about 650,000 for the Austrians (Schin5. Fritz’s diary for the war period 1917/18 and his parents’ side of the correspondence are preserved in the FAHP at the Hoover Institution. A handful of letters from Fritz are in FAHP 174.10; the rest were graciously made available to the authors by Richard Zundritsch, Heinz Hayek’s grandson. 6. The Italian verses are the lyrics of a song dedicated to “Generale Cadorna” that was very popular among Italian soldiers during the war and afterward. Cadorna, who led the Italian troops during the infamous Caporetto defeat and seemingly blamed the cowardice of the soldiers for the outcome, was widely disliked, which explains the ironic nature of the song.

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dler 2001, xii). In the twelfth battle in October–November 1917 the Central Powers broke through the Italian lines, reconquered Gorizia and moved on to the Piave River, where the Italians finally were able to halt the advance. The Italian losses in the twelfth battle alone approached 800,000: 50,000 dead and wounded, 300,000 captured, and more than 400,000 who had deserted; this against only 30,000 soldiers lost on the AustrianGerman side (Schindler 2001, 263–64). The timing of the Austrian forces’ success was propitious. Dwindling supplies not only of food and other essentials but also of munitions could be replenished from stocks now available in the captured Italian territory. The victorious forces seized not only foodstuffs and abandoned munitions, but virtually any movable property that fell into their hands. The relief, however, would prove temporary. After the victory the German forces were transferred to the western front, leaving the Austrians on their own. Meanwhile, the Italians had been reinforced by several Allied (French and British) divisions, together with batteries and munitions (M. Thompson 2008, 328).7 Owing to the Italian losses in the retreat and subsequent restabilization of the front, the Allies were forced into a purely defensive strategy. If they lost control of the Piave, then Venice, Padua, and Vicenza would all be at risk. Holding the line and rebuilding morale became the chief mission. Meanwhile on the Austrian side of the line, as the winter progressed shortages of various kinds again began to appear. The Piave itself was a wide (several kilometers in places, and often breaking up into separate braids), shallow (in summer it could at places be waded) river that crossed a flat, stony plain. It rose and fell a meter each day, and that combined with the topography meant that it was nearly impossible to keep trenches dry. The happy fact that there was considerable distance between the front lines on either side and that neither side seemed eager for engagement was offset by the pestilential nature of the terrain, especially as one got closer to the sea. The swamps of the lower Piave would become in the summer months incubators for disease, chief among them malaria (M. Thompson 2008, 328). If young Fritz was hoping to experience some real combat, his timing was not good. Having just missed his regiment’s advance on the Piave, when 7. Among the British troops on the other side of the Piave was an artillery officer named Hugh Dalton, who would later be a colleague at the London School of Economics and, in 1945–47, the Chancellor of the Exchequer in the Labour government under Atlee. They figured out that they “had both been serving as artillery officers at precisely the same time and place,” leading Hayek to suppose that they “had quite likely observed one another through their binoculars” (Cubitt 2006, 47).

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he finally caught up with it he encountered instead the common features of static warfare when fronts are widely separated—physical discomfort, poor food, and boredom, with minor skirmishes the rare break in the monotony. He would spend much of the remainder of the war there. His first experience marked an initiation of sorts. As a child Fritz had had a strong aversion to the smell of alcohol, sufficiently great that he was exempted from the family rule that the children must eat everything that was put before them: if for example a holiday cake had alcohol in it, he was permitted to decline it. When he arrived at the front he and his companions were taken in for the night at the officers’ mess, and because the water was unpotable, they drank instead glasses of vermouth. Hayek later recounted that he consumed three large glasses of it without getting ill or tipsy, though he was told by his friends that his conversation became unusually lively as the evening progressed, and he admitted that it was fortunate that his bed was just steps away in the next room. For a while after his arrival food was very scarce, but there was apparently always plenty of alcohol to drink (Bartley interviews, Feb 9, 1983; cf. WD, Nov 4, 1917). About the only noteworthy event in the early days was that Fritz got to see the Austrian Emperor Karl, who was touring the front to celebrate the recent victory (WD, Nov 12, 1917; Fritz to Felicitas, Nov 12, 1917). Soon after joining his regiment, though, Fritz received a piece of devastating news. When he and Max stopped briefly in Laibach on their way to the front, he tried in vain to meet up with his closest childhood friend, Walter Magg, to deliver some books that he had carried with him from Vienna (Fritz to Felicitas, Nov 8, 1917). He found out instead (deduced from the address of a returned letter) that Walter had fallen ill and was lying in a mobile hospital reserved for patients with contagious diseases. Two years older than Fritz, Walter had left school in 1916, entered the cadet school in Wiener Neustadt in March 1917, then joined combat troops at the Italian front in the summer. Army regulations prohibited Fritz from visiting the hospital, so he did not try to go to see his friend. The ultimate outcome was presaged in a letter from Felicitas, whose jubilation over the news of the Austrian military victory was clouded by alarming reports that she had received about Walter. Nelly Magg had told Felicitas that her son was suffering from dysentery and that his condition had deteriorated so much that a nurse at the Laibach hospital had advised her to visit him as soon as possible (Felicitas to Fritz, Nov 2, 1917). Nelly arrived at the hospital on Sunday, November 4—the trip had been difficult to arrange because the needs of the army dictated railway schedules—only to find out that Walter had died that morning. Nelly, whose

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husband had died in 1909, was the only family member to attend Walter’s funeral in Laibach. Felicitas was hesitant to pass the sad news on to Fritz, so more than a week went by before he learned from Max that he had seen a death notice for Magg in the newspaper (WD, Nov 14, 1917). Fritz immediately wrote his mother and his brother Heinz (Nov 14 and 15), pleading that they tell him what they knew to end the uncertainty. In the meantime, Felicitas had decided to abandon her reticence, writing him to confirm that Walter had died (Felicitas to Fritz, Nov 13, 1917). In her letter Felicitas vividly recounted the story of Walter’s lonely death and added how much Nelly regretted that Fritz, who had been close by, had not been there for the funeral. On the same day (Nov 13, 1917) Fritz’s father, August, had also sent a letter in which he expressed his sadness, but always the teacher, he drew from it the pragmatic lesson that his son should never drink water that had not been boiled. Although Fritz’s reactions in his correspondence were brief, they reveal a person who was clearly emotionally shaken. The day after the news arrived he told his father, “I don’t know how to help at all. I’d like very much to write to Aunt Nelly but I am so terribly affected that I can’t do it” (Fritz to August, Nov 17, 1917). He was more explicit about his failure to visit Walter in his letter to his mother the same day, recognizing the costs of his eagerness to catch up with his regiment: Even now that I have it in black and white, it still appears to me as if only a bad dream; that it cannot be possible at all. If I only had had the slightest idea in what bad shape he was, I would have done anything possible to see him in Laibach. But as things were, our front line was just advancing, and we at the rear were nervous about when we would reach our battery, and were looking for an opportunity to move forward; moreover, I was not alone but had to be considerate of H. [Max Hussarek]. Is it then not understandable that we went on immediately? Yet now the thought is so awful that it might have been possible to have seen him. (Fritz to Felicitas, Nov 17, 1917)

In his next letter (Nov 18, 1917) Fritz asked his mother to send him a good picture of Walter, and he confirmed its arrival three weeks later (Fritz to Felicitas, Dec 9, 1917). After this request there is scarcely any reference to Walter Magg in Fritz’s war correspondence or diary, so it appears that he decided to mourn his friend’s death in private. When he finally went to visit Nelly Magg, she gave him Walter’s papers (IB 28); unlike other documents from his youth,

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he kept them with him until his death.8 Hayek harbored feelings of grief, remorse, and perhaps guilt about the tragic event well into his old age. He kept the picture of his fallen friend, and when his secretary in sorting through his papers happened to show it to him, he turned away from her to hide his emotions. As she later put it, “Magg did not really die until Hayek himself did” (Cubitt 2006, 63). If the next letter written to his father is characterized by a surprisingly lighthearted tone, it also shows that there were moments in which the life of an Austrian soldier in a newly conquered territory could pass for almost comfortable (see also WD, Nov 19, 1917). Fritz recounted how he and two companions borrowed the battery’s coach and coachman and journeyed to the seaside, took an outing on a boat (one they had “borrowed” without asking), and enjoyed opulent meals of eels and wine. On the same trip, a search for valuables in a deserted villa was in vain: it had already been looted by others. On the way back and after the purchase of a hundred pounds of live eels, the coachman, who had gotten drunk, left the coach unattended for a moment while the others got out. This led to a minor disaster when a passing motorcar spooked the horses and the coach ended up rather battered in a ditch. This is a story that Hayek relished telling, and in later accounts he embellished it further, recalling his search for the eels in the “bedewed” nearby meadow into which they were attempting to escape (Streissler 1969, xi). Fritz teasingly closed his letter to his father, the medical doctor, by stating that though he still did not smoke, he had had to abandon his resistance to drinking: “poor teetotaler that I am, what shall I do if not join them and drink like a fish? And now that I have told them about your ban on drinking water I can’t do otherwise” (Fritz to August, Nov 21, 1917). Hayek retold this story because such adventures were uncommon. Most of the winter and spring passed uneventfully, and indeed the most common theme in Fritz’s letters was the boredom of camp life. From his departure from Vienna until his return in November 1918 there was a steady stream of correspondence between Fritz and his parents, and from it we can get some sense of his relationship with them at this time. Felicitas was the more faithful correspondent, sometimes writing every day, but at a minimum two to three times a week. Her letters were conversational in tone and style, mostly reporting on her domestic activities, at times in painstaking detail. In a typical letter (see, e.g., Jan 14, 1918), we learn about the sundry items that Fritz requested her to send him: food and sweets, photographic implements like the safelight for a darkroom, candles and matches, some money, maps of the Piave region, also some books. In the 8. They are now preserved in FAHP 181.9.

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same letter she described a birthday party for “Mami” Ida von Juraschek at a Heurigen (wine garden) that was followed by walks and the boys’ skiing in the Vienna woods. Food shortages, the difficulty of finding servants, and news about other Hayek relations were recurrent topics. There is hardly any news on issues outside the Hayek household and family, such as the general hardships of wartime, let alone politics—but this is possibly due to (self) censorship. In sum, her letters were those of a mother to her son, keeping him informed of daily life. Predictably, she usually closed her letters by cautioning Fritz to take care of himself. In contrast, August’s tone in his letters to Fritz was always reserved, serious, and far from chatty, with no gossip or commentary on other people. That there were far fewer letters from him than from Felicitas was to be expected given his job responsibilities. He too would occasionally write about family affairs. He reported regularly about his attempts to return to Vienna to see the rest of the family, either temporarily on furlough or permanently through a reassignment to a cadet school, for which he tried to gather the support of potentially influential relatives.9 Despite his efforts August’s furlough was not granted until March 1918, and as Fritz had to stay in Italy, his father split the time available between a visit to the family in Vienna and a short trip to the Italian border to meet Fritz for a few days. In January Fritz’s brother Heinz had been called to the medical examination for newly drafted soldiers but found unfit for military service—unlike Fritz, Heinz was at the time rather small and apparently quite frail.10 August, more pragmatic than patriotic, was “not unhappy” with the result (August to Fritz, Jan 17, 1918). In response to his son’s frequent complaints about boredom, August more than once advised Fritz to counteract his ennui by engaging in productive activities like plant or insect collecting (and indeed he engaged Fritz in some botanical discussions across the fronts) or taking up new things, like learning a foreign language as he himself had done when he started to learn Hungarian in Kowel (see, e.g., August to Fritz, June 9 and Sept 18, 1918). Fritz did manage to learn a little Italian from some peasants when he spent some weeks in the rear recovering from the Spanish flu—perhaps that was the source of the Italian stanzas in his diary.11 For his part, Fritz supplied his parents with plenty of anecdotes about his tiresome, strenuous, and 9. One of these was “Papa Löbl,” the retired major general Karl Alois Löbl Edler von Laminzfeld, father-in-law to August’s brother Paul. 10. See Bartley interviews, Feb 11, 1983, and EHH. 11. He apparently also learned how to curse, in ten languages! See Hayek to Jerzy Strzelecki, Mar 30, 1985.

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at times even absurd or farcical activities, but carefully avoided any allusions to any times at the front when he faced real danger. So how did Fritz pass the time while stationed on the Piave? Some wartime pictures that he took show that he carried on with his photography.12 Apparently, though, Fritz’s favorite remedy for camp life was reading. He was the stereotypical “German” officer, “later often ridiculed, who in the trenches carried in their map-cases a Moroccan-leather-bound India paper edition of all versions of Goethe’s Faust. Most of the time this was the only reading material available—some parts of which in consequence I still know by heart” (IB 27). There were other less elevating things to read as well, like the ubiquitous propaganda that all governments provide their troops during times of conflict. For example, the war propaganda office (k.u.k. Kriegspressequartier) often emphasized the cultural (if not racial) inferiority of Russia as compared with German culture and civilization. As for the opponents on the western front, a typical contribution was the German historical economist Werner Sombart’s (1915) patriotic reflections, titled Händler und Helden, which contrasted British “merchants” with German “heroes.” When Italy in 1915 entered the war on the side of the Allied forces, another twist was added, giving rise to reproaches of “Italian perfidy” and the widespread use of derogatory terms for the Italians. We find some examples of this in Hayek’s correspondence, e.g., his use of the slur “Katzelmacher” in referring to Italians, literally “cat-maker” or “cat-screwer,” etymologically a corruption of Kesselmacher, a boilermaker or tinkerer, which evokes itinerant tradesmen from Italy (see Fritz to August, Apr 10, 1918). Over the course of the year Fritz earned some promotions. When he left cadet school, having not yet concluded the full year of officer’s training, he was to be addressed as a cadet-aspirant. Later on he intermittently served as commander of the battery or as an adjutant at the regiment’s command, owing to the increasing lack of officers to fill these posts. At first his rank had been that of a master corporal (Zugsführer), but in February 1918 he advanced to pyrotechnist (Feuerwerker), the artillery equivalent of sergeant (Wachtmeister). Finally, a full year after his entry into cadet school he rose to officer-cadet (Fähnrich), the lowest rank of (commissioned) officers. In January 1918 Fritz received the Karl-Truppenkreuz (Karl’s troop cross) and was nominated for the small silver medal for valor, which was eventually awarded to him in summer 1918 (WD, Dec 19, 1917, Feb 1 and Aug 8, 1918). While the former award was routinely given to those who had 12. Packets of war photos may be found in FAHP 199, and a small photo album of pictures he took may be found in FAHP 181.12.

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served for longer than twelve weeks and participated in a battle, the latter indicated some extraordinary performance. This led August (rather typically) to express his pride but also to caution his son not to be “unnecessarily daring! Especially with your body length a certain caution is in order” (August to Fritz, Jan 30, 1918). At the front he was sometimes assigned to service with the battery, but he also did reconnaissance duty, and sometimes in advanced posts, e.g., on a little isle in the Piave River. Reconnaissance from the ground was often nasty work, especially if it meant lying in trenches for hours in the rain and cold (Fritz to Felicitas, Feb 3, Apr 1, and June 9, 1918). Alternative approaches brought some moments of near tragedy mixed with absurdity. At one point, the Austrians tried using balloons to observe the enemy trenches, and Fritz participated in this experiment. It was a completely useless endeavor: he could see nothing from up there. But because other balloons had been shot down by Italian pilots, anyone going up in one had to practice parachuting out. The first time he tried he almost broke his neck when he got tangled up in the cord of his telephone. The second time he landed in a flooded meadow and the parachute came down on top of him, nearly drowning him (Bartley interviews, Feb 9, 1983). Fritz also had three narrow escapes when his reconnaissance duties took him up in German biplanes, which were no match for the opposing Sopwith Camels. The first mission they were shot at, but managed to escape when the pilot of his plane feigned having been hit by going into a tailspin, only to pull out of it near the ground and fly back home. That was the only time the plane he rode in returned intact. The second time they were forced to hide in some thick clouds, and when they came out they realized they were somewhere just north of Venice, with the Italian fleet below them opening fire. They turned back east but ran out of gas just as they approached their own lines. The plane came in noiselessly, thus avoiding attracting enemy fire, and crash-landed in a field behind their own lines. The third time artillery fire rendered the motor of their plane inoperable, and they again crashlanded in a meadow behind their lines (Bartley interviews, Feb 9, 1983; cf. Hayek 1994, 153). Fritz discreetly avoided mentioning these episodes in his letters to his parents, and there are no entries for them in his diary.

The Final Days: Summer and Fall 1918 By the summer of 1918, the US entry into the war had changed the balance of forces decisively in favor of the Allies. Although the Central Powers finally defeated Russia, the release of military forces from that front was not sufficient to stem the assault at the western front, and the hoped-for

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bread-for-peace treaty with the Ukraine brought no tangible relief from food shortages. Men on the Italian front were growing weak from lack of food. In the end the only alternative to starvation was another attack by the Austrian forces, the so-called hunger offensive of the second battle at the Piave that began on June 15. After less than two weeks the failure of the operation became evident and retreat to the former front line inevitable. The Austrians lost 118,000 men, killed, wounded, sick, captured, or missing.13 From that moment for most observers the fate of the Austrian monarchy was sealed. The hopeless situation also fanned conflicts among the various nationalities that finally spilled over into the army, which had been the ultimate institution for safeguarding the Empire’s cohesion. The June battle was the only one where Fritz directly engaged in combat. His account of it captures well the fog of war: “that was actual fighting; the only time when I even got into hand-to-hand fighting. May or may not have killed a man. In the dark. My pistol failed. A small Italian, with a knife; and I had to use a knife. And finally dug out my own knife—he fell on it, and it was dark, and I know nothing further. That was the only experience of any kind of fighting that I ever had throughout the war” (Bartley interviews, Feb 9, 1983).14 Fritz’s participation in the failed Piave offensive ended prematurely, when he got ill from some meat poisoning (WD, June 19, 1918). After that he was eventually granted a furlough—from the end of June to mid-July—and went back to Vienna to see family and friends. His diary entries tell us that, perhaps unsurprisingly, on the day of his arrival in Vienna he went to the Burgtheater and the next day visited the Bitterlich family. Given the dire conditions he faced at the front, it is amazing that it was only in his final days in Vienna that he experienced for the first time a bout of bad health, when he came down with the Spanish flu. Though his father (characteristically) urged him to delay returning to the front until he had fully recovered, he (equally characteristically) returned as soon as he could, “because I had come to regard the common practice of not returning from leave for health reasons as contemptible” (IB 28; see also Bartley interviews, Feb 9, 1983, and WD, July 12–15, 1918). 13. See M. Thompson 2008, 342–47 for an account of the conflict, also known as the Battle of the Solstice. 14. This understated telling contrasts greatly with the secondhand account reported on by Blundell 2014, 100, who had gotten it from Bartley, in which Hayek supposedly said that he had bayoneted a man to death. Hayek’s own less dramatic account has more of a ring of truth to it, and the voice sounds like Hayek’s, whereas in the Blundell account it sounds like either Bartley or Blundell (or both) embellishing what he had heard.

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When he got back to his unit he was still sufficiently weak that they placed him in a farmhouse in the rear where he was to look after horses until he recovered—that was the occasion for learning a little Italian. Fritz was able to visit his family during a second short furlough from August 21 to September 4 (see the respective entries in WD). After his arrival in Vienna, and a visit to the theater, he went to the Salzkammergut for some climbing tours at the Dachstein and in Bad Ischl. Eventually he met his parents and “the children” (his two younger brothers) at Salzburg—his father had just been transferred to a nearby hospital in St. Leonard, where Felicitas joined him. It was on his return to Vienna that a famous encounter with his cousin Ludwig Wittgenstein must have happened.15 Wittgenstein had volunteered for military service and spent most of the war, from 1914 until March 1918, on the eastern front. Then he was moved to a mountain artillery regiment in South Tyrol, where he participated in the Piave offensive. From July to the end of September he was granted a furlough, which he used for working on his Tractatus, most of the time commuting between Vienna and Hallein, a small town near Salzburg (Monk 1990, 154–57; Baum 2014, 88–105). The encounter took place on the night train from Bad Ischl to Vienna, and although only distantly related, the two cousins apparently recognized each other immediately. The conversation with Wittgenstein that followed “made a strong impression” on Fritz: He was not only much irritated by the high spirits of the noisy and probably half-drunk party of fellow officers with which we shared the carriage without the least concealing his contempt for mankind in general, but he also took it for granted that any relation of his no matter how distantly connected must have the same standards as himself. He was not so very wrong! I was then very young and inexperienced, barely nineteen and the product of what would now be called a puritanical education . . . What struck me most in this conversation was a radical passion for truthfulness in everything . . . One had to “live” truth and not tolerate any pretence in oneself or others. (Hayek 1992a [1977a], 176–77)

When he returned to the Piave, Fritz finally decided that he had had enough of life with the artillery regiment and began exploring ways to transfer to some other kind of unit. His first thought had been to go to the mountains (see WD, Aug 18, and August to Fritz, Sept 18, 1918), which 15. Hayek (1992a [1977a], 176) dates it to August 31, 1918, but according to his diary the train ride was on September 1.

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meant, most probably, joining a unit of the mountain infantry stationed in South Tyrol. This came to naught despite the attempts of the usual suspects (Hussarek and Löbl) that he rounded up for support. His next even more ambitious venture was to consider joining the Austrian air force. In his youth Fritz had been fascinated by the idea of flying, and as we saw, he had a number of close but exciting calls when he tried his hand at aerial reconnaissance. This seems to have whetted his appetite, for he formally applied for admission to pilot training in mid-September (see WD, Sept 17, 21, and 26, and Fritz to August, Sept 17 and 19, 1918). What could have motivated this? Fritz evidently knew the risks involved and knew also that the Austrian air force in the south was vastly inferior in both quantity and quality to that of the Allies. By this time in the war flying ceased to have the glamour of earlier years and was seen just as an enormous danger (Rauchensteiner 2013, 955). As might be expected, his father was adamantly opposed, and in his attempts to dissuade Fritz he recommended that his son seek the advice of Erwin Schrödinger, the future Nobel Prize-winning physicist and the son of one of August’s botanist friends (August to Fritz, Sept 18 and Oct 16, 1918), who had fought at the Italian front until spring 1917, then begun teaching meteorology at a school for antiaircraft officers (Moore 1989, 95). There may have been practical reasons. His interest in joining the air force came at a time when a widespread outbreak of malaria had been wreaking havoc at the Piave front (Rauchensteiner 2013, 1012). Indeed, Fritz’s friend Max Hussarek contracted it in September 1918 (August to Fritz, Sept 7, and Fritz to August, Sept 14, 1918; see also WD, Sept 15, 1918). In later years he said that he wanted to join the air force because it would give him time off to study for the entrance examination for the diplomatic academy, which is what he hoped to do after the war was over. In any event, the end of the war rendered his dreams of becoming either a pilot or a diplomat moot, the latter because the special school for future diplomats he hoped to attend disappeared with war’s end (Hayek 1983a, 1–2; AF 9; IB 32; see also 1994, 48). After a period of deceptive calm that lasted into the autumn, during most of which Fritz and his comrades “were more concerned with hunger, disease, and the rumor of an impending mutiny of the Czechs than with any serious fighting” (AF 9), the end came swiftly when the dissolution of the Empire gave rise to an increasing number of desertions and mutinies. The Allied offensive at the Piave began on October 24, and the Austrians’ desperate resistance soon gave way to disorderly retreat. In Fritz’s case, the Italians were literally at their heels for the first few days, with shells falling in places they had just vacated and Italian motorcycles occasionally

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piercing their lines. On November 3 a cease-fire with Italy was declared, but owing to communication failures the Austrian army stopped fighting one day earlier than the Allies, so that the Italians on the last day of combat made deep inroads, capturing about 380,000 prisoners, among them Fritz’s cousin Ludwig Wittgenstein and his Tractatus. Wittgenstein was transferred to a prisoner-of-war camp at Monte Cassino and released only in August 1919 (Monk 1990, 158–66). For Fritz, some of the most exciting and dangerous days of the war came at the very end. He was placed in command of a troop of soldiers left over from various batteries and ordered to find their way home as quickly as possible (WD, Nov 4–13, 1918). They started out from the small Italian village of San Giorgio di Nogaro, near Udine, moving toward Slovenia. At one point enemy soldiers tried to hold them up, and Fritz had to engage in a nighttime assault against a machine gun nest. Luckily for him, it had been abandoned by the time he reached it. When the troops reached the Slovenian town Adelsberg (now Postojna), they abandoned the cannons they had been hauling, then continued on to Ljubljana, where they abandoned the horses and carts. After staying there overnight (the soldiers in a barracks, the officers in a hotel), they boarded a train that would bring them back to Austria. Fritz noted in his diary that the train was supposed to run directly to its final destination, Wiener Neustadt, near Vienna, so as might be expected, lots of soldiers wanted to be on it. He and his group had to fight to get onto the train, then barricaded themselves in for safety. Meanwhile, many others climbed onto the roof of the train, which turned out for them to be a deadly mistake: when they went through a tunnel, “the greater part of the people were wiped off. We came out of the tunnels, the windows bloody.” Finally, in Graz a fully armed Czech division tried to commandeer their train’s engine, and only when an Austrian mountain artillery regiment threatened to open fire on them did they relent (Bartley interviews, Feb 9, 1983). Fritz’s luck held out right up to the end, but because he neglected to take his daily dose of quinine during the desperate weeks in which he made his escape, he came down with malaria the night before his arrival in Vienna. He returned home rather weak and had a severe recurrence the next summer. In his view, it led to a permanent weakening of his heart (IB 28). He also came home with a loss of hearing in his left ear that he assumed was caused by shell explosions, though later a doctor would tell him that it was in fact due to a childhood infection (Hayek 1994, 135). He would later joke that Marx could not hear out of his right ear, and he could not hear out of his left (Ebenstein 2003a, 303). In later years the adult Hayek offered some strange reflections on his

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war experience. In particular, he said in an interview that it was then that he came to realize that he felt little fear of death, even when confronted with it in the war. Recognizing that this sounded like bravado or braggadocio, he said, “but it isn’t, it’s self-discovery. In a sense, I am fearless, physically I mean. It’s not courage, it is just that I lack . . . I lack nerves. And I believe this is a thing I inherited from my mother and not my father. She was like that” (Bartley interviews, summer 1984). In the extended transcript of the interview it does not come across as bragging; rather, it is more like he was marveling over the behavior of some strange specimen he was observing.16 In any event if true it certainly accounts for some of his behavior, for he seemed to seek out danger with little reflection on the potential consequences. He was eager to get called up, and once that had happened he actively avoided going to a quieter theater of action, using family influence to get sent to the Italian front. His plan to join the air force even after having barely survived three harrowing flights also speaks to it. And when he fell ill from flu, his insistence on returning to the front is a further indication. His later response appears to be almost clinical, a mixture of bemusement and curiosity about the fact that he felt that way. * * * When Fritz arrived at the Südbahnhof (South Station) in Vienna he had a final unpleasant surprise. All of his wartime valuables—his field glasses, his bayonet, his revolver, and most precious of all, the cigarette rations that he had meticulously hoarded as a present for his father (he did not yet smoke himself)—were confiscated by the Volkswehr, the semi-official “People’s Defense” force (Bartley interviews, Feb 9, 1983). Luckily, he could still afford a Fiaker (horse-drawn cab) for the ride home. His appearance was wholly unexpected, and his mother after giving him a kiss told him to wash up. He then put on some civilian clothes and went to step-grandmother “Nina’s” for dinner. Life seemed to have immediately gone back to the usual routine. He would quickly learn that that was not quite the case.

16. Confirming evidence may be found in Stephen Kresge’s observation that “His emotional temperament was one of complete detachment” (Kresge 2002, 506).

· Part II · A Broadening of Horizons

The Vienna that Fritz Hayek left when he first went to the Italian front had been subdued owing to wartime exigencies but still recognizable. When he came home, that was no longer the case: “Both I and the world to which I returned had thoroughly changed twenty months later. But it was like after a shipwreck which leaves no doubt that one has to start anew, rather than a slow decline of which I was at first aware” (IB 31). In this part we trace Fritz’s reentry into a transfigured Viennese society. He still maintained his ties with his family and friends, of course, but he also began himself “to start anew.” Almost immediately upon arrival he enrolled at the University of Vienna. There he would make new friends, some of them Jewish, just at a time when anti-Semitism at the university was escalating. It was there, too, that he would have his first political awakening. Hayek later in life said that he had been a socialist when he was at the university. This is not quite correct. We will see that in the cacophony of often strange political options on offer in the chaos that was postwar Vienna, he and his friends chose a stance that did not fit in at all with any of the major parties. As his newfound companion, political compatriot, and thereafter lifelong friend Herbert Fürth put it, “While most of Vienna’s student organizations are strictly segregated by race, religion, or class, we have vowed to remain as free from racist nationalism and religious bigotry as from class-war socialism” (Furth, “For F. A. Hayek: Memories of Days in Vienna” [1988], 1).1 They were ecumenical rather than clerical; in favor of German culture, but opposed to anti-Semitism; they embraced social reform, but opposed Marxism. At the university he would encounter new professors, larger-than-life personalities with very different views on economics and politics, from 1. Henceforth cited as Furth, “Memories.” Furth 1989 is a translation into German of the original English document.

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Hans Kelsen to Othmar Spann to Friedrich Wieser. And he would be attracted by new fields of study—though nominally a law student Fritz Hayek followed his own interests. His journey wound through philosophy, to psychology, and, finally, to economics. Along the way he would sample broadly the various disciplines and even help form a circle of his own, a discussion group that came to be called the Geistkreis. Through his university days he remained very much an upper-class Central European, with little experience outside of his own well-circumscribed world. True, he would spend some time in Zurich and part of a summer in Norway, but always in the company of friends of the family or with botanist friends of his father. All that would change when he finished his second degree and spent fifteen months in the United States, mostly in New York City. The opportunity came about because of his having found employment at a government office where his direct supervisor was Ludwig von Mises. Fritz’s experiences with Mises in Vienna and with others in New York began the slow process of change that turned him into a young academic. Overseas he was introduced to the leading economists of his day, learned some new research techniques, and began to explore new areas of research. Equally important, he was exposed to a wholly different culture. It was a wrenching, overwhelming, at times horrifying experience, as his expressive letters home reveal. His reports are humorous, filled with equal measures of gleeful dismissal and an almost morbid fascination. Ironically, it is also where he learned to fully appreciate England, first for its reporting on the war he had survived, and later more broadly for its tradition of classical liberalism. The young Hayek came to realize that most of what he knew about England—all learned from propaganda he had heard before and during the war—was in fact false. He took two lessons from this: he needed to find out more about England in person, and he needed always to read news reports with a critical eye. He would act on both of them.

·6· Back at Home in Postwar Austria Politics in Postwar Austria As Fritz was finding his way home in October and early November 1918, momentous political changes were taking place in Vienna. The Germanspeaking members of the Reichsrat, the imperial parliament, met to form a provisional national assembly for the new state of German-Austria, and on October 30 they elected the Social Democrat Karl Renner as chancellor. On November 9, a German republic was proclaimed in Berlin. Back in Austria, two days later the thirty-one-year-old Emperor Karl finally officially withdrew from participation in the government, which paved the way for the proclamation of a democratic Republic of German-Austria, which was to be a constituent part of the new German Republic. It was on that very day, November 12, that Fritz at last arrived alive in Vienna. When the November declaration was confirmed by the Constituent National Assembly in March 1919, the prospects for a union (Anschluss) with the German Reich looked promising, and Fritz—like other Austrians—may already have considered himself a German citizen (see IB 30). The peace treaty would soon enough put an end to that. On the level of high politics the challenge to be met was the reconstruction of a political and economic order within a newly formed state.1 After the armistice between Austria-Hungary and the Allies on November 3, 1918, the monarchy had very quickly broken up, with sovereign “successor states” being declared and parts of former Austrian territory annexed by neighboring states. This was the main motivating factor behind the November declaration to become a part of the new German Republic: Austria wanted and indeed desperately needed a partner. The Provisional National Assembly governed until elections could be held. These took place on February 19, 1919, and resulted in the Grand Coalition of the Socialist and the Christian Social Party, supporting the cabinet Renner II. This was the 1. For an overview, see, e.g., the contributions in Konrad and Maderthaner, eds. 2008.

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government in which Joseph Schumpeter acted as the secretary of finance for half a year. The Coalition government faced an array of immense tasks. How to deal with the transition from the time-honored monarchy to the new republic, from an imperial power to a small country in search of a partner? How to find a new role for the monarchy’s administrative center, Vienna, and its civil servants, now a “Wasserkopf,” literally “hydrocephalus,” a head that was far too big for its body? How to rebuild a war economy based on commands into one more suitable for peacetime? How to cope with a myriad of financial issues: repressed inflation, war debts, and the repayment of war bonds in the face of yawning budget deficits? How to prevent the spreading of Bolshevik revolutions, like those that occurred in neighboring Hungary in March 1919 and Munich in April? And last but not least, how to save large parts of the population from starvation and disease? In the end, after the imposition of the peace treaty of Saint-Germain-enLaye in September 1919, it turned out that all attempts at grand solutions had failed. The treaty explicitly prohibited the hoped-for union with Germany, so that the Republic of Austria was reduced to the former Empire’s German crownlands. It lost the German minority regions of Bohemia and Moravia, as well as the southern parts of Tyrol, Styria, and Carinthia—this included the region of Cilli, the home of the Stallner family, which became part of the Kingdom of Serbs, Croats, and Slovenes (Yugoslavia). The disintegration of the economic area of the former monarchy, driven by the protectionist policies of the successor states, coupled with the dashed hopes for a union with Germany, led many to doubt whether the Austrian economy could survive, a constant concern for the First Republic until its very end. Schumpeter’s heroic plan to solve the country’s financial emergency with a comprehensive capital levy failed and soon enough gave way to the rage of inflation that would destroy the illusion of financial wealth held by a middle and upper class that had trustfully invested their fortunes in war bonds. The danger of revolution was averted by instituting a series of social policy concessions to the workers, which soon enough became a thorn in the side of consecutive conservative governments that followed the dissolution of the Grand Coalition in October 1920. After the war and the introduction of universal (male and female) suffrage at all levels of government that finalized the demise of the Liberals, three political camps remained: the Christian Social Party in the tradition of Lueger, the Socialist Democratic Labor Party (SDAP), and the union of the various nationalistic strands in the Great German Party. The two biggest parties were of almost equal strength, each with about 40 percent of

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the electorate, with the Christian Socials having a small edge throughout the republic. The German nationalists appealed to only about 10–15 percent of the electorate, a small but crucial share of the vote that would secure a majority for nonsocialist federal governments during most of the First Republic. A conservative majority at the federal level had as a counterpoise socialist rule in “Red Vienna,” which led to ever-growing antagonism between the socialist and nonsocialist camps. This was not, however, the only division. Anticlericalism, anti-Marxism, virulent fascism all had their fanatical adherents. And as the various groups developed armed party militias, political violence, sometimes deadly, became all too commonplace. Within the camp of the German nationalists after the demise of the monarchy the issue of loyalty toward the Habsburgs disappeared, so many former moderates became ardent supporters of the union of Austria with Germany. Indeed, after 1918 Anschluss was attractive not merely to panGermans but to a majority of the Austrian electorate. The Austrian economist Friedrich Wieser, who served as the minister of commerce in the three last cabinets of Cisleithania, noted: “Today for the first time I have openly professed in favor of the Republic and against Habsburg! . . . I had always been loyal to the dynasty because it was the dynasty that had kept Austria and Hungary together. Yet today I am against the dynasty because it separates us from Germany” (diary, Nov 15, 1919, FWP). And indeed immediately after 1918 the majority of Austrian economists favored Anschluss. The only consistent dissenter was Joseph Schumpeter, who during his term as minister of finance openly disagreed with the cabinet’s policy by supporting a confederation of the Danube states over the union with Germany—this was one of the reasons why his ministry was short-lived. Even Ludwig von Mises for some time considered the union with the German Reich “a political and moral necessity” (Mises 2002b [1920b], 111; cf. Ebeling 2010, 105–7), though not an economic one. Fritz Hayek was another adherent of Anschluss, and there is no reason to doubt his memory when he recalled in old age: “I regretted the break-up of Austria-Hungary, but my experience in the army had made me regard it as having become inevitable. Ever since 1918, when this happened, I have been a convinced advocate of the Anschluss to Germany, not so much for any emotional or sentimental reason but because it seemed to me the obvious and natural cure for most of the complaints of the Austrians . . . I still believe it might have prevented the second world war if the French had not prevented it” (IB 32).

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Back at Home By the end of 1918 the Hayek family was united again in Vienna, all of its members having returned from the war more or less unharmed. Like most of the Austrian population, Fritz and his family experienced the postwar situation as a shock, the challenges of high politics being mirrored in the trials of individual hardship that everyone faced. As Fritz’s brother Erich remembered, “there was no fuel, no coal . . . and in winter 1918/19 we suffered from starvation and freezing, and over and above a flu epidemic, undernourishment made adults lose up to 40 pounds of their weight, so that mortality rose considerably” (EHH; cf. IB 31). The flu epidemic mentioned was yet another wave of the Spanish flu pandemic of 1918/19 that had afflicted Fritz the previous June. The flu would claim at least fifty million lives worldwide, two million in Europe and more than twenty thousand in Austria (N. P. A. S. Johnson and Mueller 2002). As members of the upper middle class who (at least in the early days of the postwar period) still retained some of the fortunes inherited from the Juraschek and Stallner lines, the Hayek family was better equipped than the average Viennese household for dealing with the prevailing hardships. But the miseries of everyday life did not pass them by. These miseries were the main subject of the correspondence between Fritz and his parents a year later (1919/20) when he was abroad. Letters from Felicitas were filled with complaints. Only small quantities of rationed foodstuffs like bread, flour, and fat were available, and meat was nowhere to be found. The main diet consisted of cheap vegetables, various types of beets and turnips (Wruken) that had been fed to animals in the days before the war. To get some affordable meals she regularly turned to the “Schwarzwaldküchen,” creations of the ubiquitous Genia Schwarzwald, who besides her pedagogical projects had founded an association for running low-cost “community kitchens” in Vienna. Felicitas noted that even Papa had to discipline himself by curtailing his cigarette consumption (Felicitas to Fritz, Nov 20, Dec 7 and 18, 1919; cf. EHH, IB 30). Another serious problem was the shortage of heating material. During the winter term of 1919/20 the University of Vienna closed because it was unable to heat the lecture rooms, and the same was true for the gymnasium that Erich attended. The Hayek family had to crowd together in one or two rooms because it was impossible to heat the others. His father confided to Fritz about “the uncomfortable circumstances here, especially the icy bedroom, only one usable room with an electrical flame and 12 degrees [Celsius, or 54 degrees Fahrenheit], after 7 pm there is no electricity any-

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more” (August to Fritz, Dec 27, 1919; see also Felicitas to Fritz, Nov 20 and Dec 7, 1919). Things were sufficiently dire that international efforts sprang up to spare the children and adolescents of Germany and Austria from the worst deprivation. Comparable to the later “Save the Children” sort of foundation, these charities were established in countries less affected by the destruction of war, like the neutral Scandinavian countries. Their activities ranged from the provision of food and clothing to the invitation of children to spend time with host families in the donor countries. For people of higher classes, these general efforts were supplemented by assistance at the individual level through their own networks. In the case of the Hayeks, Fritz was aided by August’s botanist friends, who “wanted to help the son of a friend who had recently returned from the war and not only needed better food but was also suffering from malaria” (IB 40). Accordingly Fritz left Vienna for Zurich in mid-November 1919 and returned in February 1920 (this is the time period for which we know the most about the family’s living conditions in Vienna through Fritz’s correspondence with his parents). His hosts appear to have been a Zurich professor named Escher and the botanist Heinrich Brockmann-Jerosch, lecturer for systematic botany and plants geography and the former assistant of Carl Schröter, whom August knew. Apparently, Erich had gone to Zurich before Fritz, and he and Heinz left Vienna for similar visits in early 1920, Erich going to the Netherlands and Heinz to Switzerland. Fritz’s sojourn in Zurich contributed some luxuries to the otherwise frugal family celebration of Christmas in 1919. The family received gifts from Fritz’s hosts, among them chocolate and cakes, and candles for the Christmas tree. Later on the exchange of packets between Vienna and Zurich—the wish list included not only again some chocolate and cacao, but also some gummi arabicum (for Papa) and darning wool and thread (for Mama)—was facilitated by a Viennese friend who visited Zurich in January 1920 (Felicitas to Fritz, Dec 18, 1919, and Jan 5, 1920). The friend was Hedwig Heller, a great-granddaughter of Eduard Suess and the wife of the well-known Vienna bookseller and concert promoter Hugo Heller, who was also for the Hayek family the highly appreciated source of concert tickets (as Fritz gratefully remembered, when he was in New York; see Fritz to parents, Aug 12, 1923).2 Inevitably, Christmas gifts that year were modest and utilitarian. Heinz 2. The Hellers were Jewish. We might also note that Hugo was a participant in Sigmund Freud’s Vienna Psychoanalytical Society (see Fuchs 2004).

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got a tailcoat and a proper winter coat, “both random chance acquisitions, which still cost terrible amounts of money.” Erich had to content himself “with an aluminum provision box, a penknife and several cups,” and mother Felicitas with “socks and gloves, as well as a new washing table in the bathroom” (August to Fritz, Dec 27, 1919). Another gift giver, unnamed in the letter but surely grandmother Juraschek, could afford to be a bit more generous, sending each of the Juraschek siblings 500 K (Austrian crowns) and each of the Hayek boys 100 K (Felicitas to Fritz, Jan 5, 1920). The family’s Christmas celebrations were clouded by the ever-present danger of sickness, mostly colds brought on by the bone-chilling winter and absence of proper heating. Some outcomes were devastating. On January 19, 1920, Felicitas casually informed Fritz that his brother Heinz was helping out at the Bitterlich home because both daughters were suffering from influenza. Only a week later, on January 25, Lieserl, Lenerl’s sister, died from pneumonia, another victim of the Spanish flu. This was added to the sad news that August had reported to his son a few weeks earlier, “of the terrible disease and the death, which occurred on Christmas evening, of my good friend Schrödinger, who after 6 weeks of sickness succumbed to a quickly proceeding arteriosclerotic renal degeneration. I was very affected by the whole thing” (August to Fritz, Dec 27, 1919). August’s deceased friend was Robert Schrödinger, father of the physicist Erwin Schrödinger and an active member of August’s beloved botanical society. Indeed, his obituary referred to him as the “administrative soul of the society” (Handlirsch 1921, 35). Fortunately, not all the complaints by these members of the upper middle class about life in postwar Vienna involved matters so dire. A problem that Felicitas never failed to mention was the difficulty of hiring a housemaid. Quite apart from restrictions introduced by new social legislation, like the eight-hour day, some of the servants, who had come from the countryside where food was more plentiful, found the modest allowance in the Hayek household unacceptable. When Felicitas reminded one of them of the constraints they faced, she cheekily replied, “Well, madam, then you simply can’t keep a maid!” (Felicitas to Fritz, Dec 7, 1919, see also Nov 30 and Dec 18, 1919). Another potential tragedy was that the family’s traditional gallery seats at the Burgtheater might have to be abandoned by the end of 1919. Fortunately, this ended up being averted by a collective action initiated by a group of longtime subscribers (August to Fritz and Felicitas to Fritz, both Dec 27, 1919). It was not until the summer of 1920 that there was a return to some kind of normalcy in the postwar life of the Hayek family. Compared with the

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family’s typical summer vacations this was an exception in that they spent it separately, again at the invitation of August’s botanist friends abroad, in various regions of Scandinavia. Erich left Vienna for a stay in Sweden, Heinz and later Fritz went to Norway, and eventually the parents organized a trip to Denmark, Sweden, and Norway, where they met Fritz and Heinz for a week. They stopped at Copenhagen, Malmö, Lund—where they were hosted by the professor of botany, Svante Murbeck, and Felicitas remarked that they “have yet to become accustomed to the opulent food” (Felicitas to Fritz, Aug 14, 1920)—and Gothenburg. Fritz departed Vienna on July 21 and arrived on July 27 at Grefsheim, an estate near the town of Hamar on Lake Mjøsen, owned by the Norwegian agriculturist and politician Johan Egeberg Mellbye (1866–1954). In his datebook (Aug 18, 1920) Fritz gave an account of a typical idyllic day there: “From 8 to 9 tennis, breakfast, learning . . . , then bathing, (up to now only once) going for a walk, lunch at 2, then learning Norwegian (from tomorrow on, reading), coffee at 4, then doing some work on my ‘contributions’3 and playing tennis, 7:15 dinner, after dinner newspapers and reading Adam Smith . . .” Other activities, in addition to socializing with the Mellbye family, included rowing, driving a motorboat to one of the islands, and horseback riding. After a short visit from his parents Fritz began his return trip on September 13. After a two-day stop in Berlin he arrived back in Vienna on September 20. On returning he began the final year of his study of law at the university and resumed a very active social life. The time away also marked his regaining his full health, having suffered from among other maladies “a violent outbreak” of malaria in the summer of 1919. The visit to Norway seems finally to have cured him (IB 29, 40). As it turns out, Fritz’s first scientific publication came about as a byproduct of his trip to Norway. It was a report on the Nordic Economic Congress held in Stockholm from August 31 to September 2, 1920. Fritz had not attended but relied on a report published in Norwegian—apparently the fluency he acquired during the summer sufficed for the task. Fritz’s piece was eventually published in the Viennese Zeitschrift für Volkswirtschaft und Sozialpolitik (Hayek 1921). Six pages long, it is otherwise unremarkable. Fritz refrained from taking positions on the issues, only reporting on what had been presented.

3. As we will see, this refers to Fritz’s manuscript “Beiträge zur Theorie der Entwicklung des Bewußtseins” (Hayek 1920), the precursor of The Sensory Order (Hayek 1952a).

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Lenerl Having survived the deprivations, boredom, and dangers of life on a war front, as well as a desperate forced-march retreat, Fritz did not feel the hardships that confronted him on his return to Vienna too heavily. Rather to the contrary, in the winter of 1918/19 it appears that his life followed the age-old university student formula of working hard and playing hard: “Though I returned in November 1918 rather late for the university semester and with somewhat impaired working capacity, I at once plunged with what to me seems now an astounding energy both into the several branches of study and, at least in the beginning of the new year, a very active social life. I must for weeks have worked all day and danced most evenings” (IB 32). For Fritz, a big part of “plunging into social life” was to reconnect with his old friends. It was then that his relationship with his cousin, Helene “Lenerl” Bitterlich, apparently deepened. Born on September 4, 1900, Helene was slightly more than a year younger than Fritz. She was two years the junior of her sister, the ill-fated Elisabeth (Lieserl). Like Felicitas, the Bitterlich sisters lost their mother when they were just children: Margarete Bitterlich died in 1904, aged only twenty-eight, after the stillbirth of a third daughter. Because their father, Friedrich, was often absent serving in the Austrian army, both sisters were (again like Felicitas) put into the custody of their maternal grandmother, Elisabeth Fleischhacker. In old age Helene made some statements about her relationship with her grandmother and sister. It is not a pretty picture. She remembered her grandmother as emotionally cold but also unflappable, apparently viewing her grandmother’s equanimity as a praiseworthy trait. She felt that her grandmother loved her sister Lieserl more than her, that her sister was prettier and more popular, and expressed her surprise when others would ask her, rather than her sister, to dance. It is hard to know how much credit to give to such accounts, but they do suggest that Lenerl felt insecure as a child and young adult, and as she herself put it, she had always longed to be loved (Cubitt 2006, 151, 335–36). The sisters lived at the grandmother’s domicile at Alleegasse (today Argentinierstraße) 19; when after the war their father retired with the rank of major general, he joined them there. From her eighth birthday on Lenerl began keeping a diary, which provides some further (albeit fragmentary) insights into her person and how she spent her childhood. Contacts with the maternal branch of the family, and in particular with the Eisenmengers, appear to have been much closer

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than those with the paternal side.4 There are frequent references to various uncles and aunts, e.g., “Uncle Robi” (Robert Fleischhacker), “Uncle Rudi,” “Uncle Ewald,” and “Aunt Lilly” (all Eisenmengers). Besides her sister Lieserl the young Lenerl mostly associated with her cousins Gerty and Ellinor Eisenmenger—though the latter died at age eight only a few months after Lenerl had started keeping her diary. Like most well-to-do inhabitants of the city, the sisters spent holidays and vacations in the countryside. Intriguingly, in 1912 Lenerl accompanied cousin Fritz and his brothers and father to Brunnwinkl (Hayek to Karl von Frisch, July 20, 1981). He was thirteen, and she just about to turn twelve. There is no mention of this episode, though, in her diary. Lenerl’s school career was typical for a girl of the city’s upper middle class. After primary school she attended the progressive schools directed by Genia Schwarzwald, first the Mädchen-Lyzeum and then the Gymnasialkurs preparing girls for the exams necessary for a university diploma. Apart from furthering the education of girls, the Schwarzwald Institute was unique in its propagation of coeducation and included among its teachers such luminaries of modernity as Adolf Loos and Oskar Kokoschka. Some of Lenerl’s schoolmates became famous later on: Alice (Liccie) von Herdan married the German playwright Carl Zuckmayer and wrote a very favorable memoir of her years at the Schwarzwald schools (Herdan-Zuckmayer 1979). Helene Weigel and Elisabeth Neumann became well known on their own as actresses but also as the wives of Bertolt Brecht and Berthold Viertel, respectively (Spiel 2007, 41). In short, Lenerl’s education as a young adult rivaled that of Fritz. Her performance at school might be described as unbalanced: She excelled in mathematics but struggled to pass humanistic subjects like history or Latin. Although she finished successfully in 1918 (Lenerl’s diary, June 8, 1918), she did not go on to study at the university. In 1918, that is, as a young adult, she started taking piano lessons. None of the complaints of mistreatment that she mentioned in old age are present in the diary, but the strength of Lenerl’s feelings of infatuation, sometimes bordering on adoration, for various people she encountered is evident. In the first year of the Gymnasialkurs she idealized one of her teachers, “Dr. Weissel” (diary, Feb 12, 1915), most probably Elisabeth (Elsa), the sister of Josefine Weissel, a future director of the Schwarzwald girls’ gymnasium. Later Lenerl developed a similar crush on one of her male teachers. She occasionally mentioned friends of her own age, as a rule companions for ice-skating or dancing events (Mar 31 and May 22, 1913). 4. For a genealogical account of Helene’s family, see Caldwell and Klausinger 2021a.

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Fritz Hayek makes his first appearance (as “Fritz H.”) on January 5, 1914, on a list of her favorite partners for ice-skating. He placed second out of ten. It was also around that time that Fritz and Heinz began taking dancing lessons with their cousins, Lieserl and Lenerl, with Walter and Herbert Magg also taking part: in Fritz’s datebook there are regular entries for dancing lessons on Saturdays throughout the year 1913 (EHH; cf. IB 11). In late 1918 Lenerl finally confided to her diary that she had fallen in love with Fritz and had felt that way for two years (Dec 26, 1918), although little can be ascertained about the earlier period as she was then employing a secret code when she wrote in her diary. On October 22, 1918, just before Fritz returned to Vienna from the front, she wrote: “Yesterday in the evening, I thought I’d go mad. I felt so much yearning for him . . . Perhaps he will return soon, he has applied for becoming a fighter pilot . . . If I ever marry, then only him!” Although he is not mentioned by name, Lenerl’s object of affection is indeed Fritz, as confirmed by her later statement to Hayek’s secretary that he was the unnamed person in her diary (Cubitt 2006, 337). When Fritz finally did return home from war, one of the last entries in Lenerl’s diary (Dec 26, 1918) foreshadowed some of the ambiguities that would ever be a part of their complicated relationship: “Today he was here . . . I ever believe that I will marry him. I cannot imagine otherwise . . . I am really yearning for showing him that I love him and that he will show me the same, and for kissing him, but it will not be for a long, long time, because he will not tell me anything before he is able to become engaged to me, that is, to marry me, because he is an advocate of short engagements. Yet, my God, I am young, I am free, and in the meantime I may turn to a makeshift arrangement with another one.”

Social and Cultural Activities How will all these reconcile with socializing, dancing, ice skating? (Diary, Sept 23, 1920)

• In a later chapter we will take up Fritz’s experiences at the University of Vienna, which of course took up much of his time.5 Here we will focus on the variety of other activities he pursued in the years after his return from the war. 5. This section is mainly based on a fragmentary diary that Fritz kept for most of 1920 (in his notebooks, in FAHP 139.3) and on his datebooks for 1920 to 1923; see also his address books (in FAHP 119.2).

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Some revolved, as always, around the family. Although Fritz was still living with his parents, having been on his own during the war evidently made him more independent, and as is true for many young adults, the start of university only reinforced a search for greater autonomy. His parents were of course still welcome companions at the theater and opera or on hiking tours in the Vienna woods and the mountains. But these happened less frequently, owing in part to his father’s deteriorating health, which had begun to become noticeable during the war and which gradually worsened afterward. August’s condition was at times accompanied by depression, which of course made things even harder for all concerned. Fritz kept up the habit of visiting relatives like the Castles, and the friendship with Lenerl paved the way for closer contacts with the Bitterlich and the Eisenmenger families, for example with Fritz’s distant cousin Gerty Eisenmenger. Outside of his extended family Fritz still cultivated friendships from his youth—after Walter’s death he remained close to Herbert Magg (who became one of his favorite climbing partners through the 1920s) and his mother, Nelly—and at the university he was able to revive some old friendships from schooldays (Bartley interviews, Feb 9, 1983). As his diary entry makes clear, he had a rather active social life, and dancing played an important role in it. There were group dance lessons at the Fränzl School in the autumn of 1920, and every two weeks or so dances would be held at the Hotel Oesterreichischer Hof. Fritz would often accompany Lenerl and (in the years before her death) Lieserl there, as in those days it was thought improper for girls of their class to go out unescorted, though sometimes their grandmother was the chaperone. According to Ellie Petertil, a former schoolmate of Lenerl’s (see Cubitt 2006, 106n), Fritz was the perfect gentleman and partner: “As frock, shoes, etc. were then still rare and snow boots hardly existed, Fritz Hayek always carried in a paper bag the dancing shoes of the two Bitterlich girls. Fritz and I liked to dance together—especially the ‘Walzer’—and so we became good friends. He was extremely well-behaved, rather serious, and one somehow felt ‘protected’ if he held you in his arms” (in IB 37–38). Fritz was also attracted to new circles of friends that stretched well beyond the borders of the family. Attending university allowed him to come into contact with families of the Vienna “haute bourgeoisie.” He could now take part in “jours” and “soupers” reminiscent of the glamorous evening events that had been arranged by grandfather Juraschek. From his diary and datebooks we know that he was regularly a guest in the homes of the Postelberg, Wetzler, and Fleischmann families. The lawyer Emil Postelberg, President of the Anglo-Austrian Bank Bernhard Wetzler (who was married to Ernestine Thorsch, the heir of a wealthy Vienna banking

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dynasty), and their son-in-law Carl Fleischmann, a gynecologist and the director of the Vienna Rothschild hospital, were all members of the Jewish bourgeoisie (see Gaugusch 2011/16). Fritz had met their daughter Elisabeth (Lisa) Postelberg, a law student who died in a mountaineering accident at the Rax in 1925, and their son Walter Fleischmann, a biologist, at university. Such contacts evidently went far beyond the traditional circles of the Hayek family. When eventually the pattern of regular summer vacations resumed, Fritz (and his brothers) spent most of them separately from their parents. In 1921 Fritz left Vienna at the beginning of July for the Salzkammergut, where he joined Lenerl for several weeks at Grundlsee in the Schwarzwalds’ summer home, Villa Seeblick. Genia Schwarzwald had opened her “recreation home for headworkers” in 1920. It proved attractive—despite a ban on alcohol consumption—owing to the cheapness of accommodation and the opportunity for intellectuals from Austria and abroad, as well as for young people, to meet and mix. Current and future celebrities who were regular guests included the pianist Rudolf Serkin, the singer Lotte Leonard, and the authors Arno Holz, Egon Friedell, Jakob Wassermann, and Carl Zuckmayer.6 There was a short interruption of Fritz’s sojourn at Grundlsee when he went to St. Gilgen to visit Friedrich Wieser at Brunnwinkl on his seventieth birthday.7 In August he moved for two weeks to Afling, a small village in Tyrol, where he was hosted by Franz Juraschek and his wife, whose family lived in Innsbruck. In 1922 Fritz again spent his summer vacation, four weeks in August, at the Schwarzwald home, this time without Lenerl but for the last week joined by his brother Heinz. Again there was a break midway through for four days at St. Gilgen and at Brunnwinkl, where he saw Wieser. As usual during the summer vacation Fritz indulged in his passion for mountaineering, in 1921 reaching the summit of the Loser (from Grundlsee). He also undertook two climbing tours in Tyrol, to the Stubai and Ötztal Alps, then concluded his 1922 vacation with a tour with Heinz to the Dachstein. Fritz’s cultural activities continued to include regular visits to theater, opera, and concert halls, either with his parents or with various friends. If one examines the performances that Fritz listed in his fragmentary diary in 1920, his tastes might be judged as eclectic, though he refrained from 6. On the Schwarzwald home, see, e.g., Deichmann 1988, 175–85, and D. Holmes 2012, chap. 12. 7. This is the visit Hayek remembered (in a letter to Karl von Frisch, July 20, 1981) as occurring the year after the death of Wieser’s daughter Marianne, who had committed suicide in December 1920.

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anything too “modernist.” In theater the plays he attended ranged from Shakespeare, Grillparzer, and Oscar Wilde to one drama by August Strindberg (Queen Christina) and two by contemporary Austrian authors, Karl Schönherr and Otto Stoessl. In opera the choices were quite traditional: Cosi fan tutte, Carmen, Der Rosenkavalier, Cavalleria Rusticana. The classical music concerts he attended included a subscription, held jointly with Herbert Fürth, to a series of concerts of chamber music by the famous Rosé Quartet. Overall, though, Fritz’s main interest was in the theater. He was, as he put it, “by Viennese standards . . . very unmusical,” which apparently was later reinforced rather than mitigated by Lenerl’s preference for piano recitals of which he was not fond. At the time, Fritz was introduced to the field of painting by his slightly older uncle Franz Juraschek, a student of art history and allegedly a favorite pupil of Max Dwořák, the famous art historian (Bartley interviews, Feb 28, 1984). Fritz’s fondness for paintings and for visiting museums would persist throughout his life. Yet, although he had participated in the lively discussions on modern art in Vienna, where he stood in favor of Egon Schiele and against Oskar Kokoschka, he conceded that he had “no understanding for post-Impressionist painting” and over time “ceased to take any interest in what is called modern art” (see Bartley interviews, Feb 28 and Apr 2, 1984). Some additional insights into his autonomous intellectual development may be gained from the meticulous reading lists that Fritz, ever the avid chronicler, kept for the period from fall 1919 to the end of 1922 (preserved in FAHP 139.2–4). With regard to the works of fiction, which constituted only a small share of his reading in general, it should be remembered that Fritz was well versed in classical literature and that his father’s library offered him a great variety of books from which to choose. Presumably most of the books listed were either new purchases or borrowed from the libraries of others. Apparently Fritz’s visits to Zurich and Norway induced him to engage with Swiss and Scandinavian literature; he read the Swiss poets Jeremias Gotthelf and Conrad Ferdinand Meyer, but most important the major novels of Gottfried Keller, and works by the Norwegians Bjørnstjerne Bjørnson and Knut Hamsun, the Swede Selma Lagerlöf, and finally Henrik Ibsen. Among the other foreign-language authors, we find a volume of essays by Tolstoy, a play by George Bernard Shaw, two books by Oscar Wilde, Rabindranath Tagore’s The Home and the World, and Romain Rolland’s Colas Breugnon. We may note as a curiosity, in view of Fritz’s early relationship with the family of Karl von Frisch, that he also possessed Maurice Maeterlinck’s essay The Life of the Bee (and even Bonsel’s Maya the Bee).

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Fritz’s selections from German-language literature are also revealing. There are books one might expect in the library of a reader educated in the classical literature: two plays by Gerhart Hauptmann, a study on German Romanticism by Ricarda Huch, a novel by the nineteenth-century poet Wilhelm Hauff, and the widely read 1916 Goethe biography by Friedrich Gundolf. Other authors on Fritz’s list were not so kindly treated by posterity. In addition to works by Fritz’s friend Friedrich Schreyvogl, we find the proponent of the German youth movement Hermann Popert (Helmut Harringa), Richard Bartsch, an Austrian author of mawkish novels, and Wilhelm Scheffel’s Trompeter von Säckingen, an epic poem that had perfectly served the nationalist sentiment of the Wilhelmine era.8 The modern Austrian literature of the fin-de-siècle era is notable by its absence, with the exception of Arthur Schnitzler’s play Reigen (La Ronde), possibly chosen not solely for its literary merit.9 Fritz had little patience for Viennese “coffeehouse literature”: he knew of the satirist Karl Kraus’s work but it did notimpress him (see IB 50), and he found Egon Friedell, whom he might have met in person at Grundlsee, “repugnant” (“ein Ekel,” see Fritz to parents, New York, May 12, 1923). From this brief survey, the young Fritz emerges as a reader with wide interests, yet with a literary taste shaped by his early acquaintance with the classics. Among contemporary authors he seems to have preferred a traditional style of writing over a more outspoken modernist one. * * * Fritz Hayek may have returned to a ruined Vienna, but having survived the war he was ready to try out a host of new experiences, intellectual, social, and cultural. Many of them were intimately connected to his time at the University of Vienna. Before exploring his intellectual journey while there, we will look briefly at the institution itself and some of the people Fritz would encounter there.

8. Fritz’s grandfather Gustav had been the chairman of a Vienna Scheffel society; see Neue Freie Presse, June 3, 1896. 9. The provocative play examines sexual and social mores across different classes in society, with ten scenes, each having two lovers interacting: The Whore and the Soldier, the Soldier and the Parlor Maid, the Parlor Maid and the Young Gentlemen, and so on. It is a round because the final pair, the Count and the Whore, completes the circle.

·7· The University of Vienna

The University of Vienna: Its Rise and Decline The University of Vienna, one of the most ancient of the German-language area, was founded in 1365. Its early history was often unremarkable. In modern times its flourishing began with the 1867 Thun-Hohenstein reforms. In 1877–84 a new main building was erected on the Ringstraße, establishing devotion to higher education as yet another symbol of the flowering liberal era. “Vienna schools” in various disciplines arose during this period. There was the Second Vienna School of Medicine—the first one dated back to the times of the Empress Maria Theresa and her personal physician Gerard van Swieten—represented by the adherents of the so-called natural healing method and such luminaries as the surgeon Theodor Billroth (whom we introduced earlier for his contributions to “racial” Austrian anti-Semitism and as a member of the Brunnwinkl community), the orthopedist Adolf Lorenz (father of the future Nobel laureate Konrad Lorenz), the serologist Karl Landsteiner, and although lacking formal academic recognition, the founder of psychoanalysis, Sigmund Freud. In art history the best-known exponent of a Vienna School, one that combined theory with the practice of monument conservation, was Max Dwořák, mentor to Fritz’s uncle Franz Juraschek. In geology the already-mentioned Eduard Suess was an eminent scholar, as was Julius von Hann in meteorology, a discipline in which another Viennese school evolved, founded by Felix Exner and continued by Fritz’s uncle Wilhelm Schmidt. In the natural sciences the university could count among its professors Josef Loschmidt, the discoverer of the eponymous constant, Ludwig Boltzmann, and Ernst Mach, the last two famous for their contributions not only to physics but also to a philosophy of (natural) science that paved the way for the Vienna Circle of Logical Positivism. Finally, the jurists teaching at the Faculty of Law were in their time also held in high repute. And it was, of course, at this faculty that a Vienna (or Austrian) school of economics originated.

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But as Hayek briefly recounted, the ascendance of the university was relatively short-lived: “The great reform in 1867; till then the University of Vienna was nothing, nothing . . . it begins to grow; at the end of the century it reached a high point. It had its highest level in the 1890s and up to 1914. It revived once more after the war, through the 1920s, and almost at the beginning of the 1930s it dies, not only in economics, all of it” (Hayek 1994, 49). Hayek’s negative appraisal is, unfortunately, consistent with that of other observers.1 Perhaps the most sinister force working to undermine the university’s progress was the increasing entanglement of academia with the political battles of the period and the growing influence of German nationalism and anti-Semitism within both the faculty and the student corporations. We saw in an earlier chapter that discrimination against Jewish students and scholars had been common before the war.2 The Billroth affair, the adoption of Aryan paragraphs by many organizations, and the discriminatory actions of student fraternities all had taken their toll. In the dire conditions that prevailed in the immediate postwar period, it became commonplace to use the Jews—especially those newly arriving from the East (Ostjuden)—as a convenient scapegoat for the growing social and economic misery.3 In the postwar period the increasing influence of anti-Semitic prejudice so evident in the larger society was felt, if anything, even more strongly in the university. But it was not just the Jews versus the rest: as one might expect given the ethnic, nationalistic, cultural, and religious tensions that had pervaded life in the last decades of the monarchy, there remained conflicts among other competing groups too. Some early episodes are illustrative. In 1907 Karl Lueger in a speech at the German Catholic Convention in Vienna called for a Catholic reconquest of the Austrian universities directed against the influence of anticlerical German nationalists. Eminent members of the University of Vienna, Carl Menger among them, opposed Lueger’s initiative in the name of academic freedom (Menger 1907, Nov 21). Predictably, the dispute quickly settled along familiar lines, as it became evident that it was easier to attack Jewish members of the faculty than German nationalists. The following year the “Wahrmund affair” pitted again Catholics against 1. See for the following Taschwer 2015a and the contributions in Stadler, ed. 2015. 2. See, e.g., Beller 1989, or Rathkolb, ed. 2013. 3. Austria was not unique. As the German author Kurt Tucholsky (1920, July 7) put it, in what became a well-known saying: Der Löwe ist los. Wer ist daran Schuld? Die Juden! (The lion has been let loose. Who is to blame? The Jews!)

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pan-Germans. Its subject was the Innsbruck professor of theology Ludwig Wahrmund, whose modernist views were seen as insulting the bishops and the Curia. The question of how to handle this delicate academic problem paralyzed the Cisleithanian Coalition government of Christian Socials and German nationalists. It also led to sufficiently violent riots among students that the university closed down. Over time a general pattern in university affairs emerged in which the radicalization and growing militancy of the German student corporations was met by at best halfhearted attempts by the university administration to protect other student groups—Jews, nonGermans, and sometimes Catholics—from insults and violent assaults (Boyer 1995, 186–211). Discrimination was commonplace within the faculties with regard to the granting of lectureships (Habilitationen) and appointments to full professor chairs. Jewish scholars who had failed to convert bore the full brunt of discrimination; it was the rare exception who would be promoted to a full professor’s chair. But even those who had converted to a Christian faith were usually not treated on a par with their non-Jewish competitors. A procedure often used when choices between Jewish and non-Jewish candidates were difficult was the splitting of one chair (or institute) into two, so that one chair could be reserved for a Jewish applicant and the other for an “Aryan” (Rathkolb 2013, 90–91). A well-known example was the assignment of the chairs at the First and Second Institutes for Anatomy. The first chair was occupied by Emil Zuckerkandl, followed by Julius Tandler, the second by Carl Toldt, followed by Ferdinand Hochstetter—which twice juxtaposed Jews with dedicated anti-Semites. Tandler (1869–1936) was then a well-known figure, as both a scholar and a politician. A member of the Socialist party, he served for more than a decade as municipal councillor for health care of the City of Vienna. In this role he promoted public health (one initiative was the fight against tuberculosis) and, like many progressives of his day, eugenics. Hochstetter (1861– 1954) was a conservative nationalist, and his institute was well known as a “hotbed of German nationalist and ‘folkish’ students” (Taschwer and Föger 2003, 40). Throughout the 1920s the antagonism between the students of Hochstetter and Tandler was evident. German nationalist students regularly targeted Tandler’s institute in their attacks; there were incidents of physical fights and breaking laboratory equipment (see Nemec and Taschwer 2013). As we will see, when Fritz’s brother Heinz started to study medicine, he chose the German nationalist Hochstetter as his teacher. So despite the blossoming of many disciplines at the University of Vienna at the turn of the century, seeds of decline were being sown that reflected fault lines in the society as a whole. Another precipitating factor

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was the dearth of paying positions at the university relative to the number of talented people who wanted to work there. Within the university system, the first step toward an academic career consisted in the successful conclusion of the procedure for obtaining the position of lecturer with a license to teach or venia docendi (Privatdozent). This typically was followed by a career that combined university teaching with professional activity outside of the university. For most people this double existence, inside and outside the academic community, lasted for the rest of their lives, with only a happy few managing in the end to get an appointment to a chair, either a low-paid extraordinary professorship or a well-paid ordinary one. The awkward position of scholars who could exist only at the edges of the university is a chief cause of the extramural circles that were so central to intellectual life in Vienna. This was the case for most of the members of the circles in which Fritz Hayek participated in the 1920s.4 After the war external factors aggravated the situation at the University of Vienna and contributed to a further loss of reputation. In 1913 it had been the world’s fourth-largest university in terms of student attendance, inferior only to Paris, Berlin, and Moscow, but only a dozen years later, in 1925, it had dropped to twenty-sixth and was one of only a few places where the absolute numbers of students had decreased (Taschwer 2015a, 42–43). There were many causes. The number of students from the former Austrian crownlands decreased when the newly formed sovereign states encouraged them to study at their own national universities. In addition, in some of the former German-language universities of Cisleithania, for example the one in Czernowitz, the German-speaking professors were dismissed. The inflow of those repatriating scholars further limited the number of positions available to younger aspirants. The strain on postwar Austrian government budgets required that austerity measures be extended to the universities, resulting in a reduction of chairs and even lower salaries—a long-standing complaint of Austrian professors, in particular when they compared their own to those of professors in the German Reich. Finally, the transition from the monarchy to the republic brought about changes in the university system that caused distress, especially among the old guard. At the Faculty of Law a new study program, Staatswissenschaften, was introduced, and the composition of the students changed, in the short term owing to another wave of Jewish students from the former eastern provinces, and in the longer run to the faculty’s admission of women students. 4. See Hayek 1983a, 3–7; on the prevalence of extramural circles see Dekker 2016, chap. 2.

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Unfavorable comments on these last developments from faculty members were common. Returning to his duties as a professor in July 1919, Friedrich Wieser found the state of his faculty “miserable”: “The students are at a low point. When I remember my time . . . , what teachers, what seriousness, what colleagues, and now I see all the womenfolk and Jewish folk in the auditorium. Back then our education had been unworldly, but serious, which enabled us to succeed in our lives. How many practical experts have emerged from my class! . . . [Yet, today] this is an intellectual proletariat educated for a proletarian republic” (diary, July 18/20, 1919, FWP). Late in life Hayek also lamented the change in status of Vienna after the war: in his opinion it had gone from “one of the great cultural and political centers of Europe” to “the capital of a republic of peasants and workers” (Hayek 1983a, 434). He would differ though from Wieser in his reaction to the “Jewish folk” with whom, for the first time in his life, Fritz was increasingly interacting.

The Austrian School of Economics Given that Fritz would ultimately become an economist, and indeed a major representative of the Austrian school of economics, known for its home in Vienna, it is mete here to mention the major figures in the movement, some of whom he would come to know well. At the University of Vienna the academic teaching of “economics” might be dated to the era of Austrian cameralism in the middle of the eighteenth century, with Joseph von Sonnenfels its most distinctive representative (see, e.g., Milford 2015). The tradition continued with Joseph Kudler, Lorenz von Stein, and Albert Schäffle until the 1870s, when a specifically Austrian school of economics arose at the university. The founder was Carl Menger, and successive generations of economists included a second generation, consisting of Friedrich von Wieser and Eugen von Böhm-Bawerk; a third, which included among others Joseph Schumpeter and Ludwig von Mises; and finally a fourth with Gottfried Haberler, Fritz Machlup, Oskar Morgenstern, and of course Friedrich Hayek. Carl Menger was born 1840 in Neu-Sandez, a town in the Austrian crownland Galicia, one of three sons of Anton Menger and Caroline, née Gerzabek.5 Both parents were devout Catholics from Bohemia. Nevertheless Carl’s origins in Galicia, where the majority of the population was Jewish, sufficed for his regularly being denounced—during his lifetime and 5. On Menger’s life see most recently Schumacher and Scheall 2020.

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afterward—as Jewish, and the entire school that he founded as being a product of the Jewish intellect.6 Carl studied law in Vienna and Prague and earned his doctorate in Cracow. After a venture into economic journalism, he turned toward economics at the end of the 1860s. His 1871 Grundsätze der Volkswirtschaftslehre (Principles of Economics), designed as the first volume of three, of which only one was published, became the founding document of the Austrian school. He was awarded the license to teach at the University of Vienna in 1872, appointed extraordinary professor the following year, and in 1879 became full professor with a chair explicitly dedicated to political economy. In the years before, he had been chosen as the tutor in this subject for Crown Prince Rudolf, the ill-fated heir to the throne who committed suicide with his mistress in Mayerling in 1889. In 1883 Menger published his Untersuchungen (Investigations), which gave rise to the infamous battle of methods between the Austrian school and the “younger historical school” and its leader Gustav von Schmoller. Menger also made contributions to the theory of money and wrote on currency questions. His work on a second edition of the Grundsätze as well as on a sociological treatise remained unfinished. In 1903 Carl Menger applied for early retirement. Formally this was for reasons of health, but it may also have been related to domestic affairs. From the end of the 1880s he had lived with Hermine (Mina) Andermann, thirty years his junior, and in 1902 a son, Karl Menger, was born out of wedlock, though later legitimized by an emperor’s decree. Mina had been an actress, worked as a journalist and author, but mainly devoted herself to assisting Carl in his research. She was of Jewish descent but in 1893 had converted to Roman Catholicism (Staudacher 2009, 25). Three of Menger’s contributions to the Austrian school approach may be judged as crucial.7 First, the subjective (or subjectivist) theory of value, according to which the value of a good is a property not inherent in it but bestowed on it by the individual subjective valuation of economizing man. By this reasoning, the value of a good is determined not by its (objective) costs, but by its (subjective) utility. This argument was directed mainly against the cost-of-production theories of value of the classical economists. Second, with regard to methodology, Menger insisted on the primacy of abstract deductive reasoning, that is, of the “exact-theoretical approach,” 6. For examples see Klausinger 2014, 192, 197. 7. For more on Menger’s contributions, see the special issue of the Atlantic Economic Journal (Carl Menger and Austrian Economics, 1978), and the essays in Caldwell, ed. 1990. One may also consult Caldwell 2004, 17–27; Endres 1997; and Hayek 1934b.

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for understanding the logical structure of economic phenomena, as opposed to the historicists’ belief that theoretical generalizations could be arrived at by the accumulation of historical empirical knowledge. For Menger, this primacy did not imply exclusivity: Exact theory did not exhaust the field of economics, as there were questions that could be answered only by taking into account insights from an “empirical-realistic approach.” Finally, a point equally controversial in the debates between the Austrian and the German historical schools concerned the evolution of institutions. While Schmoller and his disciples emphasized the role of the state (acting through the sovereign or an enlightened civil service) as the creator of institutions, Menger regarded many social institutions as the outcome of the interaction of individual decisions. He presented the emergence of the institution of money as a paradigmatic example of “the unreflective result of specific individual strivings of the members of society” (Menger 2002 [1909], 33)—a formulation reminiscent of Adam Ferguson’s description of institutions as the result of human action but not of human design (see Hayek 1967b). Indeed, Hayek would never tire of pointing toward Menger’s writings as the original inspiration for his own idea of “spontaneous order.” * * * The Austrian school owed its rapidly spreading fame as much to Menger’s two followers, Eugen von Böhm-Bawerk and Friedrich von Wieser, as to Menger himself.8 The two men’s lives were intertwined from the very beginning. Both were born in 1851 and attended the same secondary school, the Schotten-Gymnasium in Vienna. Both studied at the University of Vienna and after graduation obtained scholarship grants that enabled them to continue their studies in Heidelberg (1875/76) and in Leipzig and Jena (1876/77). To complete the circle, in 1880 they became brothers-in-law when Böhm-Bawerk married Wieser’s sister Paula. Böhm-Bawerk’s academic career took off with his habilitation at the University of Vienna in 1880. In the following year he was appointed to a chair in political economy at Innsbruck and in 1884 became full professor. As noted earlier, his time in Innsbruck overlapped with the period that Franz von Juraschek occupied a chair of law and statistics there. In 1889 Böhm-Bawerk returned to Vienna, where he worked as a civil servant in the Ministry of Finance. In the course of the next years he served as minister of finance in three different cabinets, in 1895, 1897–98, and 1900–1904. 8. For biographical information on Böhm-Bawerk and Wieser, see, e.g., Tomo 1994, Hennings 1997, and Hayek 1926b.

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When he stepped down from office, a professorship for political economy was created for him (ad personam) at the University of Vienna. He taught there until his death in 1914. Böhm-Bawerk contributed to the development of the Austrian school doctrine in many areas, but his most outstanding accomplishment was in capital theory. His life’s work on the topic filled three volumes in four editions, and what has since come to be called the “Austrian theory of capital” was essentially all his work (see Böhm-Bawerk 1959).9 His theory rested on two pillars: first, the representation of capital not by a collection of goods, but by a time dimension; and second, a price-theoretic explanation of the rate of interest. Regarding the first principle, capital—or more precisely, the capital intensity (or “roundaboutness”) of production—is measured by the (weighted) timespan from the first stage of the production of a good to its becoming ready for consumption. (As Hayek was to find out to his own detriment in his elaboration of Böhm’s theory, such a reduction of capital to one dimension introduces a host of conceptual problems.) Regarding the second, Böhm-Bawerk’s “individualistic” explanation of interest stands in sharp contrast to and was intended as a refutation of Marxian exploitation theories. For Böhm-Bawerk a positive rate of interest results from his famous “three reasons.” These are, first, the varying availability of goods over time, so that a higher future income induces people to pay a premium for present goods; second, the psychological preference for present over future consumption (“time preference”); and third, the “technical superiority of present over future goods,” meaning that output can be increased by more roundabout, that is time-consuming, production (“time productivity”). Böhm was also known for his devastating critique of Marxian value theory. His assessment of the Marxian system appeared in 1896 and was answered in Austria in 1904 by a young student named Rudolf Hilferding.10 Hilferding’s piece appeared just as Böhm-Bawerk was returning to the university to teach, and he took up the challenge by dedicating his first year’s seminar to the theory of value. This set the stage for an ongoing meeting that must be counted as one of the most noteworthy intellectual events in the history of economics.11 Those attending Böhm’s seminar included Hilferding himself, who would gain even more fame with the publication in 1910 of Das Finanzkapital (Finance Capital), perhaps the most important 9. This translation (1959) is based on the posthumous edition of the works, introduced by Friedrich Wieser, in three volumes (Böhm-Bawerk 1921); for the first edition (in two volumes) see Böhm-Bawerk 1884/89. 10. See Böhm-Bawerk 1896 and Hilferding 1904. 11. For more on the seminar and its participants, see Caldwell 2004, 102–26.

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work in Marxian economic theory in the twentieth century. There was Otto Bauer, a friend of Hilferding’s who would become a leading political theorist of Austro-Marxism and, at the conclusion of the First World War, the party leader of the Austrian Social Democrats. There was the precocious enfant terrible Joseph Schumpeter. There was the philosopher Otto Neurath, who would become the social science representative in the Vienna Circle of Logical Positivism in the 1920s and 1930s. And there was Ludwig von Mises, who in 1912 would publish an important contribution to monetary theory and in the 1920s become the mentor of Fritz Hayek. Neurath was a proponent of war economy, that is, the idea that a socialist planned economy of the type often resorted to in wartime would work equally well in peacetime. Administrative authorities would make ample use of statistics to plan and deliver appropriate levels of consumer and producer goods. Perhaps most controversially, Neurath insisted that money would be unnecessary in the new planned order. Calculation regarding appropriate levels of input use and output would be handled in physical terms. His views on economic planning bled over into his philosophical views. Neurath was an advocate of physicalism, the doctrine that all truly scientific theories make reference to phenomena that are observable and, when feasible, quantifiable. In a like manner, scientific economic management would not invoke subjective entities like value and utility, but be conducted in terms of real physical quantities of goods. As we will see, it was Neurath’s writings about socialist planning that provoked Ludwig von Mises after the war to begin his wide-ranging critique of socialist economic planning. Friedrich von Wieser acquired his venia legendi from the University of Vienna in 1884. He was appointed to a chair at the German University of Prague in the same year and made full professor there in 1889. He was elected president of the university for the 1901/2 academic year. After Menger retired, Wieser was chosen as his successor for the Vienna chair in 1903. While Böhm-Bawerk extended an Austrian approach to the new areas of capital theory, Wieser’s main accomplishment was to synthesize various elements not only of the Austrian school itself, but also of other contemporary schools. In his treatise (Wieser 1889) he combined Austrian value theory with a general equilibrium approach, borrowed from Léon Walras, to arrive at the “natural value” of goods. These are the values determined in a “simple economy,” a quasi-communist state, where production is directed by a benevolent dictator so as to maximize consumer satisfaction and where the purchasing power of all households is equal. Wieser’s insight was that under such assumptions the direction of production, and the utilities achieved by the individual households, would not deviate from those of

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general market equilibrium. The concept of the simple economy was thus designed to reveal the purely economic determinants of value. In this sense these values (marginal utilities) have become the object of “economic calculation” (Wirtschaftsrechnung), a notion central to Wieser’s thought.12 For dealing with real economies the factors neglected in the simple economy, e.g., power, error, and inequality, must be reintroduced. Thus pure economic relationships must be supplemented with, and modified by, institutional considerations. We are then led from “pure economics” to “social economics” (Wieser [1914]), in which economic and sociological analysis are combined. It is probably no accident that Wieser’s magnum opus on social economics was commissioned by the series editor Max Weber, who programmatically advocated a synthesis of economics and sociology. Tellingly, Wieser devoted the last decade of his life to a grand sociological treatise on the law of power, Das Gesetz der Macht (1926). Wieser was also active in other fields. These included the theory of imputation, the problem to which Fritz Hayek would turn in his doctoral thesis. We may note that for Hayek, Böhm-Bawerk and Wieser exemplified the two different types of mind that we mentioned in the introduction (see Hayek 1991a [1975], 50n), namely that of the “master of the subject” and the “puzzler,” respectively: “Böhm-Bawerk . . . knew the answer to everything; anything which had been said before, he knew, a clear conception of all . . . Wieser was a slow thoughtful person, to whom nothing was simple, it was all frightfully difficult, who hated discussing anything because he had to give a quick answer. He wanted to think about everything else” (Hayek 1994, 56; see also 1983a, 244–45). But there were more substantial differences between the two men. As Hayek and others have noted, two strands of the Austrian school originated from Böhm and Wieser (Hayek 1983a, 49– 50; Streissler 1988), differing in their association of Austrian theory with liberalism: “Böhm-Bawerk had already been an outright liberal, . . . while Wieser was slightly tainted with Fabian socialist sympathies . . . [Although] Wieser, of course, would have claimed to be liberal, . . . he was using it much more in a later sense, not a classical liberal” (Hayek 1983a, 50). * * * The members of the third generation of the Austrian school entered academia at the University of Vienna shortly before the outbreak of war. The

12. Note that in the socialist calculation debate Mises will use this term, but dispute Wieser’s interpretation (Mises 1935 [1920a], 95–110).

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most notable among them were two members of Böhm’s seminar, Joseph Schumpeter and Ludwig von Mises, and then Hans Mayer. Joseph Schumpeter, one of the most influential economists of the twentieth century, yet not a typical “Austrian,” was born 1883 in Triesch in Moravia.13 After moving to Vienna, he attended gymnasium at the famous Theresianum, studied at the University of Vienna, and earned a doctorate in law in 1906. After two years of work and research abroad, leading him from Berlin, Paris, and London to Cairo, he returned to Vienna, presenting his habilitation thesis, Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (Schumpeter 1908), and on its acceptance became a lecturer at the University of Vienna. In his thesis Schumpeter characterized economics as an autonomous discipline that should orient itself on the model of the natural sciences. He controversially praised Menger’s rival Walras for what he had accomplished for static theory with the concept of general equilibrium, but at the same time pointed toward the much more important challenge of a future dynamic theory. Only a few years later he ventured there with Theorie der wirtschaftlichen Entwicklung (Schumpeter 1911), a book that featured entrepreneurial action and innovation as activities that destroyed equilibrium, in contrast to the adaptation toward equilibrium that was highlighted in static analysis.14 Schumpeter’s later contributions notwithstanding, this book proved to be his greatest success. Meanwhile his academic career was progressing: Shortly after habilitation he had been appointed to an extraordinary chair at the University of Czernowitz—as we know from the example of Franz von Juraschek, a provincial university often used as an intermediate career move. It proved so also for Schumpeter, who was awarded a full professorship at the University of Graz in 1911, a somewhat notorious affair because the appointment had been enforced by the ministry, based on a supportive report from Böhm-Bawerk but against the wishes of the faculty’s majority. Toward the end of the war Schumpeter exposed himself politically, supporting a peace initiative and opposing the idea of ever closer cooperation with the German Reich. Neither position was well received by the nationalist majority of the Graz faculty. In the First Republic of Austria Schumpeter accepted the offer of the position of secretary of state (that is, minister) of finance in the second cabinet of Karl Renner, a post he occupied only for a

13. On Schumpeter, see McCraw 2007. 14. See Schumpeter 1934 for a translation of the revised second 1926 edition of the book, titled The Theory of Economic Development.

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short time. He never returned to Graz and for some time withdrew from academia. Ludwig von Mises was born in 1881 in Lemberg, the capital of the province of Galicia, the eldest son of a wealthy Jewish family that was soon to move to Vienna.15 He studied at the University of Vienna and earned a doctorate in law with a thesis supervised by Carl Grünberg on the development of the Galician peasants’ liberation (Mises 1902). It was his participation in the Böhm-Bawerk seminar that gradually turned him into an adherent of the Austrian school. Professionally, he soon started a career at the Lower Austrian (later on Vienna) Chamber of Commerce, just when the Chamber was attempting to increase its influence with respect to issues of economic policy. Within the Chamber Mises would eventually rise to the post of senior secretary and become well known as an outspoken liberal voice in economic policy debates. At the University of Vienna Mises acquired a lectureship in economics for his habilitation thesis, Theorie des Geldes und der Umlaufsmittel (Mises 1912), a second edition of which was later translated as The Theory of Money and Credit (1934/1980). Now considered a classic work in the literature of Austrian economics, its main accomplishments were two: to integrate money into Austrian value theory, utilizing the notion of marginal utility, and to provide the building blocks of Austrian business cycle theory, according to which economic crises are the consequence of malinvestment induced by inflation, defined as monetary expansion. Mises spent most of the Great War at the front—with a short interlude at the Scientific Commission for the War Economy at the Ministry of War— from which he returned following the victory at the twelfth battle of the Isonzo, just when Fritz Hayek was on his way to the same part of the southern front. Back in Vienna, Mises resumed his work at the Chamber and at the university, where he was awarded the title of extraordinary professor in May 1918. The work that truly made him famous was his thesis on the impossibility of economic calculation in a socialist commonwealth, put forward in an article (Mises 1920a) and then in a full-length monograph (Mises 1922).16 Hans Mayer was born in 1879 in Lower Austria.17 He studied law at the University of Vienna, where he finished with a doctorate in 1907. He worked a few years as a civil servant before he returned to academia; after a year of research in Heidelberg in 1910/11 he applied for a habilitation in political economy (or planned to do so) in 1912 at the University of Vienna. 15. For more on Mises’s life and contributions, see Hülsmann 2007. 16. For English translations of these works, see Mises 1935 [1920a] and 1936. 17. For more on Mayer see Klausinger 2015a.

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However, he was appointed to a chair (of an extraordinary professor) at the University of Fribourg in Switzerland before his habilitation procedure had been concluded. In August 1914 he obtained a regular chair at the German Technical University of Prague, but the outbreak of war prevented him from starting teaching there. After spending some time as a soldier in the field, he was transferred to the Scientific Committee for the War Economy. In 1919 he returned for a short time to Prague, where he was elected dean of faculty, before in 1921 succeeding Joseph Schumpeter in the economics chair at Graz. * * * So what was the situation regarding the teaching of economics at the University of Vienna when Hayek arrived there? Before the war, apart from the chair explicitly created for Böhm-Bawerk, who died in 1914, within the Faculty of Law at the University of Vienna the three economics chairs were allocated to three different approaches to the discipline: one for “exacttheoretical” studies, one dedicated to “economic and social policy,” and one for the “historical approach.”18 The exact-theoretical approach was associated with the Austrian school, and after Menger’s retirement it was occupied by Friedrich von Wieser. It became vacant in 1917 when Wieser temporarily withdrew from academia to serve in the last cabinets of the Austrian monarchy as minister of commerce. The economic and social policy approach was represented by Eugen von Philippovich, whose teaching was unique in combining the theoretical elements of the Austrian school with views on economic and social policy that shared much with those of the German “socialists of the chair.” His textbook Grundriß der politischen Ökonomie (Philippovich 1893–1907) was a great success, widely used even after his death in 1917. Carl Grünberg occupied the third chair.19 He was born in Focsani (now Romania) in 1861, studied in Vienna and Strasbourg, and became a leading exponent of the historical school in Austria. He was appointed to an ad personam ordinary chair for economic history in Vienna, and in 1918 his subject was extended to economic policy. Regarded as one of the founders of Austro-Marxism, from 1911 he edited the journal Archiv für die Geschichte des Sozialismus und der Arbeiterbewegung, soon known as Grünberg’s Archiv. In 1917 two of the three chairs were vacant, with Grünberg the only pro18. On the following see Klausinger 2016a. 19. On Grünberg see Nenning 1973 and Chaloupek 2016, 4–5.

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fessor representing economics. Efforts were undertaken to fill the vacancies. After some maneuvering the details of which need not deter us here,20 Max Weber gained a short-term appointment as honorary professor for the summer term of 1918. Though his brief stay in Vienna was highly successful, he quit in June 1918 owing to ill health. The faculty next needed to appoint a successor for Philippovich. In the course of those negotiations, in which Weber supported Schumpeter, eventually more conservative factions prevailed and produced a list of candidates headed by a man named Othmar Spann, who eventually took the chair in April 1919. Othmar Spann was one of the most opaque and enigmatic intellectuals of the interwar period in Austria.21 Born in Vienna in 1878 into a family of the petty bourgeoisie, he studied in Vienna and Tübingen, where he finished his doctorate. He worked for some time at a statistical office in Frankfurt doing research that nowadays might be considered empirical social studies. He wrote his habilitation under the supervision of Friedrich Gottl-Ottlilienfeld in 1908, whom he then succeeded in the economics chair of the Technical University of Brno (Brünn) in 1909. During 1908/9 Spann returned to Vienna for a short spell at the Central Statistical Office to help prepare the monarchy’s population census of 1911. One wonders whether at the time he had interacted with Hayek’s grandfather, Franz von Juraschek, the office’s president. Crucially, before his appointment in Vienna he had come under the influence of German Romanticism, in particular the thought of Adam Müller. This led him to found his own approach to economics, “universalism,” which confronted the opposite approach of “individualism” on all levels: methodologically, philosophically, politically, and as the starting point for the social sciences. When he was appointed to Philippovich’s chair in economic and social policy he was best known for his book on the history of economic doctrines, Haupttheorien der Volkswirtschaftslehre (1911). Emphasizing the contrast between the universalistic and the individualistic approaches to economic theory, the book went through twenty-four editions and sold 120,000 copies. In 1930 it was translated into English as Types of Economic Theory (Spann 1930b). When Wieser returned to academia in summer 1919, a year after Fritz began taking classes at the university, all three of the chairs in economics were once again filled. But it would take the young scholar a bit of time before he decided to commit himself to its study.

20. Interested readers of German may wish to consult Klausinger 2016a. 21. On Spann, see, e.g., Haag 1969, Wasserman 2014, and favorably Maass 2010.

·8· The Peripatetic Student Frit z at Un iversi ty

Fritz Hayek took full advantage of the freedom that an education at the University of Vienna allowed, trying out new subjects and seeking out the best professors. But one of the first things he did upon entering university was to become involved in politics. (As it turns out, even here there was a botanist connection!) In this chapter we will first examine his initiation into politics, a step taken together with one of his new friends at University, Herbert Fürth. We will then take up his peripatetic academic journey.

Fritz’s Initiation into Politics November 1918: a bunch of 18 year old war veterans, I still in a plaster cast just released from the hospital, the others directly back from the trenches, are starting their studies at the University of Vienna. The sudden collapse of the Habsburg monarchy and its army has not driven us to despair; on the contrary, we are full of hope, expecting at last to witness the realization of the old dream of a free German republic, one of the goals of the revolution of 1848. (Furth, “Memories”) I would like to be able to say that I have never been a member of a political party and for the last sixty years this is certainly true. But, though I think this unlikely, I cannot exclude the possibility that when, about 1920–21 [in fact 1918/19], I helped to organize what we used to call the DDHV, the Deutsch-Demokratische Hochschüler-Vereinigung [German Democratic Students Union], I may not also have joined the corresponding middle party it was intended to support, a short-lived party connected with the botanist Richard Wettstein and the journalist Gustav Stolper. (IB 43–44; see also Hayek 1994, 53)

• Fritz enrolled at the University of Vienna and started studying law during the winter term of 1918/19, so almost immediately upon his return from the

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war. It was then that he became close friends with J. Herbert Fürth (1899– 1995), who like him was a student of law.1 That two young law students in postwar Austria should be quickly drawn into political activities is hardly surprising: the prospect of a new German republic had been held out, important decisions like the writing of a constitution for the republic were imminent, universal franchise had been introduced, so that parties with very different political positions were vying for voters’ attention, the whole society seemed on the cusp of great changes yet also potentially in great danger if the wrong decisions were made. In short, everything seemed up for grabs, and they could not help but ask: What was the best way forward? We will see that Herbert Fürth played a crucial role in Fritz’s intellectual development in the interwar years. They would remain close for the rest of their lives, and indeed Hayek would count him as one of the three people he considered his best friends, the other two being Walter Magg and Lionel Robbins (IB 28). Fritz’s new friendship with Fürth was an important catalyst for his own brief dive into politics. That Fritz’s friend was drawn to politics will come as no surprise once we look at his family background, where politics was never far from the surface. * * * Herbert Fürth’s family was Jewish by descent and fully assimilated into German culture.2 His grandfather Josef Fürth (1822–92) had represented the Liberals at the Reichsrat, the Cisleithanian parliament, from 1861 to 1888, his membership coinciding with the short spell of Liberal rule in government. In 1880 he was awarded a knighthood, becoming Josef Ritter von Fürth. Herbert’s father, Emil von Fürth (1863–1911), studied law at the University of Vienna before entering the civil service. In 1893 he was advised that a career in the Austrian Ministry of Finance required that he give up the Jewish faith. His response was to quit the ministry and, like so many Jews who had been denied a high-ranking position in the civil service, to enter the liberal profession of law. After his parents died, however, he and his 1. Fürth anglicized his name to Furth when he came to the United States. The spelling we use will depend on whether we are referring to him before or after his move to America. 2. Most of the biographical information in this section is drawn from the obituary on Emil von Fürth (Maresch 1915), a “Memorandum” written by Herbert Furth in 1983 for his first great-grandchild, and from correspondence between Furth and Gottfried Haberler. See also Gaugusch 2011, entry Fürth.

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wife left the Jewish community, converting in 1905 to Protestantism (Staudacher 2009, 180). Though continuing to practice law, Emil soon threw himself into politics, becoming a proponent of many progressive causes and thus turning away from positions held by the old liberal elite. He associated with the Viennese equivalents of the Fabians and became active within the “Free School” movement, an anticlerical union of progressive liberals and Social Democrats that defended the separation of church and state in education against Vienna’s Christian Socials. In addition, he was a founding member and general secretary of the Vienna Zentralstelle für Wohnungsreform (Center for Housing Reform), where he collaborated among others with Ludwig von Mises, who regarded Fürth as an “excellent economist” (Mises [1978b] 2013, 15). In short, Emil Fürth was the prototypical progressive liberal: anticlerical, moderately German nationalistic, in favor of social reform (of the type advocated by German “socialists of the chair”) and of an extension of the suffrage, but a foe of outright socialism. He ran for the Sozialpolitische Partei, or Social Policy Party whose platform well reflected such views (see Holleis 1978). Because of its narrow voter base, the party restricted its activities to Vienna, and there only to some districts. From 1896 onward, cooperating with the remnants of the old Liberal Party, it had some moderate success, mainly with its candidates for the first Vienna district’s first curia. In 1904 Fürth became its single representative in a Vienna City Council dominated by a Christian Social majority. Failing to gain the cooperation of the Liberals, he lost his bid for reelection in 1910. In summer 1911 he tragically lost his life while saving his son’s in a swimming accident. Herbert’s mother, Ernestine von Fürth, née Kisch, is regarded, jointly with Marianne Hainisch, as the leading figure in the Austrian liberal women’s movement at the turn of the century. Marianne Hainisch and her son Michael, a future president of the First Republic of Austria, were close friends of the Fürth family. Just as Ernestine and Marianne were cooperating for a common cause, Michael Hainisch had been among the supporters of the activities of the Sozialpolitische Partei. Herbert Fürth was his parents’ only son. He attended Vienna’s prestigious Akademisches Gymnasium and was in the form above Walter Magg, which may have figured into Fritz’s becoming acquainted with him at the university. After finishing gymnasium, Herbert was conscripted into the Austrian army and fought on the Italian front, where he was severely wounded in the leg. He spent eight months recovering in the Vienna Rudolfinerhaus hospital—he found out only decades later that the head nurse who had taken care of him was Fritz’s grandmother, Ida von Juraschek

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(Furth to Hayek, July 1, 1981)—but still had to undergo a series of surgeries in the following years. In the fall of 1918 he started studying law at the University of Vienna, obtaining his doctorate in 1921. * * * The party mentioned by Hayek in his reminiscence, the BürgerlichDemokratische Partei (BDP, literally Bourgeois Democratic Party), was founded in December 1918 with the goal of participating in the February 1919 election of the Constituent National Assembly of the Austrian parliament.3 The party defined itself in opposition to both the socialism of the left and the clericalism of the right. It sought a constituency in the “middle,” but extending beyond the old liberal coalition between the wealthy bourgeoisie, higher-ranking civil servants, and the intelligentsia. In this it might be seen as continuing the efforts of its approximate predecessor, the Social Policy Party. Almost all of the parties that aimed at this broad but small liberal constituency were, after the demise of the Habsburg dynasty, in favor of union with the German Reich. Ideologically, there was a split between two strands of this “third camp,” with the pan-Germans (later the Great German Party) on the one side, and the Democratic parties on the other. The latter were German nationalist but not anti-Semitic, favored democracy over monarchy or other forms of authoritarian rule, and appealed more strongly than others to women voters. On issues of economic and social policy the Democrats rejected socialism but differed in the weight attached to economic liberalism versus social reforms and government intervention in general. As if this fragmentation along ideological lines were not enough, there were also divisions with respect to interest groups, as parties specifically representing workers or farmers fielded their own candidates. Among the prominent figures active in the BDP were Richard Wettstein, Gustav Stolper, Franz Klein, and Max Friedmann, and from the circles in which Fritz moved, Marianne and Michael Hainisch and Ernestine Fürth. In 1917/18 Wettstein succeeded Friedrich von Wieser as president of the Austrian Political Society, elected by the majority that rejected the peace initiatives that had been propagated there before (see, e.g., Morgenbrod 1994). Gustav Stolper (1888–1947) was a journalist and at the time co-editor of the economic weekly Der Österreichische Volkswirt (The Austrian Economist). A fervent advocate of Anschluss, he immigrated to Germany in the 1920s. There he succeeded in founding and editing another weekly, Der 3. See, e.g., Hawlik 1971, Stern 1979, and Bauer 2008.

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Deutsche Volkswirt (The German Economist), but left the country in 1933 when Hitler came to power. Franz Klein (1854–1926) was a respected jurist and had served several times as minister of justice in the monarchy. The industrialist Max Friedmann (1864–1936), a regular guest at the Brunnwinkl resort, had been a deputy for the Liberals in the Reichsrat and within the BDP led the wing of liberal-conservatives. Both he and Stolper were Jews. Given that the party was founded only months before election day, the BDP confined its campaign mostly to the capital, Vienna, focusing its hopes on those districts that had always been considered bastions of the liberal constituency, that is, the first, second, fourth, and ninth districts—the wealthiest and those with the highest share of Jewish voters. Friedmann, Wettstein, and Klein were chosen as candidates for these most promising districts. The results, however, were sobering.4 In Vienna as a whole the Socialists won 520,000 votes, the Christian Social Party 210,000, and the various German Nationalist-Democratic parties 137,000. Among the parties of the third camp the BDP was the most successful with 44,000 votes. But owing to a voting system that required large shares of votes in the individual districts for winning a seat, only one of the BDP’s candidates, Max Friedmann, made it into the assembly, while Wettstein and Klein narrowly failed, losing by just a few dozen votes. The party had gained only one seat out of a total of 48 for Vienna, and out of 159 for Austria as a whole. After this disappointing result it disintegrated, soon vanishing from the scene. We might add that the rapid demise of the party meant that in future elections the options in Austria were few for Jews and/or liberals of the old type (see, e.g., Hacohen 2008). Many Jews would end up voting for the socialists, simply because the party refrained from overt anti-Semitism, while old liberals voted for the Great Germans. This of course left someone like Ludwig von Mises, a classical liberal who refused to leave the Jewish community, in a uniquely impossible position. * * * It was in the student organization affiliated with the BDP, the DeutschDemokratische Hochschüler Vereinigung or DDHV, that Fritz got his initiation into politics. According to Furth, the idea for a liberal democratic student association had been floated by a former schoolmate and friend, Julius Overhoff, after which Fürth and Hayek became its founding members (Furth 1989, 247; see also Furth to Machlup, June 26, 1978). This led their friend Friedrich Schreyvogl—later also a successful writer—to dub 4. For the detailed results see Statistische Zentralkommission, ed. 1919.

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them “the two ‘last knights’ of Austrian liberalism—an allusion, well understood by every Austrian schoolkid, to the nickname of the last medieval Habsburg ruler who, derided as a romantic dreamer, nevertheless managed to establish the powerful position of his house” (Furth, “Memories,” 1).5 Efforts to start the organization began in December 1918, and it was officially recognized in March 1919. Surviving records list one Walter Alberti as the association’s president and Fürth as its secretary.6 According to Ellie Petertil, whom we recall as one of Fritz’s dancing partners and who was also a student at the university, she ran against Fritz for a representative position in the DDHV. Fritz won (IB 38). The association renounced religious bigotry, nationalist race hatred, and the socialist class struggle, thus effectively rejecting the ideologies of all three of the Austrian mass parties, which indeed left only a narrow niche for attracting votes. This is also confirmed in the bylaws (in AUW, file Senat S 164.51), which asked members to pledge their allegiance to both the German nation (Volk) and the democratic republic, and to commit themselves to both high academic values and peace—commitments that looked less pompous and self-righteous at a time when violent student riots were commonplace at Austrian universities. Also noteworthy is the absence of any “Aryan paragraph,” which makes it clear that the “German” in the union’s name had no racist connotation. This is further supported in a 1928 DDHV petition to the University of Vienna that included a register of members (file Senat S 164.51). The document not only confirms the membership of Alberti, Fürth, and Hayek (although misspelled as “Hajek”) but also indicates that the proportion of students of Jewish descent appears to have been considerable. Indeed, on one of the rare occasions that the DDHV was noticed, a writer in the conservative newspaper NeuigkeitsWelt-Blatt (Nov 7, 1930, 5) ridiculed it: how is it that an association with the word “German” in its name had so many members with Jewish-sounding surnames? Some DDHV members went on to later prominence. For example, Erich Bielka (1908–92), a student of law in 1928, later entered the foreign service, serving as the ambassador to several countries and, in 1974–76, as the Austrian minister of foreign affairs. Elisabeth Ephrussi (1899–1991), the heir to the Jewish banking house Ephrussi, was one of the first female students of law and a participant in Ludwig von Mises’s university seminar 5. Schreyvogl’s phrase was applied to Ludwig von Mises in Hülsmann 2007. 6. These records are at the Archives of the Province of Lower Austria, Niederösterreichisches Landesarchiv, NOeLA/Kanzleiabt. IV/Nachschlagebuch 1919, Zl. 229, Reg.Nr. IX 158l2, and Eingangsbuch.

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(Hülsmann 2007, 365n). She eventually married the Dutch artist Hendrik de Waal. The Ephrussi palace, located just across the Ringstraße from the university, was seized by the Nazis in 1938, and her parents were expelled, a horrific but commonplace episode that is re-created in the remarkable multigenerational family history, The Hare with Amber Eyes (de Waal 2010; see also Fleck 2015, 132–34). Members of the Schiff and Schüller families, on whom more soon, were also listed as members. In the end the DDHV, like the party with which it affiliated, played no significant role in (in its case, academic) politics during the interwar period. Given that adherence to pan-Germanism and anti-Semitism was even stronger among students at the universities than in society at large, its constituency was tiny. And though Fritz played only a minor role in all this, the episode reveals his initial political leanings—progressive/liberal, democratic, and anti-racist—in the founding years of the republic. We may add that he supported a party and helped organize a student affiliate organization of which, we may safely assume, his parents would not have approved. The question arises: when did he begin to adopt these views? Intriguingly, Furth addressed the issue in a letter to Paul Samuelson many years later, when he stated that Hayek’s mother, Felicitas, “was mad at me because she believed, completely wrongly, that I had ‘seduced’ her son from nationalism to liberalism” (Furth to Samuelson, Mar 23, 1992). It appears that his progressive views at the time were shaped by his having dipped into pamphlets “mostly of a socialist or semi-socialist character” during his army training and while at the front (AF 8). The writings of the German industrialist Walther Rathenau loomed large in later reminiscences. Based on his experience with cartelization of the German electrical industry, Rathenau had helped set up a new division at the Ministry of War, the KRA (Kriegsrohstoffabteilung) or Raw Materials Section, that secured raw material procurement for much of the duration. The KRA became a model for many of what was possible through efficient central planning. Fritz read his influential Von kommenden Dingen (Rathenau 1917), that is, “Of Things to Come,” and also a number of pamphlets written thereafter, which “decidedly influenced me in favor of economic planning and a sort of Fabian socialism” (IB 27; cf. Hayek 1983a, 11, 71). That Rathenau was a bourgeois Social Democrat rather than a socialist, and based his writings on experience, added to his credibility.7 Rathenau went on to become the 7. Rathenau was closely associated with (but not a member of) the DDP, the German Democratic Party, ideologically similar to but at first more successful than the Austrian BDP; Gustav Stolper after his emigration represented the party in the German Reichstag.

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minister for external affairs in the Weimar Republic. In a sad foreshadowing, this urbane, progressive Jewish internationalist was assassinated in June 1922 by radical nationalists after only six months in office.

The Student Fritz Hayek Fritz entered the university to study law, but to trace his subsequent path we must first delve into the complexities of the law curriculum at the University of Vienna. The Faculty of Law offered two programs: the study of law proper and, beginning in April 1919, Staatswissenschaften, literally “state sciences,” what today might be called government or policy sciences (Staudigl-Ciechowicz 2014; Ehs 2014). The law curriculum took four years (eight semesters) to complete and consisted of three sections. The first section covered the history of Roman and German law, the second private and public law, and the third a mixture of subjects chosen from state sciences, such as public administration, statistics, and economics. On completion of each section the student would sit for the “state exam,” which was an oral examination—there were no written exams. After passing the three state exams students could enter the civil service at a senior position.8 Those who wished to practice law needed to obtain a doctorate (Dr. jur.), which required passing three additional Rigorosen, literally, “rigorous” oral exams on the same subjects. In contrast, the study of Staatswissenschaften took only three years (six semesters) and concentrated on the various subjects included in state sciences. The doctorate (Dr. rer. pol.) there required that candidates pass two Rigorosen, but in contrast to law it also required the writing of a doctoral thesis. Fritz began his study of the law in November 1918, that is, in the winter term of 1918/19.9 He passed the first state exam after three semesters in April 1920. After that he was able to take advantage of a special accommodation for veterans (originally “intended for those who had missed only half of the last year [of gymnasium] and not those like [him] who had a total of 7 and a half only by having had to repeat one and thus had only 6 and a half successive years”) that gave him two semesters of credits (IB 48–49; cf. Hayek 1994, 53). This allowed him to take the second and third 8. The salary scheme for civil servants distinguished between (higher-paid) academics and (lower-paid) nonacademics. One requirement for an “academic study program” was that it last four years, so that students who finished law were counted as academics, but those who finished state sciences were not. 9. This paragraph and the information on courses taken by Fritz Hayek draw on university documents preserved in FAHP 171.

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state exams in June and October 1921, respectively. He took the Rigorosen on October 21, 1921, and was promoted to doctor juris in November. He then registered to study state sciences, which at the time was not an unusual path. Owing to the overlap of subjects, a doctorate in law entitled students entering the state sciences program to a two-semester credit, in effect reducing the time needed for the additional doctorate to four semesters. In the end Fritz was able to finish his thesis and final rigorous exams in March 1923, gaining his second doctorate just before he left for a trip to the United States. The range of subjects taught at the Faculty of Law mirrored the existing study programs: apart from Roman and German law, and private, public, and canon law, there were also chairs and/or lecturers dedicated to the philosophy of law, statistics, sociology, economic history, and geography, and of course economics and public finance. Although it had suffered grave losses during the war, in 1918/19 the faculty was still considered brilliant. In particular, among the lawyers, Hayek remembered “great scholars like [Moritz] Wlassak in Roman law, [Carl] Stooss in criminal law and a few brilliant lecturers like [Edmund] Bernatzik (who died half way through an encyclopedic introduction to the political sciences), and exceptional teachers like [Oskar] Pisko (commercial law) and [Alexander] Löffler (criminal law)” (AF 10; IB 34–35; Hayek 1994, 53), as well as “the two ‘young men’ Kelsen and Spann” (IB 37). We know from later reminiscences that Fritz attended the very last lecture of Bernatzik in winter 1918 and that of his successor Kelsen in winter 1920. Hans Kelsen studied law at the University of Vienna, achieving his habilitation in 1911 and in 1919 becoming professor of public and administrative law there. He became on the invitation of Chancellor Karl Renner the author of the new constitution for the First Republic, which was enacted in 1920. This, and the fact that he was Jewish, did not endear him to students, who found his commitments to social democracy and the rule of law, and his opposition to natural law, repugnant. He accordingly became a frequent target of anti-Semitic attacks (Wasserman 2014, 80), though strangely enough, he was always on good terms with Spann. Fritz found Kelsen to be an effective lecturer and at the time shared many of his commitments. Opposing those who sought to base the law in some metaphysical or religious conception of natural law, Kelsen was a proponent of “Reine Rechtslehre,” or the pure theory of law: the view that the law at any point in time is whatever the state says it is. Initially Fritz found this putatively more scientific, ethically neutral approach much to his own tastes, viewing it as an intellectual weapon to counteract the religious dogma or sentimental appeals to German culture that were rife among his

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peers. It was only later, and especially as he began to work in the late 1930s on the history of the development of positivist thought for “The CounterRevolution of Science” essay, that Hayek came to see some of the dangers associated with such doctrines (Hayek 1983a, 276). The critique of what he called “legal positivism” would become an important theme in Hayek’s mature work. We may note that with regard to academic anti-Semitism, the Faculty of Law provided an example of both discrimination against and “overrepresentation” of Jewish teachers and students (Klausinger 2014, 192–93). In 1920 ten of the twenty-two chairs of the faculty were occupied by scholars of Jewish origin, and of these, four had recently been appointed or promoted to a full professorship. The situation that Jewish scholars faced in the faculty was to deteriorate throughout the 1920s, and even as a student Fritz had heard that some “outstanding teachers [like the jurist Stephan] Brassloff . . . were then alleged not to have been promoted solely because of their Jewishness” (IB 37). In marked contrast with the lower-school and gymnasium experiences, continental universities at that time granted students almost complete freedom in the pursuit of their studies. In the study of law in Vienna the only mandatory courses consisted of the lectures—one would inscribe the classes one was taking in a lecture book and then the professors would sign the book to signify one’s attendance—but as noted the only exams were oral and came at the end of a course of study.10 This led some students to spend as little time as possible at the university, preferring instead to hire coaches to prepare them for their exams (Hayek 1983a, 24–31; 1994, 51–53). Others, like Fritz Hayek, chose to attend seminars offered by especially attractive teachers and lectures that went beyond the fields required for their own area of study. This was a small group, estimated by Hayek as consisting of twenty or so among those studying law who would constantly run into each other and share information about which lectures were worth attending, so that “if you had in your regular program an hour free, you walked over to the philosophy faculty and tried different lectures” (Hayek 1983a, 28). Apart from law, sociology, and economics, Fritz signed up for courses in philosophy, psychology, history, and biology. Among his teachers in these areas were such notable scholars as the historian Alfred Francis Pribram, the philosopher Heinrich Gomperz, the psychologist Adolf Stöhr, and the biologist Paul Kammerer. He also sometimes simply sat in on lectures on topics of interest, as did others. Kammerer’s and the art historian Max 10. The book was signed just once so that afterward the presence of students was no longer required.

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Dwořák’s lectures were so popular that they had to be given in one of the ceremonial halls at the university. Because Dwořák’s late afternoon lectures attracted so many “society girls,” Hayek and his intellectually adventurous friends referred to them as “the five o’clock tea” (IB 37). We may simply note that Fritz’s choice of lectures reveals his lack of reservations regarding Jewish teachers at a time when pan-German student fraternities were beginning to blacklist them. It would be of considerable interest to review the notes that Fritz took in the lectures he attended, but unfortunately there are none. A later description of his study habits provides the reason: “I have never learnt from the thorough study of one textbook. I would rather rapidly read through three or four than endeavor to be able to reproduce the argument of one—nor did I keep notes of lectures I heard to refresh my memory of them. Of course I missed much in each and when I read a book again after years discovered much that was new to me. I like returning to books I have read long ago. But I do not profit from sucking as much as possible from one” (IB 41). This may explain why Fritz kept meticulous accounts of what books he had read—to remind himself of what he had in fact read! It also explains the sheer number of books contained in his lists; he was not studying each one carefully, but simply getting a (probably somewhat idiosyncratic) sense of what was in it. Finally, it helps explain why he saw himself as a Wieserian “puzzler” rather than a Böhm-Bawerkian “master of a subject.” He read extensively, but not systematically. Just as his studies bored him as a youngster, the study of law that was Fritz’s official reason for being at the university apparently took a back seat to his other wide-ranging intellectual pursuits (though now he had more scholastic success). At first his attention was drawn to philosophy and methodology; then it shifted toward psychology, and only in the end to economics. PhiLosoPhiCAL AsPirATions In a later interview Hayek sketched his philosophical education—or rather his lack of one—prior to coming to the university: My philosophical education remained defective. The premature termination of the Gymnasium prevented my becoming familiar with Plato or Aristotle. I made an effort to study Kant—admiringly but incomprehendingly [sic]. But the rest of German philosophy made little sense to me. It was in the writings of the physicist Ernst Mach that I was first fascinated by the problems of scientific method. And the first work

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on scientific method which gave me satisfaction was Moritz Schlick’s Erkenntnistheorie [sic] which I read soon after it was published thanks to the references to it in the lectures of a Zurich Privatdozent during that winter I spent at Zurich . . . He was however soon after my return to Vienna appointed to a professorship there and I attended with much satisfaction some of his early lectures. (IB 42–43; see also Hayek 1983a, 16–17; 1994, 49–50, 64)

Here Hayek refers to the physicist Ernst Mach, who had taught at the University of Vienna until 1901 and died in 1916, while the Zurich anecdote dates to winter 1919/20. The book by Schlick mentioned must have been Allgemeine Erkenntnislehre, translated as General Theory of Knowledge (Schlick 1974 [1918]). Schlick accepted a call from the University of Vienna in 1922 to a chair in natural philosophy and soon formed a discussion group, the Schlick Kreis, that ultimately would come to be known simply as the Vienna Circle of Logical Positivism.11 Interestingly, as a consequence of his initial forays into philosophy, by his second year at university Fritz had “resolved that someday [he] would give a lecture course on ‘Übersicht über Entwicklung und System der Wissenschaften (für Hörer aller Fakultäten),’” that is, “An Overview of the Evolution and the System of Sciences (for Students of all Faculties)”—quite an ambition (IB 41; see also the reference in FAHP 139.2). One suspects that, had they materialized, Hayek’s lectures at this point in his career (though certainly not later!) would have been written in the spirit of the philosophy of Mach and Schlick.12 Given such aspirations, Hayek regretted that he started studying at a time “when Mach was already dead and Schlick had not yet arrived” (IB 41). The man whose lectures both on philosophy and psychology he took instead was Adolf Stöhr. Stöhr had specialized in the physiological and philosophical problems of psychology and taught at the University of Vienna since 1900. Hayek characterized him as “a rather interesting man, [who] was already mortally ill and, though still lecturing, difficult of access” (AF 11; IB 40; see also Hayek 1994, 51). Fritz heard most of his lectures until Stöhr’s death in 1922: two five-hour courses in the history of philosophy and logic, a ten-hour course in philosophy and psychology, and a final short course in winter 1921 on the psychology of language. He also took a course by Robert Reininger on Kant, three courses by Viktor Kraft, a philosopher close to the 11. See also IB 16–17, 33, 34, and Hayek 1994, 49–50. On the history of the Vienna Circle, see, e.g., Stadler 2015 and Sigmund 2017. 12. The evolution of Hayek’s judgment on the Vienna Circle and its members will be evident in later chapters.

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Vienna Circle (see, e.g., Kraft 1950, trans. 1953), and eventually in winter 1922 he was able to listen to Schlick’s “Introduction to Metaphysics.” According to Fritz’s reading list the philosopher he had read most (four books) and apparently greatly appreciated was the neo-Kantian Alois Riehl (1855–1924), to whom he referred in his diary (Sept 11, 1920) as a “meticulously thinking philosopher.” Among his philosophically oriented readings we also find Ernst Mach’s Populärwissenschaftliche Vorlesungen (1903); Moritz Schlick’s magnum opus, Allgemeine Erkenntnislehre (1918), and his introduction to the general theory of relativity, Raum und Zeit in der gegenwärtigen Physik (1917); Fritz Mauthner’s treatise on language, Die Sprache (1906); and two books on logic, John Stuart Mill’s System of Logic (1877 [1843]) and William Stanley Jevons’s Elementary Lessons in Logic (1913 [1870]), both in German translation. The TUrn To PsyChoLogy Fritz’s next phase of study centered on physiological psychology, and it culminated in an essay, written in 1920, “Beiträge zur Theorie der Entwicklung des Bewußtseins,” that is, “Contributions to a Theory of How Consciousness Develops” (Hayek 1920, trans. 2018b). From this unpublished paper evolved, after a period of more than three decades, Hayek’s study The Sensory Order (Hayek 1952a). The essay demonstrates the importance of Ernst Mach’s work for the development of Fritz’s thought on psychological theory, for it is fully within the Machian materialist and natural-science-based tradition, but also challenged one of Mach’s fundamental assumptions, that pure and simple sensations are the basic starting point for sensory perceptions. In contrast, Fritz asserted that it was relations among networks of neural connections that gave rise to our perceptions. Fritz’s student essay is significant because a number of the theses found in The Sensory Order have their origins there. These include the ideas that each cell in the brain has a vast number of linkages to other cells, that those connections are constantly strengthening and weakening, and that ultimately the sensations we experience are a result of a specific set of firings in this network. The sets of connections, themselves formed as it were by prior experience, make possible our experience of sensations. Fritz emphasized this key point, and the paradox it creates for our notion of memory, in his essay: “We do not first have sensations that are then preserved by memory, but it is as a result of physiological memory that the physiological impulses are converted into sensations. The connections between the physiological elements are thus the primary phenomenon that creates the mental

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phenomena . . . One might justly say that each human being thinks with his past” (Hayek 2018b [1920], 327, 329).13 In the latter part of the essay he explored some of the implications his thesis might have for areas beyond the simple experience of sensations, those identified by such terms as recognition, concept formation, and abstraction. He noted in his introduction that should his findings prove correct, they might have “far-reaching implications for epistemology” (Hayek 2018b [1920], 322). It is interesting that he would entitle the final chapter of The Sensory Order “Philosophical Consequences.” Fritz’s transition from an interest in philosophy to one in psychology in his second year at university was thus more seamless than it might at first appear. But it would be wrong to judge the paper solely for the ways in which it anticipated later work. It is in fact an altogether remarkable document. Occasionally arrogant in its dismissal of the work of others, it also shows genuine excitement about the implications his theses might hold, if correct, for the discipline. His engagement with the existing literature of his time is sophisticated. Reading his essay also makes it evident why Fritz might find the work of someone like Sigmund Freud, whose ideas on psychology he had encountered in his first year at the university (IB 50), unimpressive, a mere pretense of science. So how did Fritz come to write the essay? Fritz’s childhood enthusiasm for botany and zoology certainly primed his interest in the natural sciences, which was further demonstrated by his “gate-crashing” (Hayek 1983a, 24) of anatomy lectures (his brother Heinz had by then begun at the university and was studying medicine). Additionally, many courses that he took for credit touched on the subject in one way or another. These included not only the already-mentioned lectures by Stöhr, but also some on the physics of the central nervous system offered by the anatomist and future psychiatrist Rudolf Allers, and others on experimental psychology and the psychology of emotions by one Siegmund Kornfeld. (Though in retrospect, his judgment of the latter was rather unfavorable: “very poor lectures [by] a rather comic Jewish figure,” Bartley interviews, Feb 11, 1983.) Also significant were his experiences in Zurich in the winter of 1919/20, when he worked for a few weeks in the laboratory of the Russian-born Swiss neuropathologist Constantin von Monakow (1853–1930), a pioneer of brain research, “tracing fiber bundles through the different parts of human brains” (AF 12; cf. IB 41, 1994, 64). 13. The original German typescript for the “Beiträge,” dated September 1920, may be found in the FAHP 93.1. It was translated for the Collected Works, and that version is the source of the quotation.

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Fritz apparently did much of the composing of the essay when he was in Norway over the summer of 1920. In his diary we find regular entries describing the progress of his work, mixed with occasional signs of exasperation and frustration. The day before he left to return to Vienna he declared that he had finished a provisional draft (see his diary, Aug 7, 18, and 26, and Sept 11, 1920). His reading list over the summer includes several books mentioned in the “Beiträge,” and he continued such reading into the fall: through November 1920 he studied treatises on psychology by Friedrich Jodl, William James, and Max Verworn. In the meantime, Fritz sent an early draft of the essay to Stöhr and Riehl, who encouraged him just sufficiently that he persevered in his efforts (IB 40; Hayek 1994, 62; see also AF 11). That fall he tried to get it published with the Vienna publisher Braumüller, but though the paper got a favorable review, the publisher declined it, citing excessive printing costs (diary, Nov 5, 1920). The next summer the anatomist Rudolf Allers advised him to try again either with the Annalen für Naturphilosophie (edited by the Nobel Prize-winning physicist Wilhelm Ostwald) or with “Verworn’s journal,” that is, the Zeitschrift für allgemeine Physiologie (diary, Sept 24, 1921). Both attempts came to naught, but the curious coincidence should be noted that Ludwig Wittgenstein had also offered his Tractatus in vain to Braumüller, while its first version had indeed been accepted by Ostwald, who published it in the very last issue of the Annalen. Even this was not the end of Fritz’s endeavors: While in New York in 1923 he retyped the manuscript (IB 58) and reported to his parents that he had revised and abridged the essay according to the wishes of the Swiss professor of psychiatry Eugen Bleuler, whom he had met in Zurich in winter 1919/20, and that he was now hoping for its publication (Fritz to parents, June 29, 1923). It was not to be. The enduring interest that Hayek took in his essay, in effect his first thorough attempt at scientific work, is demonstrated by one of the last entries in his fragmentary diary, dating from his summer 1921 vacation in Aussee (Aug 25, 1921): “The next great revolution in science will be owed to the exploration of man himself, that is, of his mind. The results of this research will be the new point of departure that will provide us with a new world view beyond the present one which is rejected by so many who regard its materialism unbearable. The beginnings in this direction [are found in] Verworn . . .” Few statements express more clearly Fritz’s core belief that one must take a scientific approach to the study of man. What constituted such an approach—methodological questions concerning the proper methods for the social sciences—would become a major theme in his later work.

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The TUrn To eConoMiCs At the beginning of the winter term of 1920 Fritz had to turn away from psychology to prepare for his law examinations. After the first exam on the history of law, he devoted the 1920/21 academic year to the study of modern law, and economics appeared only as one of four subjects that he prepared for his third exam. Only then, toward the end of his study of law and just before beginning the curriculum in state sciences, did Fritz definitively opt for economics and against psychology. The prime motive appears to have been pragmatic: although the general prospects for an academic career were always dim, economics by providing a degree offered somewhat better chances (Hayek 1983a, 174–75; 1994, 48). In addition, there was the question of getting a job outside the academy: “nearly everybody in Austria, except in the experimental subjects, who was aiming at a professorship had to have a second occupation during the period in which he prepared for it. And there was then, in the early 1920s, still no chance for psychologists getting an outside job. But as a lawyer with an interest in economics, it was quite easy” (Hayek 1983a, 272). There were reasons for Fritz to have been somewhat delayed in his move toward economics. When he entered the university in winter 1918, economics was in the charge of the economic historian Carl Grünberg, a man who was “wholly uninteresting to us” (Hayek 1994, 55). He had just missed Max Weber, who had moved to the University of Munich. Fritz had hoped that after he finished his degree he might go there to study with him, but Weber died in 1920 (Hayek 1983a, 249; see also AF 13; Hayek 1994, 64). Matters in Vienna improved, however, when in 1919 the two empty chairs were filled by Othmar Spann and Friedrich von Wieser. Both would influence Fritz, but Spann came first. For over a year—from the summer term 1920 through fall 1921—Fritz and Herbert Fürth imbibed the work of the new professor about whom everyone was talking (see, e.g., AF 10; IB 35; Hayek 1983a, 15; Hayek 1994, 54). Over the course of several years Othmar Spann would move from being a somewhat detached member of the Austrian school to one of its most ardent critics—an evolution that can be traced in the various editions of his Haupttheorien (1911).14 During his first years in Vienna he published two books: Fundament der Volkswirtschaftslehre (1918) was a more narrowly 14. The following draws on Klausinger 2015a, 279–80; see also 2016a, and Wasserman 2014, chap. 3. In the 3rd edition of his book Spann (1918a, 125) still described himself as an economist who was within the wider orbit of the Austrian school. In the 20th (1930, 172) he characterized the school as being close to extinction.

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conceived criticism of traditional economics, while Der wahre Staat (1921) was a political pamphlet, though cloaked in scientific pretension.15 In Fundament Spann contrasted his own holism with the individualism of the Austrians. He offered an essentialist definition of the economy as a “structure of means dedicated to ends,” intended to challenge the Austrian approach in two ways. First, the structure of the economy does not arise from, and is not the unintended result of the interaction of, individual decisions or actions, as in Menger’s “organic institutions.” Rather, the structure is the result of design, one derived from an insight into the immanent function of the economy as part of a greater totality. Second, the aims to which the means are devoted neither coincide with nor are aggregated from individual preferences. Rather, the task of determining these aims rests at a higher level than that of the economy, namely, on the level of the state, and ideally such decisions are guided by insightful philosopher kings. In Der wahre Staat Spann turned to the political conclusions to be drawn from his universalism. The rejection of “individualism” encompassed a rejection of all the elements of modernity, among them liberalism, capitalism, democracy, and cosmopolitanism. His political utopia was a corporate state (an image drawn from an idealized reconstruction of the social order as it existed in the Middle Ages) that rejected in all its spheres political and economic liberalism. He was if anything even more harsh in his criticism of Marxist socialism, which he viewed as pseudo-scientific, nihilistic, and destructive of social values (Wasserman 2014, 84). What was needed to establish a “true state” was a regulated economy (gebundene Wirtschaft) instead of competition, autarky instead of free trade, hierarchy instead of equality, and the rule of the elites instead of the rule of the masses. He sought to identify the hierarchical structures in society that would promote stability in social, economic, and political affairs. Such a program was bound to be attractive to many students living in the impoverished and politically tumultuous democratic Republic of Austria, but it had particular resonance after the punitive terms of the peace treaty became known. Furth later gave voice to this, noting it was particularly disappointing, and indeed outrageous, that the authors of the dictates were “the world leaders of liberalism and democracy . . . If such are the fruits of  liberalism and democracy, many of Vienna’s students, and of Austrians and Germans in general, don’t want to have anything to do with them” (Furth, “Memories,” 1). Spann regarded the authoritarian corporate state as the only form of 15. In English the three titles are “The Main Theories of Economics,” “Foundation of Economics,” and “The True State.”

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government appropriate for German people. Convinced of the superiority of “Germanness,” he adhered to both pan-Germanism and a special type of cultural anti-Semitism based on a “spiritual” definition of Germans and Jews. Accordingly, “true” Germans inclined toward the ideal of the corporate state while Jews favored liberalism and democracy, but these ideal types of the German and the Jewish mind need not necessarily coincide with the criterion of race. This allowed him to include persons of Jewish descent within his circle of disciples (indeed, otherwise Fürth would not have been allowed into Spann’s private seminar). Although in his reminiscences Hayek disparaged Spann as a person— even describing him as “semi-crazy” (Hayek 1983a, 402)—the attraction at the time must have been considerable. He was apparently a powerful presence in the classroom. Haag (1969, 1) remarks that Spann’s “listeners were struck by the orator’s eyes—deep set, piercing, and to many hypnotic.” Furth (1989, 248) characterized Spann as “a brilliant teacher” intent on emphasizing the “deep interconnections of all of social life,” and even Hayek conceded that “his enthusiasm and his declamation in the style of a prophet of the Old Testament together with his appearance (the burning eye of a fanatic) were certainly striking, and the book . . . Fundament der Volkswirtschaftslehre justified great expectations” (Hayek to John Haag, June 20, 1967).16 Because he purported to address the fundamental crisis of thought that plagued the Austrian First Republic, Spann’s lectures on Der wahre Staat were particularly popular among the students. He promised much. In his opening lecture he intoned that the questions were of such a grave nature that they called for apolitical reflection. His would be a scientific exploration of current affairs where the key goal was a search for truth, but freed from the Enlightenment sort of values that never fit well in German lands. His would be an objective report, one that reflected the true values of the German people (Wasserman 2014, 79–81). Yet another model for how to do proper, objective social science! Fritz Hayek got a full introduction to Spann’s thought in the summer term of 1920, signing up for three of his courses. The first was a five-hour lecture on public finance, of which Fritz found the empirics of consumer 16. Wasserman 2014, 81 notes that (unspecified) university records show that well over 90 percent of the law students during the First Republic took at least one of Spann’s classes. Given that Spann (jointly with Wieser) supplied the required courses for the economics and/or sociology part of the curriculum, but that attendance at lectures was not mandatory, the evidence from university records alone must be regarded as equivocal.

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demand (Engel’s law and Schwabe’s law) most interesting, causing him to speculate on the relationship between education and consumption expenditure (diary, May 15, 1920). The second, on sociology, entitled “Abbruch und Neubau der Gesellschaft” (Demolition and Reconstruction of Society), was the one that was based on Der wahre Staat and that drew the crowds. Though Fritz must have been in the audience, he did not report on it. The third course, Fritz’s first seminar (listed as a tutorial in economics and sociology), dealt primarily with matters of methodology, and it seems that he did not profit from it—it “was much above my head but unintelligible also, I believe, to most participants” (AF 10; IB 35). Here (and elsewhere) it is important to distinguish this seminar, one that was regularly announced in the university calendar and held within its premises, from those “private seminars” outside the university where participation was by invitation only. Most probably Fritz and Fürth became members of Spann’s Privatseminar, which took place in his home, in the winter of 1920/21. For a time they became known as his star students. In reminiscences Hayek recalled that Spann commissioned him to prepare a paper on the organization and effects of the stock exchange, which was to be used as a lecture manuscript for a business school course, a task that earned Fritz some money and kept him busy for two months (see, e.g., diary, Oct 8 and Nov 26, 1920). The knowledge thereby acquired proved useful for Fritz’s last economics exam: His examiner, Grünberg, one of Spann’s foes on the faculty, tried to demonstrate how little the students of Spann, like Fritz, knew about the practical side of economic life. He chose to ask him about how the stock exchange worked. Fritz’s detailed response was judged to be brilliant, much to Grünberg’s embarrassment and dismay (AF 10–11; IB 34, 35–36). Fritz not only took classes from Spann but also participated in some of his teacher’s other activities. He was among the disciples accompanying Spann “to a midsummer celebration up in the woods, where we jumped over fires” (Hayek 1983a, 15; see diary, June 13, 1920), and later, to a rally in the Vienna Konzerthaus, where Spann spoke about the Silesian problem, the partitioning of Silesia between Germany and Poland (datebook, Jan 9, 1921; see also Neues Wiener Tagblatt, Jan 10, 1921, 3). But Fritz’s interests during this period were not restricted to the ideas of those who might be characterized as part of “Black Vienna” (Wasserman 2014, chap. 3). In October 1920 he attended, jointly with Fürth, two discussions of the new constitution of the republic with its main author, Hans Kelsen, at the Austrian Political Society (diary, Oct 1 and 8, 1920). And the same month we find him with Herbert and Ernestine Fürth at a meeting of the Socialist Party addressing “intellectual workers.” It was part

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of the party’s campaign for the October 17 election, in which, however, the Christian Socials became the strongest party in Parliament. Fritz noted the meeting, but not the upcoming election, in his diary (Oct 14, 1920). Evidently he continued to seek out new ideas whatever their source. And as was true earlier in his university career, Fritz’s interests were not exhausted by the subjects of his study program, nor was he ready to content himself with the role of a passive recipient of others’ ideas. His reading list from this period reveals a broad range of interests beyond literature, sociology, or economics. Among the titles were some more or less contentious best sellers of the day, like Oswald Spengler’s Untergang des Abendlandes (The Decline of the West), which Fritz had bought himself for his birthday (diary, May 15, 1920); a book on parapsychology; the German psychiatrists Karl Binding and Alfred Hoche’s much-read advocacy of euthanasia, Die Freigabe der Vernichtung lebensunwerten Lebens (1920); and Gustave LeBon’s classic, The Crowd. An entry in the list from September 1921 confirms that Fritz had read at least one book by Sigmund Freud, his Five Lectures on Psycho-Analysis (1910). Vienna was a city of circles, and in June 1920 Fritz ventured for the first time to establish a discussion group of his own: “I have started regular meetings that promise to be rather stimulating. Besides Stanka who has been present up to now participants should include Kolbe, Schreyvogel, Voegelin (from the German Reich), Miss Schneider, Alberti and others” (diary, June 9, 1920). Fürth was not invited to the group because he was studying for a short period in Heidelberg. Of the would-be participants three, Schreyvogl, Stanka, and Voegelin, were members of the Spann seminar. Fritz knew Friedrich Schreyvogl (1899–1976) and Rudolf Stanka (1898– 1956) from his schooldays, the one from the Carl-Ludwig-Gymnasium, the other from the Elisabeth-Gymnasium.17 However, as he confided to his diary a few days later (June 13, 1920), the success of this first attempt to build a “circle” was quite limited and apparently short-lived. He would try again after finishing his first degree.

17. Schreyvogl would earn a doctorate in state sciences with a thesis on the economics of Thomas Aquinas in 1922 and became a well-known writer and theater critic in the interwar period; in the 1930s he turned from Catholic conservative to a member of the Nazi party. Stanka (see Lentze 1956) studied law and philosophy and then entered the civil service; after 1945 he received a lectureship for the history of the philosophy of law and in 1948 was appointed to an extraordinary law chair at the Vienna Hochschule für Welthandel, a well-known refuge for pupils of Spann.

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From Spann to Wieser Fritz encountered Friedrich Wieser as a teacher for the first time in the summer term of 1920, the same term in which he attended three of Spann’s courses. He took Wieser’s seminar and found both it and the teacher memorable (diary, June 18, 1920). Fritz went on to attend Wieser’s lecture course, which was based on his treatise Theorie der gesellschaftlichen Wirtschaft (1914). The lectures 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 . . . it was a formal class to which he lectured. They were a special kind of lecture, 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 . . . His seminar . . . , again, was a very formal affair—for which somebody produced a long paper which was then commented upon by Wieser. (Hayek 1983a, 401–3)

That Wieser got interested in Fritz as a student, took him into his family, and invited him occasionally to his house (Hayek 1983a, 14) was surely an exception. Probably it was owing not only to Fritz’s performance at the university but also to Felicitas’s friendship with Wieser’s sister Paula, the widow of Böhm-Bawerk. In any case by the end of his studies Fritz became thoroughly acquainted with Wieser’s ideas. Yet, even more than Wieser’s treatise it was the reading of other authors that from 1920 onward gradually shifted Fritz’s attention away from Spann and toward the Austrian school. His reading list indicates that after having read Spann’s Haupttheorien, Fundament, and the booklet on the essence of German Volkstum (Spann 1920), he turned to the more traditional economics literature, starting with Philippovich’s (1893– 1907) Grundriß textbook, certainly required reading as an introduction to the field. By the middle of 1920 he was reading Menger, first the article on money from the Handwörterbuch (Menger 1909), then the Grundsätze (1871). When Fritz left Vienna for Norway, he took with him a translation of Adam Smith’s The Wealth of Nations. During the winter term of 1920 he put Wieser’s two main works (Wieser 1889 and 1914) on his reading list and

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also many of the shorter articles, including those of a more political or sociological character. He also ventured into Böhm-Bawerk’s volumes on capital theory as well as his essay on control or economic law (1914). He read Schumpeter’s habilitation thesis (1908) and his contribution on the history of economic doctrine (Schumpeter 1914), but not the theory of economic development (Schumpeter 1911)—that had to wait until the fall of 1922.18 Finally, Fritz worked through the bulk of what in retrospect would be identified as some of the fundamental mainstream neoclassical texts: Gustav Cassel’s Theoretische Sozialökonomie (1918), Knut Wicksell’s Vorlesungen (1913, 1922), William Stanley Jevons’s Theory of Political Economy ([1871] 1923). He also made an attempt at Alfred Marshall, but he found his Principles ([1890] 1903) boring, possibly because his English was not yet sufficiently good to read it in the original so that he had to rely on the German translation (IB 45; Hayek 1983a, 399; see also Felicitas to Fritz, July 31, 1921). Perhaps as a by-product of this reading, Fritz and some fellow students discussed the idea of translating into German Cassel’s (1917) Dyrtid och sedelöverflöd (High Prices and Overabundant Banknotes) (diary, Nov 15, 1920); Spann was consulted and approved of the project, but it never came to pass (see also Bartley interviews, Mar 29, 1984). The most important event in retrospect was Fritz’s discovery of Menger, thanks to Spann’s recommendation (Hayek 1983a, 48, 401)—possibly as a test of his favorite pupil’s critical capacity. If so, it misfired. “I now realize . . . that the decisive influence was just reading Menger’s Grundsätze. I probably derived more from not only the Grundsätze but also the Methodenbuch [that is, Untersuchungen, 1883], not for what it says on methodology but for what it says on general sociology. This conception of the spontaneous generation of institutions is worked out more beautifully there than in any other book I know” (Hayek 1983a, 248; 1994, 57; see also 1983a, 174, 273–74 and 476). Over the course of 1921 signs of strain in the formerly close relationship of Fritz to the “Spann circle” (Müller 2015) must have been evident, as Fritz continued to explore the very approaches that Spann had criticized so severely in his books and lectures. The increasing alienation came to a head in fall 1921. The key moment was later evoked by Furth: “One evening Spann discussed one of his favorite ideas, the creation of a society based on the historic ‘estates’ . . . in which, as he put it, the cobblers would decide 18. Schumpeter had used Ernst Mach’s philosophy of science to defend a Walrasian approach to economics in his 1908 book Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie. One wonders whether this may have helped convince Fritz that marginalism was a more truly scientific approach to economics.

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everything pertaining to cobbling and nothing else. Hayek criticized the idea and stated that according to Spann’s own theory there was no juridical or economic matter of any importance that pertained only to ‘cobblers’ or did not touch ‘cobblers’ at all. I supported Hayek with a few concrete examples” (Furth, “Memories,” 2). What happened next is not quite certain. Hayek recalled that Spann reacted by expelling him and Fürth from his seminar, offering as the reason that their “carping criticism . . . confused the younger members” (AF 10; IB 35). Furth on the other hand said that Spann had called them on the carpet after the discussion, but that they decided on their own to quit attending the seminar (Furth, “Memories,” 2). He also later allowed that perhaps, “after all, [Spann] was genuinely disappointed that his two ‘favorite students’ (as he called Hayek and me) were unable to share his philosophical-political ideas” (Furth to Haberler, May 11, 1984). * * * In 1918 Fritz Hayek had returned to a city that was a shell of its former self: cold, hungry, insecure politically and economically. But he and his family had survived the war, he was at the university and making new friends. And there was also dancing. Like all curious students Fritz was searching. Elections were coming, so one of his first interests was politics. He entered the university as a progressive liberal, quite distant from three mass parties with all their faults, but also reflecting the interests of his class. He was fascinated by psychology and might well have made some lasting contributions there, but felt he could not get the outside job that would be necessary to continue working toward a university appointment. Together with his new friend Herbert Fürth he had an initial attraction to the most popular of the economists, the in retrospect unlikely and quite suspect figure of Othmar Spann. Ultimately, though, he would find the most distinguished of the surviving second-generation Austrian school economists, the fatherly and vaguely Fabian Friedrich Wieser, more to his scientific taste. With hindsight we can see that three events that would shape the course of Fritz’s further education all occurred in the fall of 1921: he concluded his study of law and began that of the state sciences with its focus on economics; he broke away from Spann and his circle and moved toward Wieser; and he entered the Abrechnungsamt, where he would work for Ludwig von Mises.

·9· Mises and the Geistkreis

As he studied in the late spring of 1921 for the oral examinations that would qualify him for the doctor juris, Fritz also took the usual step of looking for a job so that he could earn a living outside of academia. A temporary government office had recently been set up that offered attractive positions to people who had studied law and were fluent in foreign languages—a profile custom-made for the young Hayek. When he approached Ludwig von Mises, one of the directors of the office, the encounter that followed gave rise to one of the most famous of Hayek-Mises anecdotes: “I came to him with a letter of introduction by [Friedrich] von Wieser, who was my real teacher, who described me as a promising economist. Mises looked at me and said, ‘Promising economist? I’ve never seen you at my lectures’” (Hayek 1983a, 273; see also 1994, 67).1 Despite Fritz’s sin of omission and Mises’s reaction of polite skepticism, the young man was offered a job, to begin once his exams were done. Fritz successfully sat for them on October 21, 1921, and started work under Mises at the Abrechnungsamt the following day. He would be there for the next five years, interrupted only by an albeit somewhat lengthy visit to the United States between March 1923 and May 1924.2

The Abrechnungsamt The office, whose official name was Österreichisches Abrechnungsamt für Kriegsschulden, that is, Austrian Clearing Office for War Debts, came into

1. Although formally in the interwar period Mises’s name lost the “von,” we will keep it here because this is how he is usually referred to in the literature. For others it will be dropped. 2. See also AF 15; IB 50–51; Hayek 1994, 68–69.

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existence as a part of the peace treaty signed after World War I.3 Its first task was to determine the outstanding private claims and liabilities existing between Austria (as the heir to the monarchy) on the one hand and the successor states and the victorious Allied powers on the other that had been blocked by the outbreak of war. Next, such claims were settled by the governments paying the amount of foreign debt outstanding to domestic creditors, then the remaining balances between states were cleared bilaterally, and eventually—to break even—the governments had to collect the debts owed by domestic debtors to foreign creditors. The procedure was complicated by, among other things, the necessity of taking into account the enormous currency changes that had occurred during and after the war. The bulletins of the Abrechnungsamt, jointly with information on its organization and activities, were published in a journal created for that purpose, Friedensrecht, that is, Peace Law. Its first issue appeared in June 1921. The office was subordinate to the Ministry of Finance, which appointed the board of directors, consisting of the president and two vice presidents, which in turn appointed up to three chief officers. The office existed from 1920 to 1935, by which time most of its tasks had been fulfilled. For the whole period its president was Josef Schenk, a jurist who in 1916–17 had been the minister of justice. For the first two years the chief officer was Emil Perels; after his promotion to the director of a public bank, he was succeeded by Ludwig von Mises, who had been part of the staff from the beginning. Perels (1880–1944) was a friend and colleague of Mises from the Chamber of Commerce and a fellow member of the Böhm-Bawerk seminar. Mises remained in the position of chief officer for two and a half years until he returned to his full-time job at the Chamber in February 1925.4 Fritz’s position was that of a secretary. It paid pretty well, first because it required that the occupant have a command of law, economics, and languages, which was rather rare, and second because it was only that of a temporary civil servant, which paid better than would a permanent appointment (Hayek 1983a, 4, 409; 1994, 68). The new job and income allowed Fritz to some extent to cut the cord between him and his family, leaving the family home and subletting a room for himself. We do not know the location, and it may even have been in the same building in Margaretenstraße, although he apparently left his books with his parents and surely was still a regular visitor there (see EHH). But money aside, the main benefit of Fritz’s job was that it brought him 3. See, e.g., Pils 2014. See also Hayek 1983a, 272, 408; 1994, 68. 4. See the notices in Friedensrecht 1 (11), June 20, 1922, and 4 (2), Feb 1925; on Perels see also Hülsmann 2007, 452.

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into daily contact with Mises. Hayek (1992d [1956], 132) described him as “tremendously efficient” and a “most unconventional civil servant,” and recounted that “he soon gave me scope by putting me on new and responsible jobs for which usually much more senior persons would be employed” (AF 15; IB 51; Hayek 1994, 69). Possibly as a visible result of this support from Mises, Hayek had the opportunity to publish a juristic contribution in Friedensrecht, where in contrast to the usual anonymity the author’s name was indicated as “Dr. H.” (Hayek 1922a; see the copy in FAHP 104.25). We know of some of the people who worked in the office from a letter that Fritz wrote, with the salutation of “Dear Aba,” when he was in New York (Apr 26, 1923). He passed on his sincerest compliments to “his excellency Schenk,” to Mises and the senior secretaries, and he offered less formal greetings to his female colleagues, among them the daughter of the office’s vice president, one “Ina,” and also to “Hela (or Hella).” The latter would become his wife, Helena (Hella) Fritsch. She had entered the office sometime in 1921 or 1922, and her work as a secretary extended to areas demanding some legal expertise. Like Fritz she published a memorandum of her own, on Hungarian law covering prewar debts, in Friedensrecht under the name “Helene Fritsch” (H. Fritsch 1924). The office appears to have attracted well-educated women, some of whom (though this was not the case for Hella) had gotten a university education.5

Under the Spell of Mises Hayek’s recollections make clear that Mises’s impact on the evolution of his thought soon superseded that of his “direct teacher” Wieser and that it fundamentally shaped his views throughout the 1920s and beyond. The question that suggests itself is whether Mises exerted this influence only “extramurally” or also through contact that they may have had at the university. In this regard, the famous anecdote above appears to be nearly completely true, in that it suggests that Fritz did not regularly attend Mises’s seminars. And he himself stated that although it was Mises “from whom later I have probably learnt more than from any other living person, . . . in the conven5. One of the more remarkable women, and apparently a friend of Hella (see Hella to Fritz, Apr 28, 1937), was Gertraud Doublier, the daughter of a former vice-director of the Austrian National Library. She had studied German and Scandinavian philology and history at the University of Vienna, and earned her doctorate with a thesis, supervised by Fritz’s uncle, Eduard Castle, on the German actress Charlotte Wolter. Upon leaving the Aba in 1930 she became a librarian at the National Library (see Korotin, ed. 2016, 615–17).

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tional sense of the word [he] was never my teacher. I believe that so long as I was a regular student I only once went to a lecture of his and rather disliked his manner” (AF 15; see also IB 50; Hayek 1994, 68). Hayek’s university documents show that he signed up for Mises’s seminars three times, consecutively for the summer term 1921 (that is, before entering the Abrechnungsamt), for winter 1921/22, and for summer 1922 (FAHP 171). These were Mises’s regular seminars held at the university, not his “private seminar,” and attendance at such seminars was strictly voluntary. Only for the latter two seminars is Hayek’s presence confirmed by Mises’s signature, and Mises’s records have no indication that Hayek—as would have been usual for participants—presented a paper in any of the seminars.6 Hayek is listed along with his address as a participant in another of Mises’s seminars, most probably that of winter 1922/23, for which there are also entries in Hayek’s datebooks (for November and December 1922). From all of this the most reasonable guess is that Hayek participated in some seminars, but only after completing the first degree and after he had come into personal contact with Mises at the office, and that he became an active member as late as the last winter term that he was at the university—he left for New York in March 1923. The list of participants in the Mises seminars that Hayek most probably attended contains some familiar names, among them Gottfried Haberler and Fritz Machlup (who acted as Mises’s personal assistant). Hayek’s first encounters with his future colleagues may date from these occasions. * * * Mises’s impact on Hayek’s thinking was most strongly felt in two fields: the study of money and inflation, and the question of socialist economic calculation. Mises had completed his big book on money prior to the war (Mises 1912), but the practical challenge he and other economists faced was created by the advent of the great Austrian inflation, 1914–24.7 Like the other warring countries, Austria left the gold standard in 1914 and turned to a fiat currency, paper money not backed by a commodity. A large part of warrelated expenditure was then financed by the printing press, and consumer 6. For Mises’s records of his regular university seminar see LvMPA 2.17. In a letter to Fritz Machlup, Aug 15, 1945, Hayek noted that he did not attend Mises’s university seminar until after he started work at the Abrechnungsamt. 7. On the Austrian inflation, see, e.g., Jobst and Kernbauer 2016, 152–61; on Mises’s role, Hülsmann 2007, 483–86, or Ebeling 2010, chap. 5.

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prices accordingly rose, by the end of the war fifteenfold. The financial calamities of the postwar period led to enormous budget deficits—the crucial items were food subsidies, interest on national debt, and unemployment benefits—that were again financed by printing money. A brief period of stabilization soon gave way to hyperinflation, with monthly price increases rising from 60 percent to up to 100 percent in 1921/22. By September 1922 prices had increased by 14,000-fold from the level of July 1914. Fritz experienced the inflation directly, soon after he entered the Abrechnungsamt in October 1921: “At my first job . . . I got a monthly salary of 5,000 old Kronen a month. In the next month, I had to be paid three times that in order to be able to live on it. And by next July, it reached one million a month” (Hayek 1994, 70; see also AF 13; IB 47–48). Fritz was among the fortunate few whose salary was regularly adjusted to account for the rise in prices. The long-term economic and social effects of the inflation on those who were not so protected were horrendous. In the first place it rendered worthless the war bonds in which the middle and upper classes had invested their financial wealth. Many families—Hayek’s and those of most of his relatives and friends among them—lost their fortunes in the process. Conversely people were appalled by how clever speculators were able to multiply their wealth.8 Speculative fever gave rise to a proliferation of new banks, many of which, like the Biedermann Bank headed by Schumpeter, went bankrupt in the stabilization crisis of 1924. All of this tore at the fabric of society, making the promises of the mass parties (not to mention the diagnostic diatribes of intellectuals like Spann) all the more potent. And, of course, Jews were blamed for promulgating the financial disasters. During the war Mises had gained a reputation for his financial acumen, yet in the face of the Austrian hyperinflation it was not necessary for him to turn to the subtleties of his own monetary writings, as the simple insights from the quantity theory of money sufficed for suggesting a solution. This is highlighted by the “apocryphal story” recalled in an interview, according to which “Mises was asked during that inflation how to stop it. And he said, ‘Meet me at 12 o’clock at this building.’ And it turned out at 12 midnight they met him at the printing office, where they were printing the money. And they said, ‘How can we stop this inflation?’ And he said, ‘Hear the noise? Turn it off’” (Hayek 1994, 70). Such a solution was eventually achieved in October 1922 when Austrian Chancellor Ignaz Seipel, a Catholic prelate and the strongman of the Christian Socials, signed the so-called Geneva Protocols that granted Austria an international loan. In return the repub8. For an example, see the biography of Camillo Castiglione (Stiefel 2012).

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lic gave up part of its sovereignty over its public finances, which were to be controlled by a general commissar of the League of Nations. The drastic remedy worked: inflation stopped almost immediately, and the budget was balanced in 1924. Mises was alleged to have been heavily involved in finding this solution and in supporting (and convincing) Seipel to undertake it.9 Still more important for the evolution of economic thought in general, as well as for Hayek’s thought in particular, was Mises’s publication of Die Gemeinwirtschaft (1922, translated as Socialism, 1936). Elaborating on his shorter article (Mises 1920a), Mises maintained the impossibility of (rational) socialist economic calculation. Socialism is public, or state, ownership of the means of production. Mises’s crucial argument was that a socialist economy, which must rely on some type of central planning without the aid of market-formed prices (and, in the case of proposals by people like Otto Neurath, without money itself), lacked the information and the incentives for rational decisions to be made with respect to the economy’s resources, especially for the goods of higher order (that is, producer goods). Marketbased prices reflect relative scarcities. Without such prices to guide their decisions, central planners would be left groping in the dark (Mises 1935 [1920a], 101). Later on, Hayek himself would extend Mises’s theses and present them to new audiences. But we are more concerned here with his reaction to Mises’s thought at the time. Here is a representative retrospective statement: “To none of us young men who read the book when it appeared the world was ever the same again . . . Not that we at once swallowed it all. For that it was much too strong a medicine and too bitter a pill . . . Mises’s teaching seemed directed against all we had been brought up to believe. It was a time when all the fashionable intellectual arguments seemed to point to socialism and when nearly all ‘good men’ among the intellectuals were socialists” (Hayek 1992d [1956], 133; see also 1992a [1981a], 136, and IB 49). The question arises: exactly how much of a “conversion experience” did young Fritz have when he read Mises on socialism? We know that he returned from war with his head full of the writings of Walther Rathenau, described as “an enthusiastic planner” (Hayek 1983a, 11). The political groups he engaged with when he first arrived at the university embraced progressive economic reforms. During his student days he sampled widely, 9. Wasserman 2019 (130–34) is quite critical of what he characterizes as the “draconian liberal policies supported by Mises” (133) during this period and later in the 1920s, emphasizing their effect on unemployment. His account downplays, in our opinion, how important these steps were for bringing the Austrian hyperinflation to a halt.

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entering for a time the orbit of Spann, who was a severe critic of Marxism and liberalism. The one doctrine that apparently never interested Fritz was Marxism (Hayek 1983a, 12), possibly because of the violence he associated with the Red Guards, or perhaps the inflexibility of Austro-Marxist rhetoric. His reading lists confirm this later memory: the only Marxist piece was Karl Kautsky’s (1920) popular introduction. Hayek’s experiences with regulations and taxes imposed by the City of Vienna (“Red Vienna”), in particular with rent controls in the regulated housing market, a topic to which he soon would turn, may also have increased his skepticism toward the practical application of socialist ideas. Perhaps the most accurate account was that in his critique Mises’s timing was right: “I had already grown very skeptical. The systematic attempt at a refutation by Mises came at a moment when I had been perfectly prepared for it. I would not have said then—as I do now—that socialism is not even half right, but totally wrong. At the time I still would have said, socialism is half right” (Hayek 1983b, 14).10 It was also on Mises’s book that Hayek wrote a letter to the editor of The Times (of London), the first of many that were to follow later in his career (Hayek, “A Critic of Socialism,” Apr 14, 1925). In it he pointed out that Mises’s “admirable and comprehensive work” would fill a gap that existed in the current English literature, providing “not only the most searching criticism of the economic programme of the Socialists yet attempted, but also a very effective refutation of the whole ideology and phraseology.” * * * While working with Mises and pursuing his second degree in state sciences Fritz continued to mature as an economist. We can see this from his readings (as dutifully recorded on his list), his few writings, and the groups he began to join. Despite his work at the office, his capacity for reading still appears breathtaking, though we must remind ourselves that his method was to march straight through many books at a time, with no note-taking and so little systematic reflection. He began exploring Mises’s work only after he had entered the office, beginning in January 1922 with Mises’s book on money (Mises 1912), followed in September 1922 by Die Gemeinwirtschaft. At the same time Hayek also started reading Schumpeter’s (1911) theory of economic development. In the field of methodology he had already read 10. Hayek’s reminiscence was upheld by his friend Furth in a letter to Stephan Boehm, Mar 17, 1993. See also Hayek 1983a, 71.

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Gottl-Ottlilienfeld (1897), and then turned to three Vienna habilitation theses on methodological issues: Schumpeter (1908)—complemented by reviews by Wieser and Mayer—Amonn (1911), and Kaufmann (1922). He also read two contributions to Weber’s Grundriß, Michels (1914) on economy and race and Gottl’s (1914) valuable piece on economy and technology. For value theory, the core of economics, Fritz studied the classics, Gossen and Böhm-Bawerk, as well as Hans Mayer’s first essay on the basic law of value (Mayer 1921). He also waded through the writings of lesser-known Austrian marginal utility theorists, people like Oscar Kraus, Franz Čuhel, Johann Komorzynski, Robert Zuckerkandl, and Oskar Engländer. On monetary theory he turned to the standard German literature: Friedrich Bendixen, Bruno Moll, and Adolph Wagner, but these were complemented by some English classics, like George Goschen on the foreign exchanges and Walter Bagehot’s Lombard Street (in a German translation). In writing his doctoral thesis Fritz extensively surveyed the literature on the imputation problem. Interestingly, Fritz also attempted to improve his understanding of mathematics by studying a textbook on arithmetic and Irving Fisher’s (1904 [1897]) brief introduction to the infinitesimal calculus. At roughly the same time Hayek started contributing to scientific journals, with three book reviews for the Viennese Zeitschrift für Volkswirtschaft und Sozialpolitik (Hayek 1922b, 1923b, c), then edited by Wieser, Spann, and Richard Reisch. The books reviewed were a short piece by Siegfried Strakosch (1922) on the Austrian economy, titled “Suicide of a Nation,” Boris L. Brasol’s Socialism vs. Civilization (Brasol 1920), a product of the Red Scare, the fear of Bolshevism that pervaded the US in the postwar period, and the Danish economist Laurits V. Birck’s The Theory of Marginal Value (1922), an attempt to synthesize the Cambridge and Austrian theories of value. Hayek was discriminating in his judgments: He by and large agreed with Strakosch, one of Mises’s “dear good friends” (Mises 1978b, 57), who blamed the problems of the Austrian economy not on a lack of resources, but on excessive state intervention and on the gains in real wages that had been obtained by strong trade unions—a diagnosis akin to what Hayek later on would refer to as “capital consumption.” He denied any scientific value to the book by Brasol, who later would become notorious for his role in circulating “The Protocols of the Elders of Zion.” And although generally appreciative of Birck’s efforts, Hayek, drawing on his recent reading of Austrian literature, criticized as unwarranted Birck’s theses on the measurability and interpersonal comparability of utility. We might mention finally that when Fritz left Vienna for New York, he carried in his luggage an article by the Dutch economist N. G. Pierson on

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the problem of economic calculation, which he would translate from Dutch into German. It was eventually published in the Zeitschrift after Fritz returned to Vienna (Pierson 1924), and Hayek would include an English translation of it in his volume Collectivist Economic Planning (Hayek, ed. 1935). During this time Fritz also became affiliated with the Nationalökonomische Gesellschaft (NOeG), the Austrian Economic Association.11 Its predecessor had been an informal discussion group begun by Mises in March 1908, in which among others Karl Pribram, Emil Perels, and Else Cronbach, all in their late twenties and all, except Pribram, affiliated with the Vienna Chamber of Commerce, participated.12 The group dissolved during the war but was revived formally as a registered association, with the constituent general assembly held on June 19, 1918. The elected board was composed of Schumpeter (president), Mayer (vice president), Karl Pribram (secretary), Mises (treasurer), and as ordinary board members Alfred Amonn, Moritz Dub, Victor Grätz, and Spann.13 The NOeG distinguished itself from the already existing Gesellschaft österreichischer Volkswirte (Association of Austrian Economists) by its stronger emphasis on theoretical discussion and by the fact that its founding members all belonged to the younger generation of Viennese economists. Not much is known of its activities in the postwar period except that in January 1920 it hosted Mises’s presentation of his famous paper on economic calculation in a socialist commonwealth (Mises 1920a; see Hülsmann 2007, 373–79). Hayek’s datebooks show that he attended three or four meetings between January and April 1922, when Franz Xaver Weiß, Othmar Spann, and possibly Max Mintz gave talks.14 With the onset of the Austrian hyperinflation the association ceased meeting, possibly for financial reasons: “The economic society used to meet at a coffeehouse [the Café Eiles, next to the university] and hire a room there, and I think the expense of doing so during the height of the inflation was probably one of the contributing 11. On the history of the NOeG see Klausinger 2016b. 12. Karl Pribram (1877–1973) had the year before become lecturer in economics at the University of Vienna. In the interwar years he worked at the International Labour Office at Geneva and immigrated to the US in the 1930s; his posthumously published magnum opus is Pribram (1983). Else Cronbach (1879–1913) earned her doctorate in state sciences in Berlin, as women were not yet admitted to such study in Austria. 13. Moritz Dub (1865–1927) was an economic journalist of the leading Viennese daily, Neue Freie Presse (see Mises 1927, Jan 9); the industrialist Victor Grätz (1877–1939, London) was later to become a member of the Mises seminar. 14. See the entries for 1922, Jan 11, Mar 1 and 9, and Apr 11.

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factors” (Hayek 1983a, 44). There may have been other factors at work. Some of the founders were either no longer in Vienna or, like Schumpeter, no longer in academia, and there was tension between those who were still around, particularly Spann and Mises. In any case, when Hayek returned from New York he found the NOeG completely inactive, and it would remain so until its revival in 1928.

The Geistkreis As was noted in the previous chapter, Fritz tried to form a discussion group in summer 1920 but could not get it going. The second attempt to form such a group, this time jointly with Herbert Fürth after their departure from the Spann private seminar, proved incomparably more successful, with regard to both the longevity and the cohesion of the membership. The group started up in the fall of 1921, with roughly twelve members meeting monthly or biweekly in private homes. Meetings were typically after dinner, though sometimes tea and sandwiches would be offered. From the outset it was a male-only group. In retrospect, Furth (1989, 250–51) and Hayek (1983a, 37) both defended the rule as based on “practical” considerations—the social conventions of the day deemed it inappropriate for unmarried women to meet with a group of men. But on other occasions both confided that the general rule was intended to keep out a particularly tiresome female partner of one of the members, politeness preventing a specific exclusion (see Craver 1986a, 17; Furth, “Memories,” 4–5). In any case, this practice made Steffy Braun (who in the US anglicized her name to Browne) derisively refer to the group as the Geistkreis, that is “Circle of the Spirits” (Browne 1981, 111), a label that they never used themselves but that stuck.15 In his description Eric Voegelin (2011) added another nuance: “It was a group of younger people who met regularly every month one of them giving a lecture on a subject of his choice and the others tearing him to pieces. Since it was a civilized community, it was a rule that the man in whose house we met would not be the one to deliver the lecture, because the lady of the house was permitted to attend [otherwise

15. On the Geistkreis see Engel-Janosi 1974, 116–20, 125–28; Furth 1989; Browne 1981; Sorokin 2020; and Furth, “Memories,” 1, as well as his correspondence with Hayek. For the most complete list of members see Fürth, “Zehn Jahre ‘Kreis.’” See also AF 14, IB 49, and Hayek 1994, 58. As Stephan Boehm (1984, 2) notes, though “circle of spirits” is a literal translation, it might “more felicitously be rendered as ‘circle of highbrows,’” which surely captures Steffy Browne’s intent.

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women were not admitted], and it would not be courteous to tear a gentleman to pieces in the presence of his wife” (34). From the beginning, Herbert Fürth was even more engaged in the project than Fritz. It was Fürth from whom the initiative had come and who was crucial in the selection of most of the members—as Hayek (1983a) noted, he drew on “Jewish people whom we had known in the university, partly active contemporaries in the law faculty, partly a few personal friends of his more than mine” (33). Apart from Fritz and Herbert, the circle’s founding members included Walter Fröhlich, Felix Kaufmann, Max Mintz, Alfred Schütz, and Erich Voegelin, all students of law or state sciences. Over the next few years other founders left the circle, and most of them now are just names without a biography: Friedrich Eder, Hans Heller, Robert Meyer, Georg Schiff, and Hans Seyfert. Many of their replacements, however, would become in their own fields quite prominent: the economists Gottfried Haberler, Fritz Machlup, and Oskar Morgenstern as well as the mathematician Karl Menger, the historian Friedrich Engel-Janosi, the journalist Friedrich Thalmann, the art historians Franz Glück and Johannes Wilde, and the jurist later turned musicologist Emanuel Winternitz.16 Among the founding members Felix Kaufmann (1895–1949) was the oldest.17 He had attended the same gymnasium as the Hayek brothers, a few years their senior. After a doctorate in law he acquired a lectureship for philosophy of law, based on his thesis Logik und Rechtswissenschaft (Kaufmann 1922), an outline of Kelsen’s system of the pure theory of law. He became a member not only of the Geistkreis, but also of the Kelsen, Mises, and Schlick circles, and thereby a prime source of information for all the others on what was happening in the Vienna Circle proper (Hayek 1983a, 17). Many of the participants of the Geistkreis, after finishing their study, worked as lawyers. Max Mintz (1899–1973), a friend of Fürth from schooldays with whom he remained close for the rest of his life, entered the law office of his father, Alexander Mintz; later on, Fürth also joined the Mintz office. Other law students and future lawyers were Walter Fröhlich (1901– 75) and Emanuel Winternitz (1898–1984), who also lectured at a Vienna workers’ university (Volkshochschule). 16. Besides “Zehn Jahre ‘Kreis,’” see Furth to Hayek, Oct 26, 1970, for Eder and Meyer. See also IB 54 and the entries in Hayek’s datebooks for 1922, Jan 16 and 30, Feb 20, Apr 20, May 5 and 19, June 8 and 26, Oct 26, Nov 9 and 30, and Dec 19. 17. See Kristoferitsch and Orator 2008 on Kaufmann; Perloff 2004 on Mintz; Kletzer 2008 on Winternitz; Wagner 1983 and Barber 2004, in particular 14–24, on Schütz; Arnold 2008 on Voegelin; Bendt 1998 and the entry in Wendland, ed. 1999 on Glück; and Müller 1999 and Schimanko 2011 on Schiff.

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Alfred Schütz (1899–1959), the future social philosopher, studied law and state sciences and finished with a doctorate in the same years as Hayek, 1921 and 1923. After that he continued his academic work, which was to culminate in the study Der sinnhafte Aufbau der sozialen Welt (Schütz 1932, trans. 1967). Erich Voegelin (1901–85), who was to become an eminent conservative political philosopher, was born in Cologne and moved to Vienna in 1910. He earned his doctorate in state sciences in 1922 with a thesis jointly supervised by Kelsen and Spann, in whose circles he participated for some time. Glück and Schiff were two exceptions in coming from outside the Faculty of Law. Franz Glück (1899–1981) was the son of Gustav Glück (1871–1952), the director of the picture galleries of the Vienna Kunsthistorisches Museum. After studying philology, he worked for the publishing house Schroll, which brought him into contact with celebrities like Adolf Loos, Karl Kraus, and Peter Altenberg. Apparently, he was invited to join the group because he was a personal friend of Fürth. Georg Schiff (1896–1941) was a member of the widely ramified Schiff family. Among the siblings of his father, the industrialist Otto Schiff, were Walter Schiff (1866–1950), lecturer in political economy and statistics at the University of Vienna from 1899, and director at the Austrian Statistical Office, who retired in 1922; Jenny Schiff (1864–1938), who married Simon Popper (1856–1932) and became the mother of the philosopher Karl R. Popper, Georg’s cousin; and Arthur, the father of the economist Erich Schiff (1901–92). After having started but not concluded the study of history Georg Schiff worked at an insurance company. Among the short-term founding members we may single out Robert Meyer and Hans Heller. The former was the son of the Austrian minister of finance of 1911, of the same name, who had contributed to the tax theory of the Austrian school. The latter, who managed to combine an interest in Freud and Marx and his literary ambitions with being a successful businessman, was the heir to a well-known dynasty of Vienna candy producers. Notably, he referred to the Geistkreis as a group of “brilliant young men,” of which he was just an “honorary member” (Heller 1983, 53). From its start in fall 1921 to his departure from Vienna in March 1923, Fritz had roughly one and a half years to enjoy the group’s activities. For the year 1922 Fritz’s datebook contains an (incomplete) list of meetings, hosted by Fürth, Mintz, Schiff, Voegelin, and Heller.18 The range of topics covered is stunning. During 1921/22 Voegelin talked on the “Method of the Social 18. For a list of speakers and topics see Fürth, “Zehn Jahre ‘Kreis’”; for the period after 1931 cf. also Engel-Janosi 1974, 125–28.

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Sciences,” “Philosophy of Jewry,” and the “Significance of the History of Art,” Kaufmann on “Logic and Mathematics,” Glück “On Awe,” Schiff on “The Meaning of Epistemology,” Mintz on “Stefan George,” and Fürth on “Kurt Hildebrand’s Theory of the State.” In 1922/23, when Fritz was present only until March, he was able to listen to Voegelin on “England,” Eder on “The Bourgeois,” and Fürth on “University Reform.” According to the records Hayek spoke in 1922 on the topic of his doctoral thesis, “Theory of Imputation I and II” (see also Furth, “Memories,” 4). His later reports (Hayek 1983a, 36; see also Bartley interviews, Mar 29, 1984) that he had also spoken about his psychology paper are not supported by the records, perhaps nicely illustrating one of his central claims about the fallibility of memory. Hayek’s later recollections of his reactions to the contributions of some of the members of the group are frank and revealing: “I learnt a great deal from Felix Kaufmann, only little from Schütz (uncomfortably, because he seemed to understand me better than I did him) and I never understood Voegelin. Others like Fürth, Minz [sic], Glück, Winternitz, contributed much to my education outside the field of [economic] theory, especially foreign literature and art of which I knew little, or at least made me aware how inadequate was my knowledge of history” (IB 54). It is instructive to compare these with Furth’s later recollections. He remembered that his friend Hayek’s theories “were always stimulating” and remarked on “his personal and scholarly modesty.” He added, “Perhaps most importantly, the multiplicity of fields represented in our circle as well as the mixture of theorists and practical men saved us from the one-sided overspecialization, which is probably the bane of today’s social science” ( “Memories,” 3). Joining the Geistkreis was a hugely important step in the further education of Fritz Hayek. Its members were cultured, well-read, whip-smart, and always ready for debate. Despite his erratic school history Fritz had usually in the past felt himself to be the smartest person in the room. This was not the case in those evening discussions in Vienna. He became acutely aware of how limited his rather traditional education had been. And suddenly a whole new side of Viennese life opened up before him: Fritz had discovered the Jewish intelligentsia. Of the circle’s long-term members, only Fritz and Voegelin lacked Jewish forebears. All the others—in the case of Franz Glück only through his father—were of Jewish descent, although only Kaufmann, Mintz, and Schütz were active members of the Jewish community. Hayek later made clear how much he owed to this “group of contemporaries who belonged mostly to the best type of Jewish intelligentsia . . . who proved to be far ahead of me in literary education and general preco-

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ciousness” (AF 13; Hayek 1994, 57; see also IB 53). His “much more internationally minded” Jewish friends brought him into contact with “names which were quite new to me like Bertrand Russell or H. G. Wells, Proust or Croce, the names of men with whose ideas one had to be familiar to take part in ordinary conversation.” According to Hayek, they all—like Fürth— “belonged mostly to that progressive intelligentsia with more or less strong socialist leanings but a general background of 19th century liberalism” (AF 14; Hayek 1994, 58; IB 50). And he also came better to understand the trials they faced as Jews: “though these men generally came from homes that were or had been wealthier than mine, and though no doubt they clung closely together in the struggle against the prejudice they met, they had even then in this prejudice an obstacle to overcome very much greater than an equally able non-Jew of good family, to whom every door was open at Vienna” (AF 15; see also Hayek 1994, 59). In retrospective accounts in which he described the intellectual community of Vienna in the interwar period, Hayek described a three-part division among the various scientific societies and discussion clubs, namely, Christians, Jews, and “a very large middle group in between the two, partly of baptized Jews, partly of Christians who had made friends with the Jews; and there was close contact between the purely Christian group and the mixed group, but not between the two extremes” (Hayek 1994, 59; also quoted in Reder 2000, 845).19 This threefold division of the intellectual community was mirrored by—but should not be confused with—the divisions of Viennese society as a whole, with the German nationalist antiSemites on the one side, the Jewish immigrants from Eastern Europe who tended to isolate themselves from the rest of society on the other side, and the assimilated Jewish bourgeoisie in between.20 With regard to the intellectual community, the purely Christian groups were those that informally or formally (by means of an Aryan paragraph) excluded Jews from participation. Of course, the Geistkreis and later the Mises circle were paramount examples of mixed groups, and owing to Fritz’s experiences in these groups, he discovered “that Vienna was full of highly cultivated intellectual [Jewish] families—the Pettelheim [sic] 19. See also—not fully consistent with the above—Hayek 1983a, 7: “There was a purely non-Jewish group; there was an almost purely Jewish group; and there was a small intermediate group where the two groups mixed. And that split up the society” (emphasis added). See also Hayek 1983a, 403, and IB 50. 20. On some occasions Hayek (see 1994, 61, and his letter to the editor, The Times, Feb 11, 1978, 15) appears to have mixed up these two distinct divisions.

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and Figdor and Hammerschlags, Karplus and Perutz, Pribram . . . unsuspected by me although I had spent my adolescence among academic biologists” (IB 54).21 Fritz’s involvement with the mixed group did not escape the attention of his family. At the time August was of course a leading figure in the antiSemitic Verein deutscher Ärzte. Meanwhile, Fritz’s brother Heinz was studying anatomy at Ferdinand Hochstetter’s Second Institute and would achieve his doctorate in medicine in 1924. As we have pointed out earlier, studying under Hochstetter led him into circles prone to anti-Semitism. The Hayek family’s background and its distress over Fritz’s behavior did not go unnoticed by Herbert Fürth: “The Hayek family was strictly nationalistic and above all anti-Semitic: his father was president of the Association of ‘German’ Physicians, which was free of Jews, and his mother was furious about his friendship with me, only because of my Jewish ancestry. She spoke to me only once in her life” (Furth to Boehm, Mar 17, 1993; see also Furth to Machlup, June 26, 1978). Fritz’s intellectual development was taking him ever further from his family. The trend would not abate as the political situation in Austria continued to deteriorate. Fritz’s participation in the Geistkreis thus signified a decisive stage in the evolution of his thought and his person. It broadened his perspective, encompassing—beyond his early engagements with biology, psychology, and, of course, sociology and economics—strong philosophical, historical, and literary interests that drew on texts far different from the German classics with which he had grown up. But perhaps more important, it definitively turned him away from the German nationalist perspective and toward the liberal-progressive and cosmopolitan views held by those in the mixed groups of which he had become a member. Further growth, though of a different sort, would occur during his expedition to America. * * * 21. Of the families mentioned, the Bettelheims included the economist and member of the Mises circle Ludwig Bettelheim-Gabillon, the son of the literary scholar Anton Bettelheim and the actress Helene Gabillon; among the Figdors Fritz must have been aware of Fanny Figdor, the paternal grandmother of Ludwig Wittgenstein, and her nephew Wilhelm Figdor, one of August Hayek’s botanist colleagues; Paul Hammerschlag, from the Vienna Chamber of Commerce, acted for some time as the vice president of the Abrechnungsamt; the Karplus and Perutz families produced dynasties of scientists, among them the Vienna-born Nobel Prize winners Martin Karplus and Max Ferdinand Perutz, as well as the novelist Leo Perutz; and finally Fritz must have known at least three Pr(z)ibrams, the economist Karl, the biologist Hans Leo, and the historian Alfred Francis.

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We close with a final anecdote about the Geistkreis, the relevance of which will be evident in our next chapter. Entries from Fritz’s datebook indicate that friendships made in the Geistkreis led to excursions by some of the group members outside of their meetings. Fritz, Fürth, and Glück went on hiking tours in the Vienna woods, occasional Sunday morning walks, and various outings in the Salzkammergut during summer 1922.22 Sometimes accompanying them were two young women, Hilde Jäger and a cousin of the Frisch brothers of whom only a first name, Christl, is known. Hilde Jäger was the daughter of the Vienna physics professor Gustav Jäger, the owner of the Villa Jäger in St. Gilgen, in the vicinity of the Brunnwinkl community.23 Both Fürth and Glück were smitten with Hilde. Fürth recalled that whenever he went to Brunnwinkl he always visited the Villa Jäger in order to see “the great love” of his youth,24 and according to Charlotte Cubitt (2006) she “had been on the point of marrying” him (192). In the end, though, she married Glück in 1924; their son Wolfgang became a well-known film director. Fritz probably enjoyed the company of Hilde Jäger, too, though in 1923 he refrained from visiting the Frisch family and Hilde when he passed through Rostock on his way to the boat that would take him to New York— Karl von Frisch then occupied a chair in zoology at Rostock, and Hilde was studying for the winter term at the university—for he felt that she was already linked too closely to her future husband.25 The episode is a passing one, to be sure, but it may demonstrate that Fritz had a well-developed sense of propriety when it came to relationships with members of the opposite sex, especially if another male friend was involved with the person. Any clues about such views become all the more tantalizing when we see the manner in which he left for his New York adventure.

22. See various entries in Hayek’s datebook of 1922 and Cubitt 2006, 192, 267. 23. On Gustav Jäger see the entry in Angetter and Martischnig, eds. 2005. Note that Hilde’s maternal grandfather had been of Jewish descent. 24. See Furth to Hayek, July 30, 1981, and Bartley interviews, Mar 29, 1984. 25. See Hayek to Furth, Aug 27, 1981.

· 10 · Changes of Scene

Meeting Jeremiah Jenks On October 25, 1922, the Vienna daily Neue Freie Presse reported on a talk given by the American economist Jeremiah W. Jenks the day before on “a stable currency for Austria” at the Vienna Chamber of Commerce. Little remembered today, Jenks was an important figure during the Gilded Age and Progressive era. His book The Trust Problem (a topic of no little interest at the time), first published in 1900, went through five editions. He was president of the American Economic Association in 1906/7, attended the Versailles Peace Conference as an adviser on financial matters, and after the war founded the Alexander Hamilton Institute, headquartered in downtown New York near New York University (NYU), where for years he had been a faculty member in the Department of Government (Brown 2004). Fritz was in the audience for Jenks’s lecture, and in the following days he met him twice for lunch.1 He told Jenks of his desire to come to the United States, and the American replied that he was planning to begin work the next year on a book on Central Europe, and should Hayek find his way to the States, he could employ him for a few months as a research assistant (see Hayek 1983a, 373). Mises apparently intervened on his behalf once again, obtaining the requisite leave of absence for Hayek from his government job at the Abrechnungsamt on terms sufficiently favorable to make the trip financially possible (see AF 15; IB 51; see also Hayek 1994, 69). Hayek wanted to go to America, simply put, because he felt that “an acquaintance with the United States was indispensable for an economist” (IB 57). As he recounted in an address given at the University of Chicago in 1963, “It is perhaps difficult to realize today how little personal contact or 1. See datebook entry, Oct 24/25/26, 1922; the date given for Jenks’s visit to Vienna in IB 56–57, spring 1922, is wrong.

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intellectual exchange yet existed between the scientists of different countries fifty or even forty years ago. Though they might occasionally correspond, I believe that before the First War few of the leading economists had ever met face to face” (Hayek 1992b [1963a], 32). Economists in Vienna felt particularly isolated. In the immediate postwar period it was difficult to gain access to foreign literature, travel was next to impossible, and of the German-language sources that did exist, many were the standard and rather uninteresting descriptive (as opposed to theoretical) monographs of the German historical school. The Viennese did know something of the Swedes: Knut Wicksell had studied in Austria (as well as Germany, England, and France) prior to writing his first three books, all of which first appeared in German,2 and Gustav Cassel was in the 1920s perhaps the most famous economist in the world. The Viennese also knew something about American economics: Joseph Schumpeter had been a visiting professor at Columbia University in 1913/14, when he had met many of the most important figures.3 One of Hayek’s goals was to meet some of these economists and to find out how much further their work had progressed. Another was to purchase books. This was before Rockefeller Fellowships became available to Central European students, so Fritz had to pay for the trip himself. Between the end of the inflation in the summer of 1922 and early 1923 he managed to save enough money to pay for a single fare to New York, with only a little left over for expenses (AF 16; IB 57–58; Hayek 1994, 65). Before Fritz left for the States, Wieser asked Schumpeter if he would provide his student with letters of introduction to some American economists. Schumpeter was at the time the president of the Biedermann Bank, and Fritz when he visited him was impressed by the majesty of his office: “bank presidents’ offices tend to become more and more grandiose as you move east, and Schumpeter’s might have been in Bucharest instead of in Vienna” (Hayek 1992b [1963a], 35). The letters that Hayek came away with were appropriately resplendent, 2. That is, Wert, Kapital und Rente (1893, trans. 1954), Finanztheoretische Untersuchungen (1896), and Geldzins und Güterpreise (1898, translated 1936); however, the two volumes of his lectures appeared first in Swedish (Förlesingar 1901 and 1906), before they were translated into German (1913 and 1922), and only in the 1930s into English (1934, 1935), with introductions by Lionel Robbins. 3. As he was departing for Europe after his time in America, Schumpeter wrote to Frank Fetter that he had “seen, and given addresses at, seventeen American universities” and was “taking with me the pleasantest impressions of men and institutions.” Quoted in Swedberg 1991, 11. Hayek 1992b [1963a], 32, wrongly reports that Schumpeter had been a visitor at Harvard rather than at Columbia.

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so large in size that he had to have a special folder made to carry them safely to the States. Hayek’s portfolio included letters to John Bates Clark, Wesley Clair Mitchell, Henry R. Seager, E. R. A. Seligman, and Henry P. Willis at Columbia University, Thomas Nixon Carver and Frank Taussig at Harvard, Irving Fisher at Yale, and Jacob Hollander at Johns Hopkins. The only one whose name was unknown to Hayek at the time was Mitchell. In further preparation for his trip he took an intensive Berlitz course (IB 45; see also 52 and 56–57).

Wieser’s Retirement and Mayer’s Ascension After the four years that Fritz had spent at home since his return from the war, the decision to spend more than a year overseas must be regarded as an adventurous plunge into the unknown. It meant a separation even if only temporary from the university, still the place where he planned to make his career, from the newly founded discussion circle, from his family and friends, and most fatefully from Lenerl. The university had just experienced a notable break with regard to the teaching of economics when in 1922 Friedrich Wieser, the last of the second generation of Austrian economists, retired from his chair. He continued to teach as an honorary professor, but his interests had turned toward sociology. His lectures in the winter term of 1922/23, attended by Fritz, were on “Theory of Society.” The faculty started negotiations regarding Wieser’s successor in June 1922 and soon agreed that the chair should be kept for an economist in the Austrian school tradition.4 Wieser’s preference for his pupil Hans Mayer was unequivocal, although Mayer had not formally acquired a lectureship and had not yet produced a contribution of monograph length. Schumpeter, although acknowledged as a brilliant theorist, was out of the running because he had left academia, and the other two economists who made the short list, Amonn and Mises, were considered inferior to Mayer. Despite the almost unanimous decision of the faculty, it took until March 1923 for Mayer to be appointed. He started teaching in Vienna just after Fritz left. Given Mayer’s notorious underperformance as the professed leader of the Austrian tradition, observers have always been puzzled about the neglect of Mises as a candidate. Hayek, among others (see also Robbins 1971, 107), believed that this resulted from threefold discrimination against Mises as a liberal of the old style, a Jew, and personally obnoxious: “two of these defects might have been overlooked—but never three” (Craver 4. On the following see Klausinger 2014 and 2016a.

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1986a, 5).5 Similarly, in his recollections Hayek emphasized that “A Jewish intellectual who advocated socialist ideas had his respected place in the Vienna of the first third of this [the twentieth] century . . . Likewise, the Jewish banker or businessman who . . . defended capitalism had his natural rights. But a Jewish intellectual who justified capitalism appeared to most as some sort of monstrosity . . .” (Hayek 1992e [1978d], 157).6 An additional consideration must have been that for a conservative body like the Vienna faculty it was seniority that mattered most, which provided Mayer, who had occupied a chair in various places for almost ten years, with a crucial advantage. We may mention in passing a chance occurrence in 1922 that prefigured Hayek’s own future prominence in the Austrian school tradition. While accompanying his mother on a visit to Böhm-Bawerk’s widow, Paula, Fritz received as a gift the economist’s empty bookshelves and also “an undated little notebook.” He showed the book to Wieser, who recognized it as the paper that Böhm had written for the Knies seminar in Heidelberg in 1876. Wieser had attended the same seminar and lent Fritz his own paper as well (Hayek 1992c [1926b], 111n9).7 Fritz read both immediately. He found Wieser’s paper on the relation between cost and value important enough to reprint in the posthumous collection of Wieser’s essays that he edited (see Wieser 1929 [1876]). However, Böhm’s 1876 paper on interest theory, the original of which Hayek kept in his library,8 had to wait for publication until 1983, when it was edited by Kiichiro Yagi (Böhm-Bawerk 1983). In spite of Hayek’s proposal, Franz X. Weiß refrained from including it in his edition of Böhm-Bawerk’s (1926) shorter articles; as Hayek scribbled on a letter from Weiß, he “regarded this manuscript [as] too apologetic and for this reason decided not to publish it” (see Yagi 1983, 5).

Hayek’s Thesis on Imputation Before he went to the States, Fritz wanted to finish up the thesis that was required for completion of the state sciences degree. On February 22, 1923, he submitted his paper, “Zur Problemstellung der Zurechnungslehre” (Hayek 1923a), that is, “On the Problem of the Theory of Imputation.” It 5. However, contra Hayek 1994, 59, it should be noted that Mises’s neglect was not due to the lack of support from his Jewish colleagues in the faculty—all but one (Grünberg) voted for including him on the list. See Klausinger 2014, 195n9. 6. See also the similar but corrupted passage in Hayek 1983a, 404. 7. See also Hayek to Austrian Academy of Sciences, Dec 18, 1983; according to Hayek’s datebook the respective visits took place on May 5 and June 6, 1922. 8. It is now in the Hayek library at the University of Salzburg.

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was accepted and graded only two days later, so that Fritz was able to pass the final exam and obtain his degree before he left for New York in March. Although Wieser had been pivotal for the choice of topics and for inspiring the approach that Fritz had taken, the fact that he had retired meant that other supervisors had to oversee it. Spann and Kelsen were assigned the task. Despite his prior conflict with Fritz, Spann attested that the thesis “is based on a thorough knowledge of the fundamental writings of the Austrian school and it furthers one of the most difficult problems in an original way. It thus deserves the best grade, excellent”; Kelsen added the single word “Agreed” (Hayek’s exam file, AUW, J Ra St 59). In retrospect, Hayek was less sanguine about the value of his thesis: “Though I learnt a great deal in this work, and the article on ‘Zurechnung’ [Hayek 1926a] which later emerged from it is a fairly respectable performance, I rather hope that no copies of the thesis have survived” (AF 13; IB 56; see also Hayek 1994, 64–65).9 The imputation problem was unique to the approach of the Austrian school, a puzzle that despite the efforts of Böhm-Bawerk and Wieser had resisted a solution. From Menger onward the Austrian approach distinguished between consumption goods (goods of the first order), the value of which derives from the marginal utility they provide in consumption, and goods of higher order, which are used in the production of consumption goods. The problem of imputation consists in showing how the value of a consumption good will be distributed among (or imputed to) those goods that were used in its production. Although most Austrians accepted that the problem could be solved with the aid of some simplifying assumptions and the application of a version of the marginal productivity approach, their increasingly casuistic investigations examined complicated issues like the complementarity or specificity of various factors of production, or how it could be guaranteed that the shares imputed to these factors would just exhaust the product. In all this, the quest for finding the general laws governing imputation had to be kept separate from the idea that imputation theory could be used for ascertaining shares in concrete practical cases. As Mises never tired of emphasizing, the latter view was mistaken.10 Fritz did not attempt a new constructive solution in his thesis. Rather, he tried to show how to formulate the problem properly and by what kind of approach it could be solved, and in doing this he drew on the work of 9. Although no copy could be found in the university library, his own copy made it into the Hayek Papers (104.27). 10. For more details see White 2015, xii–xv.

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both Spann and Wieser. Given the role of the two senior scholars in his education, it appears that Fritz was not unacquainted with the imperatives of academic politesse and politics. Taking Spann’s description in his Fundament (Spann 1918) of the economy as a “structure of means dedicated to ends” as his point of departure, Fritz argued that the relationship between ends and means—in the theory of imputation the goods of higher order are the means to produce consumption goods, which are in turn the means to satisfy the needs of the individual consumers—must be analyzed not in isolation, but only as a part of the whole economic system. It is only as an element of the economic system as a whole, when the hierarchy of ends and the connections among the means have been taken into account, that the value to be imputed can be properly ascertained. Fritz borrowed from Wieser in analyzing how to specify the problem correctly. In doing so he came up with the crucial insight that the value of the product and its imputation to the factors of production must be determined simultaneously (Hayek 1923a, 95), that is, that the value of the product to be imputed is not a given of the problem but part of its solution. Hayek chose to emphasize this point when he condensed the thesis into a short article (Hayek 1926a, trans. 2015d).

Fritz’s Ambivalent Love Life To trace the events leading up to Fritz’s departure to New York, and to the ultimately disastrous consequences that followed from his manner of leaving, we must go back in time to the winter of 1919–20, his second year of university study. Recall that this was the period during which Fritz spent some three months in Zurich, cutting up brains, listening to lectures, gaining weight, and trying to recover from malaria. It was while he was away that Lenerl’s older sister Lieserl died from pneumonia following a bout of the flu. Despite any possible sibling rivalry, the event must have been devastating for both Lenerl and Fritz. Lenerl and Lieserl had been constant companions since the death of their mother when they were four and six years of age. Their cousin Fritz had been a skating friend when they were young, had seen them in summer excursions at relatives’ houses, and when they were teenagers they had all taken their first dancing lessons together. The three (albeit distant) cousins were now two. The loss may have brought the surviving cousins together. And indeed, after his return to Vienna from Zurich that winter Fritz’s datebook and his diary fragment indicate close and frequent contact

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between Fritz and Lenerl. When both were in Vienna they met regularly, typically once or twice a week. She was often invited to joint events with Fritz’s parents, be they hiking tours or visits to the theater or the opera. Fritz occasionally accompanied her when she visited relatives like the Eisenmengers. In the fall they began again to attend the dances that Ellie Petertil recalled so well. The only exception was over the summer vacation, which they spent apart. Though we know from her diary that Lenerl had long wanted to marry Fritz, there are also signs that the two young people, though frequently together, did not necessarily view themselves as a romantic couple. As early as May Fritz confided to his diary (May 8, 1920) that “Lenerl behaves ever more like a fiancée,” which suggests that there was someone else in her life. A week later Fritz penned some even more anxious words to himself (May 15, 1920): “Is it, by the way, true what I am always repeating to myself that life for me will offer so many prospects that even if one, though possibly the most beautiful disappears, I shall not feel miserable?—Today, I attended jointly with Lenerl and Hans the marriage of [one W.N.]. Of course, once more I did not talk to her . . .” These remarks are a bit hard to interpret, but it seems plausible that in the first sentence it was the loss of Lenerl’s love that Fritz contemplated but dare not speak about to her. The next sentence suggests that there was another person present, one Hans. One doesn’t of course speak of love in front of others, but perhaps particularly not if the Hans in question was Hans Warhanek, the man who would eventually become Lenerl’s first husband. Hans Warhanek was born into a family of wealthy industrialists. The family wealth derived from Hans’s great-uncle Carl Warhanek, who founded the firm “C. Warhanek,” a famous fish cannery, whose prize product was “Gabelroller,” canned pickled herring. Carl’s brother Johann was a manager in the firm, and Johann’s son Karl became a famous jurist, ultimately serving on the Austrian Supreme Court of Justice. Karl married Friederike (Fritzi) Heller in 1890, and their third child and only son, Johannes (Hans) Karl Prokop Warhanek, was born on November 6, 1896, making him two and a half years older than Fritz. When Hans was born the Warhanek family lived in Vienna, bizarrely enough in the same house that Gustav von Hayek had vacated about a year earlier. The family moved briefly to Linz, and when they returned Hans enrolled in the Elisabeth-Gymnasium, the same school that Fritz Hayek attended from October 1916 onward. They did not overlap: Hans started there in 1907/8 and passed the final exam on February 24, 1916, like Fritz leaving early to enter military service. After the war, Hans began studying mechanical engineering at the Vienna University of Technology but

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turned to electrical engineering after his first diploma.11 He finished with the second diploma exam in May 1923, which granted him the right to the title of engineer. He then took a job at Brown Boveri, a Viennese electrical firm, and soon thereafter asked for Lenerl’s hand in marriage. It was probably right after the war ended that Hans Warhanek entered the ambit of the Hayek and Bitterlich families. Ellie Petertil recalled that he was there at the regular dancing events where she remembered dancing with Fritz. According to Ellie, Hans and Lenerl were frequent dance partners, which suggests that some sort of public bond between Lenerl and Hans was evident, perhaps as early as 1920 (IB 37–38). In 1921 we have little direct evidence about Fritz and Lenerl’s relationship, except that they spent most of the summer together at the Schwarzwald villa in Grundlsee. Lenerl’s father and grandmother accompanied her there, and sometimes also Hans Warhanek. In letters to her son (July 5 and 15, 1921) Felicitas worried about the dangers to Lenerl’s weak health from dancing, going to sleep late, and swimming in frigid water, and worried that “Aunt Lisi [Fleischhacker]” and “Fritz B. [Bitterlich]” would not take proper care of her. She hoped that “Hans Warhanek would do better” at that. So apparently even Felicitas thought of Hans as Lenerl’s protector in 1921. The next year, 1922, Fritz and Lenerl continued to meet, if not quite so often. From Fritz’s datebook we find that Lenerl and Hans (without a surname) were invited to the Hayek home once in May, that Fritz visited her when she was vacationing in Reichenau in late September, and they spent an evening together when back in Vienna in October. At least part of this time, both while at Brunnwinkl and while in Vienna, Fritz regularly met with Herbert Fürth, Hilde Jäger, and Franz Glück, that is, his smart, attractive, mostly Jewish new friends. Did Lenerl see his new friends as competition? Was Fritz engaging with them in order to stop thinking so much about Lenerl? Or was all of this unconnected? We simply do not know. Fritz’s brother Erich provided more possible clues. In the early twenties Erich had been a member of a “Wandervogel” group, one of the popular youth movements of the time. He eventually left it because its “puritanicalnational spirit did not accord well with [his own] ‘liberal’ attitude toward modern dances and social events” (EHH; cf. IB 56). Around the same time, he and Heinz were invited to some dance evenings, arranged by Eduard Heider, a wealthy relative from the Stallner side. Fritz refused to participate and denigrated such occasions as “lamb hopping” (EHH). This might 11. See the respective documents from the Archives of the Vienna University of Technology.

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simply indicate Fritz’s aversion to some modern dances, but he may have had some other more private reasons for shunning such events before he left Vienna in 1923. There is a gap in Fritz’s datebook for January and February 1923. Of course he was busy finishing up his second degree, which might explain it. But when he did again start recording engagements in March, he had a very full calendar between the day he graduated in state sciences on March 3 and his departure on the 8th. He met Wieser and Schumpeter (three times), had a farewell party at the Abrechnungsamt, ate dinner with his uncles Eduard Castle and Paul Hayek, visited his Innsbruck relative Grete Schedlbauer, saw his friends Fürth and Mintz, and eventually also the Jäger family and even Hans Warhanek. Only Lenerl’s name does not appear in his datebook. Of course, he might have seen Hans and Lenerl together, or seen her but simply not recorded her name. Either one of these alternatives, if true, of course raises more questions than it answers. This leaves Fritz’s relationship with Lenerl at the time of his departure as a profound puzzle. Why did Fritz stop engaging with Lenerl, if that is in fact what happened? A variety of possibilities suggest themselves, but it must be emphasized, all of these are hypothetical and should be treated as such. One is, simply, that he made a conscious choice not to do so. He was after all going to New York, a career decision that he felt lucky to be in a position to make. Perhaps he wanted to be free to play the field while there.12 He was young, smart, and (or so he hoped) on the way up. Surely a returning veteran in a town with a diminished supply of young men and a surfeit of young women could think that biding one’s time while young made sense. Or perhaps it was the opposite: he did not have a permanent job yet and wanted an academic career, a dicey position at best, so did not think it was the right time to ask for a commitment. Recall the entry from Lenerl’s diary that he preferred short engagements, which might indicate that he wanted to be on firmer financial ground before asking her. Or perhaps he thought it would be ungallant to ask her to wait for him, especially if he had any doubts about his own feelings, or of hers. Did he harbor secret feelings for someone else? Perhaps for Hilde Jäger, whose family he did visit just before leaving, but whom we recall he failed to visit—she was studying at Rostock—on his way to the boat? Or maybe some strange combination of all of these? Doubts about Lenerl’s feelings toward him surely could also have played a role in Fritz’s mind. And it may have been hard to have a conversation 12. He once told his daughter Christine that he did not ask Lenerl to wait for him because he did not want to be tied down (Christine interviews, May 20, 2013).

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about the matter; Hans was seemingly always around. Moreover, it does not appear that either one of them was very good at initiating those sorts of talks. Lenerl was always friendly to Fritz, of course, but she was also always friendly to Hans, who from every report was a supremely likable and decent fellow. All of this may have made the situation hard to read. Fritz once said that when he was younger he was ignorant and naïve about women and more at home with books, and surely he was (Hayek 1994, 46). He had grown up in a household with only male siblings, and with a mother who though deferential to her husband was the stronger partner, and who doted on Fritz. For all of his intelligence, women appear to have been a complete mystery to him. He would later confess his youthful sexual naïveté to his secretary Charlotte Cubitt, saying that he had had no clue why the Italian girl who had been cleaning his billet during the First War would rush out if he came upon her making his bed, and that “After returning from the war he had been a mere adolescent by comparison with the group of young Jews with which he had mixed. He had been more of an academically minded youngster, less well versed in worldly matters than his companions, especially with regard to women, and had remained a child for some years to come” (Cubitt 2006, 76). Ellie Petertil described him as serious and reserved. He danced, but he was not one for small talk. Particularly with women he liked, he might not have known what to say. As for Lenerl, she was evidently strong-willed and certainly did not want to be taken for granted. She loved Fritz but doubtless hated his diffidence. Surely she knew that spending so much time with Hans would make Fritz jealous, but perhaps she overplayed her hand, and Fritz started to believe that she really did prefer the ever-steady Hans to the quiet, earnest, but uncommunicative Fritz.13 Then what was to be done? Fritz’s refusal or inability to talk (“Of course, once more I did not talk to her . . .”) made any resolution of the situation impossible. Lenerl’s grandmother may also have played a role. At one point Lenerl told Charlotte Cubitt that she felt she had to marry Hans because her grandmother had invited him to the house so often (Cubitt interview, Sept 16, 2013). He was after all someone from a prominent family who had a decent job, in Vienna, as an engineer. Who knew when Fritz would be back or what his prospects were: “a bird in the hand . . .” One can imagine the conversations. 13. In a conversation with Charlotte Cubitt in 1981, Lenerl remarked about Hayek “how clumsy he used to be, too earnest to join in their group’s frivolous activities, such as ice-skating” (Cubitt 2006, 71). Fritz did ice skate, but her feelings that he was overly earnest as a boy apparently lingered.

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There is finally Herbert Furth’s suggestion, for which he provided no evidence and which he made very late in life (indeed after Hayek’s death), that Fritz had withdrawn from Lenerl “for reasons of eugenics.”14 This may just be a rationale that had been offered by Fritz at some point to his friend for something that appeared to defy explanation. But to reiterate, all of this is speculation. Asked about why their relation had not been settled when he left, much later in life Lenerl answered that “they could have married as early as 1923 . . . if Hayek had asked her. But he did not and she could not” (Cubitt 2006, 119). This became the “official” view, imprinted in Fritz’s and Lenerl’s memories in old age, repeated to friends and themselves. Though descriptive enough—he did not ask her, and given the conventions of the time, she felt she could not ask him—this “explanation” evidently contains a huge unexplained residual. It simply avoids, perhaps conveniently, the essential question of why they never discussed their relationship. Given the documentary record reviewed above, and what we know about the people involved, perhaps in the end it is not such a surprise that Fritz failed to propose to Lenerl before leaving Vienna, or that Hans, once Fritz was off the scene, did so, and just a few months later. It becomes a surprise only in retrospect, one dictated by the fact that they would finally marry each other in 1950, having regretted their earlier decisions for decades.

14. The reason was offered by Furth in a letter to Stephan Boehm, Mar 17, 1993, which Boehm shared with the authors.

· 11 · The Trip to America

Real people only exist in Vienna after all. (Fritz to Aba, Apr 26, 1923)

•

Fritz Comes to the States At 11 a.m. on Tuesday, March 27, 1923, Fritz Hayek disembarked from the SS President Fillmore in Hoboken, New Jersey. The Atlantic crossing, originating in Bremerhaven with a stop at Southampton, had taken thirteen days, a bit longer than planned. From his savings Fritz was able to buy a $125 second-class ticket, and was quite happy also to receive a reserved deck chair with it—this usually would raise the price of the ticket to $140. Evidently the ship was not full. He shared a cabin with a German who was returning to the US after a visit home, but the third bunk in their cabin was empty. They quickly converted it into a sofa.1 Constructed in 1899, the SS Fillmore was an older steamship and had none of the amenities (he mentions things like gymnasiums, swimming pools, tennis courts) of the larger, more modern ocean liners. But more important for the bibliophilic Fritz, it did possess a well-stocked library with all of the latest books. Most of the passengers were either German immigrants or German spouses of Americans, and accordingly there was much wailing by outbound passengers and remaining family members as the ship prepared to depart Bremerhaven. From their appearance his fellow passengers seemed somewhat lower class than Fritz had expected, given the price of the tickets: he hypothesized that almost all had had their passage paid 1. These and other details of the trip are drawn from his letters home, most of which are not in his papers. We thank Richard Zundritsch for providing access to the letters.

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by wealthier relatives in America. In any event, nearly all of his fellow passengers spoke German, so he did not get much opportunity to practice his English (Fritz to parents, Mar 15, 1923). In a long letter home at the end of his first transatlantic voyage Fritz offered observations about life on board. Ship life, then as now for such passenger ships, revolved around food and sitting on the deck, watching the “indescribably beautiful” and ever-changing ocean. Though after the first full day he reported that the food was excellent, by the end he described it as plentiful but not always well prepared. A typical breakfast began with a half grapefruit, apparently a new food for him: he described it as “a sweet giant lemon, whose juice one spoons out from the peel.” This was followed by cereal or grits, then fish, then eggs with hot and cold roast, then cheese, then pastry with jam. Every meal had six to twelve courses. After each sitting he would drag himself up to the deck. Sometimes music of a sort (“terrible American marches”) was played on deck, and sometimes at night there was dancing, with Hayek joining in on the foxtrot. But because of the cramped quarters, he could do little work, so he simply luxuriated in doing nothing. Photographs from the journey appear to show a young man having a very good time. The crossing took longer than planned because they encountered a storm that lasted for about three days, and even at other times the sea could be rough. Seasickness took its toll on his fellow passengers; sometimes the dining room was nearly empty. Fritz’s own appetite, however, never faltered. As he prepared to disembark, he declared his enthusiasm about his decision to travel to America. “I am indescribably happy that I made the decision to try this and really got the chance to do it. Especially now, that it has been going so well so far, I have great hope for everything ahead” (Fritz to parents, Mar 15, 1923). The hope was dampened somewhat by his immediate postarrival experiences. These started in Hoboken. Right after landing he tried, unsuccessfully, to call Professor Jenks. The operator told him that the line was busy. He had no idea what the phrase meant. “Now, what can ‘line is busy’ mean? And when I succeeded, the answer was, ‘Number changed.’ I remember this; it was completely unintelligible to me” (Bartley interviews, Feb 9, 1983). From Hoboken Fritz took the subway to 9th Street in Greenwich Village, then walked east to Astor Place where the Hamilton Institute was located. Perhaps expecting a New York of towering buildings and grand avenues, he was taken aback at the shabbiness of the district with its low-rise buildings and dirty narrow streets. But much more distressing was the news that he received from the secretary of the institute: to escape the cold and work on his book in a less distracting environment, Jenks had gone to Florida and was not expected to return until sometime in April.

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Fritz had a bit more than $30 in his pocket. He estimated the cost of meals at $1.50 a day—30 cents for breakfast, 50 cents for lunch, and 70 cents for dinner, and of course he needed to find a place to live. Upon hearing the bad news, he immediately boarded a bus to 116th Street and Columbia University, where he would look for some of the people for whom he had letters of introduction. This is a trip of almost eight miles, and for Fritz, who was used to walking everywhere in Vienna, it was doubtless when he first realized the vast size of the city. He found Wesley Clair Mitchell there, and though the professor could not help his young unannounced visitor with any practical matters, Mitchell invited him to sit in on his class that day. Fritz did, but apparently did not understand much of the lecture. The Columbia University Residence Bureau was of considerably more help, providing him a list of cheap places to get a room. He immediately took one for $5.50 a week, let by a Mrs. Sans O’Shea, at 557 West 124th Street, quite near Columbia. It was tiny (no room for a writing desk), noisy (near an elevated rail line), and extremely hot: the heat would stay on until April 15, then be turned off for the summer, independently of whatever the temperature outside might be. Fritz had packed only clothes for cold weather, so he was frequently drenched in sweat (Fritz to parents, Apr 5, 1923; cf. Apr 11, 1923). But at least he had found a place to stay. For the next eight days he visited various family friends, and friends of friends, typically receiving a free meal in the process and avoiding spending too much of his tiny stash of cash on food. Perhaps the most bizarre event of that first unsettling and precarious week took place at a cocktail party hosted by a friend of his Innsbruck relative Grete Schedlbauer. He there encountered a Polish gentleman who, on hearing his name, asked if his family came from Moravia. When Fritz, astonished, said yes, the man proceeded to reel off a long list of people named Hayek or Hagek, going back to one Thaddeus Hagecius von Hayek, a friend of Tycho Brahe (1546–1601). It would seem that he had met Wilfrid Voynich, an antiquarian book dealer who, in the course of investigating the history of what came to be known as the “Voynich manuscript,” had looked into the histories of various families from Prague who might have been involved in its purchase (as it turned out, Hayek’s family was not).2 Finally, on Thursday, April 5, the day that he was scheduled to begin a job washing dishes at a Sixth Avenue restaurant, a letter from Jenks’s 2. Fritz to parents, Apr 5, 1923; cf. IB 58–59. In the IB Hayek reported that when he tried to follow up on Voynich’s invitation to visit him at his club a month later to get further details, he was told that Voynich had died. If it really was Voynich, this was untrue: Wilfrid Voynich died in 1930.

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secretary arrived informing him that Jenks would be back the next week and that Fritz should start work, which consisted of translating currency legislation from Austria and surrounding countries into English (Fritz to parents, Apr 5, 1923).3 Jenks would end up taking good care of his young charge. He would employ him at $25 a week through the summer and early fall, and by the beginning of May had made sure that his application for a PhD fellowship at NYU for the 1923–24 academic year was successful. Fritz would have preferred a fellowship at Columbia, but all fellowships for 1923–24 had been awarded by the time he arrived in New York (Fritz to parents, May 5, 1923). The NYU fellowship paid $800, and out of that $250 would be taken up by tuition and other fees, but it was enough to live on and would allow Fritz to pursue his studies. At some point, Jenks also loaned him a typewriter. To get practice using it, he retyped his 1920 paper on psychology, but apparently his typing skills left something to be desired: “the machine often plays tricks on me, inexplicably writing f instead of t” (Fritz to parents, Aug 12, 1923; cf. IB 58). Fritz would spend much of the summer working for Jenks during the day at a desk in the research room of the New York Public Library. The library, located on Fifth Avenue between 42nd and 44th Streets, had opened its doors in 1911 and was a magnificent structure. In the evenings he would move to the main reading room, a cavernous space the length of a football field with 50-foot-high ceilings, to pursue his own studies. The library would have been a wonderful place to work, especially in comparison to his tiny apartment, but for one thing: noise. This included both traffic on Fifth Avenue and the construction of a new subway line nearby, work that required frequent blasting of the bedrock (Fritz to parents, Dec 10, 1923). In August Fritz moved to more comfortable and conveniently located quarters, a room in the Young Men’s Christian Association (YMCA) at 318 West 57th Street. Though it cost $1 more a week, it had many advantages: a pool, two gyms (where he exercised regularly from 7 to 8 in the morning), handball courts, a cafeteria, a lecture hall, and a common room where a complimentary (and “excellent”) tea was served daily. It being a YMCA, he could also take as many showers as he wanted, a way, finally, to beat the heat. The extra dollar a week was made up for by the fact that he could walk (rather than take public transportation, as he had to do from his room uptown) to the library, but he no longer even needed to go there every 3. In his April 26 letter to the staff of the Abrechnungsamt he told them that a telegraph from Professor Jenks had arrived with the news; presumably the telegraph was sent to Jenks’s secretary, who forwarded the information to him in a letter. The report in Hayek 1994, 65, that he found out via a telephone call, thus seems unlikely.

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day, because his room was now big enough to include a desk. (He drew a picture of its layout to make the point.) Though located more in the heart of the city, his room was quieter, being on the ninth floor of a less noisy street. Finally, because there were many young Americans there, he had more chances to practice his English (Fritz to parents, Aug 2, 1923). Fritz would remain there for the rest of his stay. It is tempting to think that Jeremiah Jenks, a “Social Gospel” Progressive who had written a tract on the contemporary relevance of the life and teachings of Jesus that was published by the International Committee of the YMCA (Jenks 1906), might have helped Fritz to get the room at the YMCA. Though Jenks may have played some role, Fritz told his parents that he had heard about the place from a Viennese youth named Harry Pauer whom he met in July and who had been living there since April. Fritz was effusive about his new setup and marveled that an organization that had “Christian” in its name was “not at all clerical and not even anti-Semitic” (Fritz to parents, Aug 2, 1923; emphasis in the original). Fritz’s possible interaction with Jews while in New York came up, prompting a slightly irritated response: “Whether Pauer is really a Jew, I don’t know at all” (Fritz to parents, Dec 10, 1923).

Fritz’s Reaction to “American Civilization” America at the end of the second decade of the twentieth century had partaken in some of the misery that had afflicted so many other countries following the Great War. Though the numbers pale in comparison with the toll in Europe (15–18 million dead, which included both military and civilian casualties), 117,000 American combatants had died in the war. The Spanish flu pandemic of 1918–19, which killed at least 2 million people in Europe, caused about 675,000 deaths in the United States (N. P. A. S. Johnson and Mueller 2002). There had been a postwar recession, but for most of society (the agricultural sector was the exception) the recovery from it was fairly rapid and largely complete by the time Fritz arrived in 1923. The “Roaring Twenties” to come would be a time of strong economic growth, with per capita GNP increasing 2.7 percent annually. People were ready to start living their lives again and to start enjoying themselves. There were two significant legislative changes that affected the national mood. In January 1920 Prohibition (which made it illegal to manufacture, transport, distribute, or sell alcohol) went into effect, and in August 1920 women gained the right to vote. There were also demographic shifts. In 1920, for the first time in its history, more Americans lived in cities than in rural areas.

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And indeed, Fritz arrived in what had become the largest metropolis in the world. In a single decade, from 1890 to 1900, the population of New York City had more than doubled to 3½ million people; it would double again by 1930. When he alighted there, more people lived on the island of Manhattan than in all of Vienna. Everywhere there was new construction, and with it, near constant din. As Edna St. Vincent Millay wrote, “In New York, you can see the noise” (Douglas 1995, 17). He found himself enmeshed in the birth of the mass production society and a corresponding explosion of popular mass culture. Commercial radio broadcasting had begun only a few years before, in 1920. By 1924, there were over six hundred radio stations in the United States, and by the end of the decade about 60 percent of all American families had purchased a receiving set. One could hear the latest songs in the comfort of one’s living room. Not that one had to stay there. In 1920, 35 million Americans, one in three, went to see a movie every week. By the time that The Jazz Singer, starring Al Jolson and the first full-length “talkie,” appeared in October 1927, the number had jumped to 57 million a week (Sagert 2010, xiv–xv). The American infatuation with the automobile was also on full display. Between 1918 and 1930, the number of cars in New York increased from 125,101 to 790,123. By the late 1920s there were more cars in New York than in all of Europe (Sagert 2010, 17). The automobile allowed much greater freedom of movement, but also another sort of freedom, particularly for the more rebellious among the young who might want to escape the reproachful eyes of their chaperones, boys and girls who thought nothing “of jumping into a car and driving off at a moment’s notice—without asking anybody’s permission—to a dance in another town twenty miles away, where they were strangers and enjoyed a freedom impossible among their neighbors” (Allen [1931] 1997, 76). It was a time of cultural upheaval. The old moral verities were being challenged, especially in the large cities. In all such matters, New York led the way. Prohibition there was viewed as a farce. Before enforcement was more or less abandoned in 1923, around seven thousand arrests had been made for alcohol-related infractions, but this led to only seventeen convictions. The number of illegal speakeasies rose anywhere from 32,000 to 100,000 (Sagert 2010, 24). Not all Americans followed the New York pattern, of course. Small-town Fundamentalists, New England Puritans, and Boston Brahmins, albeit for quite different reasons, found much to deplore, but so did everyday middle Americans for whom New York simply went too far. New York City was itself home to the wonderfully named Reverend John Roach Straton, who from his pulpit at Calvary Baptist Church on West 57th Street (about two blocks east from Hayek’s room at the YMCA)

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railed against all the sinful venues and behaviors on exhibit in his “modern Babylon” of a city, among them jazz, card playing, Broadway, low-cut dresses, modern art, the Museum of Natural History, poodles, and (his pet peeve) social dancing. The symbol of the Roaring Twenties was the flapper, who, of course, loved to dance. Flappers wore their hair bobbed and makeup of a variety of sorts (rouge, lipstick, eyeliner, mascara), the more garish the better, but no corsets. Their taste in clothing ran to the flimsy and revealing. A contemporary writer in the New Republic artfully described “Flapper Jane” as a person whose lifestyle was one of “paint, cigarettes, cocktails, and petting parties—oooh” (Bliven 1925). The flapper era was all about having (often mindless) fun for fun’s sake. Entertainment opportunities were countless: one could go to roller rinks, dance halls, or speakeasies; play mah-jongg or contract bridge with friends; attend sporting events like boxing matches, football, or baseball games, or listen to them on the radio; watch movies, or magicians, or flagpole sitters, or vaudeville shows; or even simply sit at home and listen to the radio. To the chagrin of the likes of Reverend Straton, dancing was indeed all the rage, and all of this was before the dance that defined the era, the Charleston, became the craze in 1925–26. As might be evident, the Charleston was definitively not the waltz or the foxtrot. A final observation: then as now, if one wanted to have fun in New York City, it helped to have money. One of the most famous of the nightclub operators was Marie Louise Cecilia “Texas” Guinan. Just to get in to El Fey, her nightclub on West 54th Street between Broadway and Sixth Avenue (three blocks north of Hayek’s room), one had to pay a cover of $20. This in a city where, just after the war, the average worker made $1,144 a year (Douglas 1995, 18). That was the world into which Fritz Hayek had entered. The contrast with Vienna and his past life experience was, on virtually every level conceivable, dramatic. In late April 1923, only about a month after arriving, he sent three long letters home, two to his parents, the other initially intended for his co-workers at the “Aba,” in which he offered his first impressions of America.4 As one might imagine, these were not altogether compli4. The letter intended for his colleagues at the Aba was instead sent together with a short letter to his parents, in which he noted that he was enclosing “the draft of a letter that I then re-wrote since it didn’t suit me in which however you maybe will find some things of interest.” Richard Zundritsch, who provided the letters, speculated that Hayek may have worried that the details he provided and his tone, though suitable for his Aba colleagues, might be considered a bit over the top by some of the higher-ups.

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mentary. His words bring to mind the assessment of a later historian of the era: “as a place, New York became for many people impossible; as an experience, often for the same people, essential” (Douglas 1995, 25). He had arrived of course with certain preconceptions. We recall from his book list that Fritz had begun reading Oswald Spengler’s The Decline of the West in May 1920. That book had a scathing description of the inhabitants of “world-cities” like New York: “a new sort of nomad, cohering unstably in fluid masses, the parasitical city-dweller, traditionless, utterly matter-of-fact, religionless, clever, unfruitful, deeply contemptuous of the countryman and especially of that highest form of countryman, the country gentleman” (Spengler 1926, 32). Fritz anticipated finding his stay in New York “instructive and unpleasant,” and his first month there confirmed his expectations. In his letters he offered up what he recognized were the standard European stereotypes about America: that “as is known from decades of stories” Americans are obsessed with making money; that American “culture,” to the extent that the phrase is not an oxymoron, is lowbrow; that the superlative (e.g., having “the world’s biggest building, fortune, beauty”—he wrote this in English) is both the preferred mode of expression and the only thing that makes Americans happy (Fritz to Aba, Apr 26, 1923). He informed his readers that one would have suspected that such images must be caricatures, until, that is, one had actually experienced them, as he had. He was glad, he went on, that he had made the decision to come, to have had the experience of seeing things firsthand. But in his opinion, living in the United Stated long term would be impossible for any European even to consider. It might be noted that this harsh initial opinion did not appear to dissipate much during his time there. In a summer letter to Mises, he remarked on “the vast intellectual superiority of the Europeans. This becomes evident in every-day life, its lack of intellectuality, its tastelessness and banality, which have a fatal effect and make it impossible to enjoy the comfort that is available here in contrast to Europe. [Most of the Europeans living here] agree that America is a country to earn one’s money but not one to live” (Hayek to Mises, Aug 17, 1923). The American preoccupation with money was one of the first things he noticed, doubtless not least because he arrived virtually penniless. He was amazed to encounter people who felt no compunction about discussing his financial situation and offering their considered advice that, given that he was an academic with an advanced degree, teaching was what he needed to do to make some money. Furthermore, it seemed to him that everyone measured what they had against what others had. For example, people were buying the new and relatively cheap radios not so much to listen to concerts but to brag to friends about hearing such and such a broadcast that

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originated from so far away. Even personal relationships were measured in monetary terms, as is evident in his description of “‘spooning,’ as it is called here . . . a young man takes a girl out in the evening, and the only thing that she is interested in is that she can later say that he spent twenty dollars” (Fritz to Aba, Apr 26, 1923). He felt himself to have too little of a head for business to fit into such a culture, which appears to have been true enough. One can certainly understand Fritz’s embarrassment about and resentment over being drawn into conversations about his own distressed financial circumstances with strangers. Yet it is also perhaps understandable that people might not quite have known what to make of him in those first few weeks. Very early in any conversation he might have had, it would rather naturally have come up that he had come to New York with plans to study economics, yet had arrived in the middle of the school term with no fellowship funding, no job, and very little money in his pocket. What is one to say to a person with that kind of story? He had other observations that moved beyond the personal. For decades Europeans had been emigrating to America, sometimes to escape repression, but more often with the goal of simply improving their living conditions. Fritz speculated that for some that may have been a mistake. Though there was evidently great wealth in America, it was not widely spread: the mass of people lived lives that were worse in many ways than those of similarly situated people in Europe. To be sure, no one starved; there was plenty of menial work to be found. But culturally—and this for Hayek was a decisive factor—it was a desert. For example, technological innovations like the radio were indeed inexpensive and hence widely available to the masses. But to what use were they put? Instead of using the opportunity to listen to concerts, lectures, and plays, perfectly reproduced, everyone listened to the same mindless popular songs. In a later letter the song “Yes, We Have No Bananas,” the “new, famous American national anthem,” is picked out for particular scorn (Fritz to parents, Dec 10, 1923).5 “Marathon dancing” is mentioned in two of the letters, a bizarre activity (dramatized in the 1969 film They Shoot Horses, Don’t They?) in which prizes were given for the couple who could remain on their feet the longest. The first letter reported the record of 88 hours of continuous dancing, by the second this had reached 93 hours, and one young man had made the reference to the original marathon all 5. The German version of it, “Ausgerechnet Bananen,” also became a hit, and an evergreen one. So the difference between German/European and American popular culture may not have been as great as Fritz believed.

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too accurate by ending his participation in the competition by dropping dead. Anything that was new was by definition good and had to be tried out immediately. Mindless stimulation had become a goal in itself. Meanwhile the things that mattered to any civilized person were expensive, out of reach of everyone except the rich. Fritz drew the contrast in this way: “Ice cream,” “candy,” “chewing gum,” “movie” (cinema), newspapers are cheap, because they are mass-produced (after all for every dollar spent for a book 28 dollars are spent on chewing gum or on perfume), a book or a visit to the theater is exorbitant, something only meant for the richest 10,000. One can only live here if one has a lot of money, and if I had that, I’d certainly go to live in Europe. So nothing is left for them but to crowd into some express subway train with thousands of others in the morning, take the multiple hour trip to their workplace, take breakfast, lunch, and dinner standing up in some “automat,” all in order to take some crowded subway back home again in the evening . . . (Fritz to Aba, Apr 26, 1923)

Later in his visit Fritz was forced to endure the American commercialization of Christmas, a feature of American society that he found “outrageous,” especially the message heard everywhere to “get your Christmas shopping done early.” In the end he decided not to send any Christmas gifts home and offered the following indignant justification: “everything that is priced for normal people, and not exclusively for millionaires, is so tasteless here that even for a few million Austrian K. [crowns] you can hardly get something that a European would like.” At the end of his tirade he grudgingly admitted that all the advertising and hard sell probably had its intended effect on “certain ladies, and could also work well in Vienna” (Fritz to parents, Dec 10, 1923). Speaking of ladies, his reaction to the flapper phenomenon and especially the widespread use by women of lipstick and mascara was sheer horror: in his letter to his co-workers he writes of “these horrible Americans and even more horrible American women, these walking paint pots. Real people only exist in Vienna after all.” Tellingly, one dreadful outcome of the ubiquity of the new look was that it gave everyone “a certain, unbelievably homogenous external frosting,” so that it was impossible to “divide people into different classes based on their appearance” (Fritz to Aba, Apr 26, 1923). The horror! In a letter to his mother he recounted the vast quantities of wine, champagne, and other spirits that were consumed at a party that went on until 4 a.m.: “long live Prohibition!” (Fritz to Felicitas, June 26, 1923). His early letters contain stories of Prohibition laws being openly

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disregarded; indeed, because he was so often taken out for meals, he had been drinking more alcohol on a regular basis in New York than he ever had done in Vienna (Fritz to parents, Apr 21, 1923; Fritz to Aba, Apr 26, 1923). Fritz also had a strong negative reaction to the sheer size of New York, that “ugly and unbelievably vast city,” and the attendant problems of overcrowding, noise, and air pollution. In May he decided to take a Sunday outing to a “forest” at the northern tip of Manhattan, “heaps of stone and muck entirely covered by trees and therefore New Yorkers of all kinds, such as camp fire girls and similar riff-raff . . .” It was, for the most part, not an enjoyable experience: “there are asphalt roads all over, and at the crossroads, just like in the middle of the city, policemen are standing to alternately permit motorcades from one direction then the other direction to pass, and the entire thing is accordingly dusty, stinky, and noisy, so that it would just be horrible, if sometimes the views from the high cliffs down at the Hudson weren’t really so nice” (Fritz to parents, May 6, 1923). The contrast with his life in Vienna and Austria was, of course, stark. When Fritz was a student at the university, “one could cross the inner city from the Opera to the university reading the whole time as one walked . . . Only the Michaelerplatz required some attention to traffic” (IB 44). That protocol evidently would not work in Manhattan. He missed nature too. In one letter he asked if brother Heinz was going to the mountains soon, and if so that he should greet them for him. The next month he reported that “someone here was malicious enough to show me photographs of Dachstein, Bischofsmütze, etc., then my heart became quite heavy” (Fritz to parents, May 5, 1923). By January he was asking his parents if they would lend him the money to spend about ten weeks or so in Tyrol over the coming summer, “to get some fresh air and especially some peace and quiet,” before returning to work at the Abrechnungsamt (Fritz to Felicitas, Jan 17, 1924). Unfortunately, the office insisted that he return to the job soon after he got back to town. He did not get his three weeks in Tyrol until August (Hayek to W. C. Mitchell, July 31, 1924). Finally, it seems clear that Fritz was reacting, quite naturally, to his sudden penury, which, it must be said, he handled stoically. “I now live as frugally as I’ve ever lived before, eat no more than necessary, except when I am invited, but it should suit me well (I weigh 222 pounds but don’t know how much that actually is) and what is much harder for me, don’t smoke, except when I get something as a gift so that I save $10 a week out of my $25 and already have a bank account of $35 for my Travel Home Fund, which should not be touched” (Fritz to parents, May 5, 1923). When he would get a little money, he would treat himself to a night at the theater, or spend it on clothes (so that he could be presentable in good company), other necessities (e.g.,

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a replacement for his fountain pen, which had been stolen), and, of course, books (Fritz to parents, Aug 3, 1923). By mid-January he was able to report that he had bought himself a suitcase that he would use for transporting home the books that he had bought and planned to buy (Jan 17, 1924). Through it all he retained a certain droll sense of humor. One beneficial but unintended consequence of the radio craze, for example, was that it appeared to be putting the juke box (whose “terrible noise” is heard “from all corners continuously”) out of business (Fritz to parents, Apr 21, 1923). (In this prediction he was off by roughly three-quarters of a century.) In the corner of his May 12, 1923 letter home he offered a pithy summary of the latest vital statistics: “Weather: humid and rainy. Appetite: Way over financial means. Socks: starting holes. Darning abilities: increasing. Bank account: $45.” On the back of another he remarked with respect to the German inflation: “If possible, please get me a 1,000,000 mark [banknote] and keep it for me. I can’t pay you for it, because there is no such thing as half cent pieces here” (Fritz to parents, Oct 1, 1923). Fritz did not find every American horrible; he was “received and treated much beyond my deserts” by the professors he met (Hayek 1992b [1963a], 35), and he had some other remarkable encounters. One of particular note: on the evening of August 2, 1923, he went to the offices of the New York Times and got a tour of the printing press operation. Just as everything was ready to go, news came of the death of President Warren G. Harding. Within an hour three more pages had been added to the paper and the copies began to be printed, at a rate of 36,000 an hour. As he told his parents, “it was quite unbelievable how much effort the people put into showing me every detail, when I was a complete stranger just dropping into their space” (Fritz to parents, Aug 3, 1923). Perhaps not coincidentally, Fritz would publish a letter to the editor of the New York Times later that month, in which he rebutted the claim that German industrialists were profiting from the rising price of their shares during the hyperinflation, pointing out that the depreciation of the mark had in the past eight months reduced the gold value of their holdings to 1/500th of their previous value (Hayek 1923). Fritz, then, was distressed not so much by the people he actually met and then interacted with as by the people and things he observed in the street. Nor did he think that New York was representative of all of America. In September before his classes began at NYU he spent a holiday week with people he had met on the SS Fillmore. Though they were from Philadelphia, they had a summer home that overlooked Narragansett Bay in Rhode Island, and his description of the place (in contrast to “the dump that is New York”) and of his time there was idyllic. He walked barefoot, swam in the bay, played tennis, listened to music, and so on. His hosts so delighted

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him that he bestowed on them the ultimate compliment of “un-American” (Fritz to parents, Sept 13, 1923). During that holiday he managed to take a quick side trip to Boston, touring Cambridge and visiting Harvard, both of which he liked. At some point he also visited Bear Mountain State Park in New York. And over the Christmas holidays he traveled to Washington, DC (a city that he found both “more joyous” and “more European,” or so he told Mises in a January 12, 1924 letter) to attend the American Economic Association meetings, then spent New Year’s with his friends in Philadelphia. But mostly he was in New York, and as with many people before and since, it took its toll on him. Fritz’s aversion to the American way of life may have been both the cause and the effect of his spending much of his leisure time within New York’s community of Austrian and German immigrants. Some of the hosts with whom he spent weekends or had dinner were distant relatives or friends of the family. There was, for example, the engineer and director of a New York utility company, Hugo Eisenmenger, the uncle of Fritz’s friend from childhood, Gerty Eisenmenger. Fritz was also often invited to the family of Christine Rudinger, née Frisch, who had assisted her cousin Karl von Frisch with his bee experiments at Brunnwinkl. Fritz met also one “Miss Prisca Hornbostel” from Vienna—a violinist and distant cousin of Nelly Magg, when some of the Vienna immigrants united to play chamber music (Fritz to parents, Jan 17, 1924). There was also the biologist Eduard Uhlenhut, one of Fritz’s regular companions on Sunday morning walks, who on one occasion Hayek remembered spotted a wolf in the outskirts of New York (Bartley interviews, Nov 2, 1983). In May 1923 Robert Mark arrived—he was a friend from primary school who had studied medicine in Vienna and now was spending a year on a research fellowship in Morristown, New Jersey. When both were ready to leave, Robert offered to pay for Fritz to spend some weeks with him in England, but Fritz had to decline (Fritz to parents, Apr 11, 1924). A prominent visitor in whose fortunes Fritz took an avid interest was Paul Kammerer (see Taschwer 2016, especially chap. 12). Kammerer was by then already famous, if not notorious, for his neo-Lamarckian position in The Inheritance of Acquired Characteristics (Kammerer 1924), which made him an outsider in his profession. He summarized the wider possibilities that his approach would open up with a boldly chosen example: “Take a very pertinent case. The next generation of Americans will be born without any desire for liquor if the prohibition law is continued and strictly enforced” (New York Times, Nov 28, 1924). However, Kammerer’s widely covered tour through the US—the New York Times hailed him as “a second Darwin”— which lasted from November 1923 to June 1924, was to promote a new treat-

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ment that, employing the results of hormone research, would allow people to be rejuvenated (see Kammerer 1923). Eventually, despite its heralded start, Kammerer’s venture failed, both scientifically and financially.6 Fritz closely observed this “annoying story” and made no secret of judging Kammerer “a fraud” (letters to Felicitas, Nov 18 and 30, 1923, Jan 17, 1924). Fritz’s reaction to America was, of course, hardly unique, especially among Europeans of a certain class.7 His countryman Sigmund Freud, even before visiting the country, “like most cultured Europeans of his day . . . viewed the United States with casual contempt, considering it a land of vulgarity and prudishness,” and came away from a three-week trip to New York and Massachusetts in 1909 absolutely despising the place, despite the positive reception that his ideas were given there. His followers and others have ever since debated the sources of his animus (Kaye 1993, 118; cf. Douglas 1995, 127). Like Hayek, he preferred England—when he fled Vienna to escape the Nazis in June 1938 he ignored the advice of friends to seek refuge in America, where his theories were widely known, and settled instead in the London suburb of Hampstead. Tibor Scitovsky, another upper-class Central European who would study with Hayek in the 1930s when taking a master’s degree at the London School of Economics, found his own American experience so distressing that he wrote a book bemoaning it titled The Joyless Economy. In Scitovsky’s obituary notice one colleague reported: “‘He had a deep aversion to mass culture and came to reflect on why America was so different from Europe. He was a U.S. citizen, but he was always a European.’ Professor Emeritus Kenneth Arrow, another colleague, said that The Joyless Economy reflected a critique of capitalist bourgeois society from an aristocratic perspective. ‘It contrasted mundane, limited horizons with more daring ideas and the aristocratic virtues of independence of mind’” (Trei 2002). The revised edition of Scitovsky’s book carried a new appendix, “Culture Is a Good Thing,” just in case the point had not been made with sufficient clarity (Scitovsky 1992). 6. In the aftermath of his US tour Kammerer was accused of having faked crucial evidence for his neo-Lamarckian thesis, and his suicide in 1926 was widely considered an admission of guilt. Notably, Arthur Koestler made Kammerer the hero of his book The Case of the Midwife Toad (1971). When Hayek read it, he told his interviewer that he still remembered all the names of the persons mentioned there (Bartley interview, Nov 2, 1983). 7. For a more general treatment of the sources of European antipathy toward America, see Markowitz 2007. One might note as a typical early example of such criticism the Austrian Ferdinand Kürnberger’s novel Der Amerikamüde (1855), which provided Theodor W. Adorno with the motto for Minima Moralia, “Life does not live.”

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American Economics With the exception of Frank Taussig, who was out of town when Fritz took a brief, last-minute trip to Boston, Fritz was able to meet all of the economists for whom he had Schumpeter’s letters of introduction. Each treated him to a meal, which of course he greatly appreciated, especially in the early days (IB 58). There were some awkward moments: the Harvard economist Thomas Nixon Carver was “much offended” when Fritz mentioned that in Vienna Carver’s name was often linked with that of John A. Hobson as one of the principal developers of marginal productivity analysis (IB 60–61). While the “economic heretic” Hobson did indeed anticipate the marginal productivity theory of distribution in The Economics of Distribution (Hobson 1900), he is perhaps better remembered as an underconsumptionist and a person whose theories about the origins of imperialism were much praised by Vladimir Lenin. Given his conservative tendencies, Carver’s irritation at the remark is understandable.8 Perhaps Fritz’s favorite was John Bates Clark, who not only invited him to dinner at his home but asked him to give a talk in his seminar. Hayek usually described the latter event as his having delivered “the last paper in J. B. Clark’s last seminar.”9 In his letters home, Fritz told a more entertaining story. A few weeks before the end of the semester, he had been invited to yet another free dinner by someone who also asked him if he would chat there about the current situation in Vienna. He expected to converse with three or four people over a meal. When he arrived at the restaurant he discovered, to his horror, that about forty people awaited him, and he was given a grand introduction by his host. He continued: “I had no other choice but to get up and without preparation talk in English about Vienna for about half an hour. It was horrible. Although the people said afterward that they understood me pretty well, I felt like I was on a skewer. And the next day Professor Clark extorted a promise from me to talk in his lecture. If only it would already be over and done” (Fritz to parents, May 6, 1923). The next week he wrote home again, saying the dreaded presentation (apparently a summary of conditions in Austria during the war) was indeed over, and that though some in the audience “claimed to have understood me . . . I don’t quite believe it” (Fritz to parents, May 12, 1923). 8. For more on Carver, see Peart and Levy 2013, 38–43. 9. See, e.g., Hayek 1992b [1963a], 35; 1994, 66; or IB 57, where Hayek states, “J. B. Clark was personally very attractive as well as kind and hospitable to me personally. I read the last paper in his last seminar and was once or twice asked for a meal at his home.”

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As had been his practice at the university in Vienna, Fritz also sampled classes of others he had heard about but for whom he had no letters of introduction, prominent among them the pragmatist philosopher John Dewey and the iconoclastic and idiosyncratic economist Thorstein Veblen. He came away decidedly unimpressed: “I went a few times to the New School to hear Thorstein Veblen mumbling almost inaudibly and boringly to a cluster of elderly ladies and found Dewey at Columbia not much more interesting” (IB 60; cf. Hayek 1992b [1963a], 36). And indeed, he later admitted that he came away from his whole experience disappointed by the state of American economic theory. The problem, in a word, was that there had been little in the way of progress: “I soon discovered that the great names which were household words to me were regarded as old-fashioned men by my American contemporaries, that work on their lines had moved no further than I knew already, and that the one name by which the eager young men swore was the only one I had not known until Schumpeter gave me a letter of introduction addressed to him, Wesley Clair Mitchell” (Hayek 1992b [1963a], 35–36). Mitchell, it should be recalled, was the professor that Fritz encountered his first day in the city, whose class he immediately began to attend. Mitchell had been a student of both Veblen and Dewey when studying for his PhD at the University of Chicago in the late 1890s (and to complete the lineage, Veblen had as an undergraduate at Carleton College been a student of J. B. Clark). A prominent figure in the American institutionalist movement, Mitchell had before the war published a major treatise on business cycles (Mitchell 1913). His approach to that subject was radically empirical: rather than start with a theory of the cycle, he gathered historical records on the cyclical movement through time of a wide variety of economic variables to see what sorts of patterns in the timing of their amplitudes and rates of change might emerge. This sort of approach, though reminiscent of that of Schmoller and the German historical school economists, was much more systematic than theirs. It was also useful: Mitchell had contributed to the war effort by serving as the head of the price section of the War Industries Board, where he witnessed firsthand how important statistical data could be for planning the production and distribution of war materials. As a reform-minded progressive, he had hopes that such scientific techniques could be useful to the government in attacking the social problems of the day. By the time Fritz appeared on the scene, Mitchell was the founder and director of research at the National Bureau of Economic Research (NBER), and his department at Columbia was becoming a hotbed of institutionalist thought. Among the Columbia economists sympathetic to

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institutionalism were J. M. Clark (who replaced his father J. B. Clark when the latter retired in 1923), Frederick C. Mills, Robert Hale, Paul Brissenden, and Rexford Tugwell (Rutherford 2004). Fritz’s PhD fellowship, though, was downtown at NYU, and at the end of September classes began. During the fall semester he took five courses, all held for two hours a week and all meeting sometime between late afternoon and 10 p.m. on Tuesday, Wednesday, and Thursday—it is not clear whether one of the courses he mentioned to his parents was Mitchell’s (Fritz to parents, Oct 21, 1923). To make some extra money that fall Fritz also worked for Willard Thorp, a research fellow at Mitchell’s NBER who was writing a book titled Business Annals (Thorp 1926). The book, which carried an introduction by Mitchell and was meant to be a more readable complement to another NBER book that was filled with statistical tables, contained yearly prose summaries of trade, agricultural, industrial, monetary, political, and other relevant conditions for seventeen different countries. Fritz assisted in constructing the sections on Germany, Austria, and Italy, and accordingly Thorp thanked “Dr. Franz [sic!] A. von Hayek” in the acknowledgments (Thorp 1926, 105).10 The two worked alongside each other at the library. Also at their table was B. H. Beckhart, who was working on a book on the discount policy of the relatively newly established Federal Reserve System (Beckhart 1924). Fritz took away from these relationships a better understanding of the statistics associated with industrial fluctuations and the beginning of an understanding of the workings of the Federal Reserve System. Both topics would figure in his work once he got back to Austria. Fritz was expected during his time at NYU to write a dissertation in English, supervised by Professor J. D. Magee. It appears that he never intended to do this. Fritz told his parents early on that he did not think that he would, and later said that his command of English was not up to the task: to try to write up his thoughts in English would simply take him away from the more important job of research, a plausible if convenient rationalization (Fritz to parents, May 5, 1923; cf. Oct 1, 1923). In any event, all that he 10. Thorp would go on to a successful career in academia and government. As Truman’s assistant secretary of state for economic affairs, Thorp helped draft the Marshall Plan. About him Soviet Deputy Foreign Minister Andrei Vishinsky once said, “We all know that statisticians are liars, that American statisticians are the worst liars, and Willard Thorp is President of the American Statistical Association.” See his obituary, “Willard Thorp, 92, Economist Who Helped Draft the Marshall Plan,” New York Times, May 11, 1992.

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managed to produce of the thesis was a two-page outline (which carried the title “Is the Function of Money Consistent with an Artificial Stabilization of Its Purchasing Power?”), the first two chapters (comprising a total of six pages), and a few scribbled notes for further work.11 It must be said that the two completed chapters, on the functions of money and the meaning of stabilization, are pretty uninspired. Once Hayek returned to Vienna, however, the themes first touched on in his thesis provided a springboard to some of his later contributions to monetary theory. He also spent some time writing a brief (five pages, typed) paper, “Stabilisierung der Wechselkurse oder Stabilisierung der Preise?,” in which he showed that it was impossible simultaneously to stabilize the exchange rate and the domestic price level.12 This remained unpublished, however, because “before I could submit the short article I had written on this to any journal I found that J. M. Keynes had arrived at the same conclusion in his Tract on Monetary Reform. Lest anybody think that this disappointment of my hope of having made an original discovery (which, surprising as it may sound today, it was at the time) is responsible for my later persistent opposition to Keynes, I should add that Keynes was then, and remained for a good deal longer, one of my heroes and that I greatly admired this particular work of his” (IB 60; cf. Hayek 1994, 88–89; Keynes 1923). He was able to put the insight to use, however, in another short paper that was eventually published in October 1924 in the Austrian economics weekly Der Österreichische Volkswirt (The Austrian Economist) (Hayek 1924b). There he discussed the general question of monetary policy designed for price level stabilization within a specifically Austrian context. He opted for the priority of a stable exchange rate, but suggested that pegging the Austrian currency to the British pound rather than the dollar might be warranted if—as he was expecting—US prices eventually began to rise. As noted above, Fritz spent most of his free evenings in the main reading room of the New York Public Library. There, he began educating himself on modern history, with a particular focus on explanations of the causes of World War I. He was shocked at how nationalistically biased the continental European literature was, particularly when compared with its Englishlanguage counterpart (IB 63). In a contemporaneous letter to Ludwig von Mises, he complained of “the intellectual narrowness and ignorance” of his home and of “the worm’s-eye view of the Central European press” (Hayek 11. A page of faces he had drawn accompany these papers in his archives (FAHP 104.26). The outline has been reprinted in Hayek 2015c, 529–30. 12. For a translation, see Hayek 1999d [1924a]. For the original German typescript, see FAHP 104.29 and the reprint in Hayek 2015c.

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to Mises, Aug 17, 1923). The reaction against Austria was matched by an attraction to England: “It was then that I discovered my sympathy with the British approach, a country I did not yet know but whose literature increasingly captivated me. It was this experience which, before I had ever set foot on English soil, converted me to a thoroughly English view on moral and political matters, which at once made me feel at home when I later first visited England three and a half years later . . . In the sense of that Gladstonian liberalism, I am much more English than the English” (IB 64). Worried about how public opinion might be manipulated by biased reporting of the news, Fritz in January 1924 wrote up a rather detailed proposal for “An International Newspaper Page” (FAHP 104.28). The proposal went through two drafts, and the next month he produced a German version as well, so this was apparently a project that he took seriously. It was very much an “internationalist” solution: “Let all countries bind themselves to require the daily newspapers within their territory to print regularly a page of news and articles compiled by an international committee. Every country, and according to certain rules, every large political and social group within each country should have the right to claim at fixed intervals a certain space on this page in order to report on facts which they think may not otherwise be reported fairly; and to give expression to their motives and views.” Fritz did not think it would be difficult to find “men and women of . . . high repute and standing” within each country to serve on the committee that would compile the news. The program would not constitute a restriction on freedom of the press because every paper would retain the right to comment on the contents of the page. After identifying various advantages of the scheme, he expressed the hope that some private philanthropist might provide the means for an international bureau to be set up. The bureau would distribute information from around the world to newspapers, free of charge, under the condition that they print everything that the bureau supplied. Fritz’s utopian idea of course came to nothing, and as to its origins, it may simply have been a response to the insights he had gained from reading other accounts of the war. Other influences are also possible. Jeremiah Jenks had, early in his career, written on the subject of public opinion, and in 1922 the American polymath Walter Lippmann published a muchacclaimed book on the topic (Jenks 1895; Lippmann 1922). In any event, the accuracy of news reports in general, and biases in the reporting of international news, would become for Hayek a lifelong concern.

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Mitchell’s “Types of Economic Theory” Course and Subsequent Influence on Hayek During the 1923–24 academic year, Wesley Clair Mitchell taught a course called “Types of Economic Theory” on Tuesday and Thursday afternoons.13 This was the class to which Mitchell invited Fritz when he arrived in Manhattan, and which the young man subsequently attended.14 For someone who had learned his economics in Vienna, and learned therefore to look askance at anything resembling German historicism, the experience must have been an eye-opener. Two elements of Mitchell’s approach to his subject bear mentioning. Mitchell sought to show how changes in all sorts of institutions—political, economic, social, and legal—affected both the type of economic theory that developed and its reception. Thus, in explaining the acceptance of Adam Smith’s teachings, he painted a picture of a community that had experienced a period of relative peace, one that had turned its attention to bettering its economic condition, one where there was more voluntary cooperation in the pursuit of enterprise and less government interference in local affairs: a community, in short, that was ready to hear Smith’s message (Mitchell 1949, 1: 58–59). The idea that social institutions and the phase of a country’s development help to determine which theories are accepted had certain affinities with claims by the historical school that the validity of theories is time-dependent. A second characteristic of the course was Mitchell’s criticism of the classical economists’ “theories of human nature,” with the ideas of Jeremy Bentham singled out for intensive scrutiny. Bentham was the leader of the Philosophical Radicals, a group that used utilitarian analysis to press for all manner of reforms: political, legal, educational, even penal. Mitchell admired Bentham’s zeal for reform but was critical of Bentham’s implicit

13. This section draws heavily on Caldwell 2010. 14. IB 60: “I gate-crashed a good deal at Columbia, attending especially the lectures of W. C. Mitchell on the history of economics.” Lectures notes from the 1934–35 class were stenographically recorded by a student: see Mitchell 1949; cf. Mitchell 1967–69. The latter, edited by Joseph Dorfman, contains a vast amount of additional material—course outlines, notes from other versions of the lectures, and so on—so is more comprehensive, but the additions also make it more difficult to follow Mitchell’s narrative. The 1934–35 lectures are the basis for remarks in the text. Evidently, there may have been some alterations in emphasis in these later lectures from the ones that Hayek would have heard; as Rutherford (2004, 64) points out, Mitchell’s expressed views had moderated somewhat by the 1930s.

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theory of human nature, which, based on hedonistic psychological foundations, portrayed humans as calculating creatures who constantly try to weigh the costs and benefits of their actions. Less troublesome for Mitchell was the associationist psychology that Bentham also embraced, a doctrine that suggested that humans could be taught to make better associations, hence opening possibilities for educational and penal reform. Mitchell concluded that the Philosophical Radicals were successful in pushing through certain reforms not because of their theories of human nature (which he thought were wrong) but because their ideas matched up well with the sorts of changes that powerful interested parties already favored. Their ideas about human nature were, to Mitchell’s chagrin, to persist in the writings of later economists. It was Mitchell’s teacher Veblen, the mumbler that Fritz had encountered at the New School, who had earlier provided the oft-quoted disparaging description of “rational economic man” whom Mitchell also criticized: “a lightning calculator of pleasures and pains, who oscillates like a homogeneous globule of desire of happiness under the impulse of stimuli that shift him about the area, but leave him intact” (Veblen 1898, 389). Mitchell shared his teacher’s skepticism about the marginal revolution of the 1870s, arguing that the new theory was still based on the same discredited hedonistic psychology of the classical economists. Other missteps included transforming the theory of value into a theory of price formation, where only demand and supply schedules mattered, or into a pure logic of choice relating means to ends (Mitchell 1949, vol. 2, chap. 19). In both of these cases, the underlying classical assumptions about human nature are still there, just masked. Mitchell only hinted at his preferred alternatives in the classroom, but was more forthcoming in such publications as “The Prospects of Economics,” his opening essay for his Columbia colleague Rexford Tugwell’s book The Trend of Economics, a paper probably written just around the time that Fritz was in New York (Tugwell, ed. [1924] 1930). With a few exceptions, the volume read like an institutionalist manifesto. In his paper Mitchell recommended that the subjective value theory of the marginalists be replaced by the “scientific psychology” of behaviorism. Once economists embraced such modern psychological underpinnings, the natural next step would be the study of institutions, because institutions affect behavior: “‘Institutions’ is merely a convenient term for the more important among the widely prevalent, highly standardized social habits. And so it seems that the behaviorist viewpoint will make economic theory more and more a study of economic institutions” (Mitchell [1924] 1930, 25). The new focus would be, not the imaginary choices of rational economic man, but

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rather mass behavior, which is best studied using sophisticated quantitative methods. In the future, economists would collaborate with natural scientists, psychologists, and engineers to build a better society. His encounter with the formidable and erudite Mitchell must have had a profound effect on Fritz Hayek. Though Mitchell was a progressive reformer rather than a conservative imperialist, in his attacks on marginalist theory and his claim that it was a continuation of the errors of the classicals, his recommendation to study institutions, and his emphasis on the use of statistics, he would have reminded Fritz of the German historical school economists. It was doubtless as intriguing as it was disquieting to find that a group whose views had dominated German-speaking countries since the 1880s but which had begun to go into eclipse was apparently viewed as avant-garde in the US. Though Mitchell and the German historical school economists evidently had very different political views and agendas, they shared views about appropriate methods and about the role of science in shaping the society to come. Nor was Fritz alone in recognizing the commonalities: Mitchell ([1924] 1930) himself said of John R. Commons that his “contribution belongs to the institutional type of economics, the type represented in Germany by Sombart, in England by Mr. and Mrs. Webb, in America by Veblen and many of the younger men” (253). Sombart at the time was viewed as a representative (though one of the last) of the historical school. The Webbs helped to found the London School of Economics, where Hayek by the next decade would be employed. Mitchell’s class may have influenced Fritz in other ways. We saw earlier that Hayek had said that his attraction to British liberalism was formed while he was in America, when during “free evenings” in the library he would read about it. Though there is no direct evidence, it is possible that Mitchell’s lectures may also have prompted Fritz to begin learning more about “the British approach.” Mitchell had an extensive knowledge of British history that was amply demonstrated in the course. His thorough coverage of Bentham’s and others’ theories of human nature, and his remarks on then current alternatives to associationist psychology, doubtless would also have fascinated Fritz, with his past training in psychology. Because he had also trained as a lawyer, Mitchell’s remarks on British legal history would have further piqued Hayek’s interest. Finally, Mitchell’s interpretation of, and praise for, John Stuart Mill as a reform-minded socialist who had shown that questions of distribution were subject to human control may well have started Hayek on his long, and ultimately highly ambivalent, relationship with the ideas of Mill and Harriet Taylor. It was in any event an interpretation, having been popularized by Sidney Webb and the Fabian socialists, that was widely shared in Britain, and therefore one that Hayek

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would soon enough be exposed to again (Mitchell 1949, 1: 183, 240; 1967–69, 1: 600; cf. Webb 1961 [1889], 80; Hobhouse 1994 [1906], 51–55; Laski 1997 [1936], 256). Nearly fifty years later, Hayek would recount that he had first heard defended ideas that he would later dub “constructivism” in Wesley Clair Mitchell’s class (Hayek 2014b [1970], 338n4). Some of the earliest correspondence in the Hayek archives is with Mitchell. It began while Fritz was still in New York, when in a letter dated December 15, 1923, he praised Mitchell’s exposition of Wieser’s writings on marginal utility theory, writings that Fritz acknowledged were both confusing and perhaps confused. Having heard Mitchell’s lectures, he added at the end of the letter that “You may be surprised to hear that probably most of the younger Austrian economists would completely agree with your opinion about every form of pleasure and pain or utility calculus and I belief [sic] that the further trend of this branch of Economic Research will be towards a total elimination of its psychological roots and a substitution for them by the simple fact of preference.” This brought a quick reply from Mitchell, who noted that the younger Austrians “don’t eliminate psychology from their doctrine by starting with ‘the simple fact of preference.’ That device seems rather to lead in the direction of Walras and Pareto who, despite their protestations, are quite obviously working with a human nature that has fundamentally the characteristics imputed to it by Bentham” (Mitchell to Hayek, Dec 21, 1923). Subsequent correspondence in April 1924 concerned the possibilities of translating Wieser’s 1914 treatise Theorie der gesellschaftlichen Wirtschaft into English, for which Fritz provided Mitchell with a substantial biographical account of Wieser’s professional life, teaching career, and personal characteristics (Hayek to Mitchell, Apr 16, 1924). The correspondence was renewed in the summer of 1926 when Hayek told Mitchell that Wieser’s latest book (Das Gesetz der Macht) had appeared, followed by a letter the next month informing Mitchell that Wieser had died on July 23 of pneumonia, two weeks after his seventy-fifth birthday. Hayek had written a celebratory newspaper article for a Viennese newspaper on the occasion of the birthday (Hayek 1926, July 10); he used it to construct a more extensive obituary (Hayek 1926b). The English translation of Wieser’s 1914 book Social Economics appeared in 1927 and carried a laudatory introduction by Mitchell (1927). Mitchell sent anything he wrote about Wieser to Hayek to check for accuracy. The last extant letter between them was handwritten by Hayek while on his honeymoon in the Dolomites and was in response to Mitchell’s essay on Wieser that would appear in the book (Hayek to Mitchell, Aug 7, 1926). In his June 1926 letter Hayek talked a little about the direction of his

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current research. It is an accurate preview of the work that would engage him for the next dozen years or so. While my theoretical predilections have remained unchanged, I realize now the weak points of abstract economic theory which seem to most of you to make the pure theory more or less useless for the explanation of the more complex phenomena of the money economy. It seems to me now as if pure theory had actually neglected in a shamefull [sic] way the essential differences between a barter economy and a money economy and that especially the existing theory of distribution15 needs a thorough overhauling as soon as we drop the assumption of barter and pay sufficient regard to time. I hope however to be on the way to supply some of the missing links between orthodox economic theory and one applicable to the explanation to [sic] the processes of modern economic life. (Hayek to Mitchell, June 3, 1926)16

Concluding Comments His fifteen-month American sojourn helped change Fritz Hayek from a socially and culturally conservative, politically middle-of-the-road, uppermiddle-class Austrian university graduate into a young adult with a more comprehensively cosmopolitan European worldview. The change seems the result more of his evening reading of alternative explanations of the causes and course of the First War than of any day-to-day lived experience. Like so many Europeans, he seems to have detested many aspects of his first immersion into American culture. But he also was fascinated by, and perhaps even attracted to, at least some parts of the experience. He mentioned more than once how easy it was to buy an automobile on the installment plan, and once even said that if he stayed in America he would buy one and travel the country (Fritz to parents, Apr 11, 1924). In a letter to his brother Heinz, he even seemed to have caught a bit of the American entrepreneurial spirit. Fritz proposed to his younger brother that “they” put together a hiking expedition for a group of American tourists through the mountains of Tyrol. He warned Heinz about 15. Note that in contemporary German-language literature the term “Verteilung,” translated by Hayek as “distribution,” was used synonymously with “allocation” in its present-day use. 16. Kresge 1999, 7–8, suggests that Hayek’s concern with the implications of time in economic analysis and possibly also the idea that economics studies complex phenomena—this latter hypothesis seems dubious to us—may have come from his interactions with Mitchell.

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the pushiness of Americans and about their probable expectations: things had to be first-rate, but not too first-rate, so as to prevent them from making demands that would go beyond the budget: “for hotels, for example, they demand a room and a bathroom [Badezimmer], a breakfast has to be what would be for us a lunch every time, in the valley they possibly might even want to use cars . . .” (Fritz to Heinz, Aug 23, 1923). Fritz, who would return home as poor as he had left, was hoping to use this scheme to finance his own desperately needed summer vacation. He was asking Heinz (actually, on some possible readings of the tone of the letter, telling him, as an older brother might do) to figure out all of the logistics for him. Not unexpectedly, it appears that nothing came of it. Fritz sailed for home on May 24, 1924, on the Dutch liner New Amsterdam. During the spring he had gotten word from Vienna that he was going to be the first Austrian to be nominated for a Rockefeller Fellowship, which would have permitted him to continue his stay in the US. Unfortunately the final official notification that he had received the fellowship did not arrive in time, and in any event accepting it would have meant exceeding his leave of absence from his job at the Abrechnungsamt.17 As it turned out, Geistkreis member Erich Voegelin became the first Austrian RF fellow, and during the interwar period many of Hayek’s colleagues were to follow. Hayek himself would not visit the US again until 1945. Back in 1923 Fritz had grown a mustache to distinguish himself from Americans and, as he put it, to “protest against American civilization” (IB 65–66). Later he added a beard. He decided to pass through Paris, the host of the 1924 Olympic Games, on his way back. He went to a barber but was unable to explain precisely what he wanted done tonsorially; he left with a French-style goatee. When he got to Vienna the goatee caused such amusement among his friends that he rather quickly shaved it off. The mustache, though, he would retain for the rest of his life.

17. See IB 65, and letter to parents from New York, Apr 11, 1924.

· Part III · The Making of an Economist

When Fritz got back from New York he returned to the more comfortable and familiar setting of his workplace at the Abrechnungsamt (Aba), rejoined his intellectual companions at the Geistkreis, and entered again into the small but vibrant Viennese world of family, friends, and acquaintances. But important decisions loomed. He needed first of all to address the tricky question of how to find a more permanent job, one that would provide a steady income, while at the same time taking the necessary steps to achieve his ultimate goal, a university appointment. He also needed to figure out his personal life, because while he was gone Lenerl had married Hans Warhanek and become a mother. Ludwig von Mises continued to have a big influence on his young protégé’s path. He invited him to join his own private seminar, the most important gathering of economists in Vienna at the time. At the seminar Hayek cemented his relationship with a group of peers who would be colleagues for life, no matter where they ended up working, men like Gottfried Haberler, Fritz Machlup, and Oskar Morgenstern. Equally important, Mises was the driving force behind the creation of the Institute for Business Cycle Research. Hayek would serve as its first director. It was an anomalous place for a young man trained in the Austrian tradition to work, because one of its central tasks was to provide forecasts about business conditions. Austrians thought that forecasts that were not firmly based in theory were problematical, and no such theory yet existed. Exploring the awkward balancing act that Hayek had to perform in order to execute his duties as director but stay true to his methodological beliefs will help us better to understand his position on the relationship between theory and empirical work. As we will see, working at the Institute also provided him with another means to expand his circle of professional contacts. One of them would be John Maynard Keynes, and another Sir William Beveridge, the director of the London School of Economics.

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In a way, Mises also if indirectly helped Fritz resolve problems with his personal life. For it was at the Aba that Fritz met Hella Fritsch, who two years after his return he would marry. Over the next couple of years there would be further changes: the death of his father, August, and the birth of his first child, Christine. Fritz had become an adult. All during this period, though, he was actively pursuing his lifetime ambition of becoming a professor. In Vienna, this involved learning and playing the academic game, and Fritz was, if anything, a quick study. He deftly maneuvered his way around difficult but powerful people, skillfully avoiding the petty but consequential squabbles that animated academic life at the university. By 1929 he had achieved his habilitation, the first necessary step toward a professorship. He also continued to expand his professional networks, which by the end of the decade were truly international in reach. Perhaps most important, he began to develop a set of theories about the functioning of a monetary economy. The amount of work he did was breathtaking, given that he also had a full-time job. In addition to many side activities (book editing, producing proposals and professional reviews, and so on), he began work on four major writing projects. Two would never be completed, at least not as he had envisaged them. The first of these was a monograph on monetary theory that he had begun in New York; the second a volume on money and credit for the prestigious book series that had been initiated by Max Weber, the Grundriß der Sozialökonomik. It is a characteristic of Hayek’s career that he would start projects that he would not finish, and that parts of those same projects would nonetheless find their way into other contributions. The third project would become his habilitation thesis, later published as Monetary Theory and the Trade Cycle. In it he argued for the monetary origins of the trade cycle. The fourth was a series of four lectures that ultimately became his book Prices and Production, in which he showed how distortions in the structure of production constituted the cycle. By the turn of the decade, along with a daughter, the Hayekian theory of the cycle had been born.

· 12 · Return to Vienna

Lenerl The most delicate, awkward, and emotional issue that Fritz faced after his return to Vienna was how to deal with his relationship with Lenerl. A lot had happened. Not even three months after his departure, on June 16, 1923, she had married Hans Warhanek in Vienna’s Karlskirche. Ten months later, on April 3, 1924, their son Max was born.1 This was two months before Fritz’s return. A second son, Hans, was to follow on December 12, 1926. The unfolding of all these events goes mostly unmentioned in the New York correspondence, though there are a few tantalizing hints. Is it perhaps only a coincidence that about the time that the engagement was announced Fritz would begin a letter to his co-workers at the Abrechnungsamt in which he sends his greeting to various people by name, among them a co-worker named Hella, the person who would become his first wife? Anyway, the next month, when he heard that another female friend of his youth, Gerty Eisenmenger, had just gotten married, Fritz asked his mother if Lenerl had gotten married yet, adding, “Please keep me informed about these weddings” (Fritz to Felicitas, May 28, 1923). After their marriage Hans and Lenerl moved in with the Bitterlich family as they looked for an apartment. When Fritz’s mother suggested telling them about an available flat in the same building where the Hayek family lived, Fritz’s response revealed some irritation: “That the Warhaneks— despite all the friendship—should choose an apartment in the immediate vicinity of acquaintances I do not deem probable. I at least would not do it in their stead and therefore I would not even think about offering it to them” (Fritz to Felicitas, Oct 1, 1923). (In the end, it would take until 1931 for the Warhanek family to move into a residence of their own, in Wiedner Hauptstraße 39/2, a rather nondescript building, especially when compared with the formidable residence of Hans’s father, Karl Warhanek, located on the 1. Max was congenitally weak and sickly and remained in fragile health all his life.

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same street.) Finally, on learning of the impending birth of Max, Fritz admitted, “I’m more than curious, almost as excited as if I myself were the father” (Fritz to Felicitas, Mar 31, 1924). Our chief source for what happened when Fritz returned to Vienna and finally saw Lenerl is Lenerl herself, and there are reasons for taking what she said with a grain of salt. Her reflections all occurred in private conversations with Hayek’s secretary Charlotte Cubitt, more than six decades after the fact, conversations that she had no idea would be repeated to anyone, and that were usually in the context of denying her own culpability in breaking up Hayek’s first marriage. In any event, what she had to say was quite extraordinary. The first conversation took place in 1986, and here is Charlotte’s report: “She had never been in love with her first husband. She had married him solely to have children, but had learnt to love him in time. She had got to know him because he had frequently been admitted to their home, and that she had been carried away by his ardent wooing. She should not have allowed him to do what he did, so she had to marry him, and while she was still suckling her first child Hayek had reproached her for marrying too quickly, and had urged her to seek a divorce” (Cubitt 2006, 211). Two years later Lenerl added another twist to the story: “Hayek’s mother had constantly visited her while she was nursing her first-born son, entreating her to leave her husband, Warhanek, so that Hayek could have his ‘Lenerl’” (Cubitt 2006, 285). While we have some doubts about the literal truth of these accounts, which seem transparently self-serving, we still must try to see if they can help explain what happened. The first question is whether they shed any light on why Lenerl decided to marry Hans. Was the decision really made because she was eager to have children? This seems possible, but was certainly not a reason that was ever mentioned by anyone at any other time as a justification. That she succumbed to his “ardent wooing” is more plausible, though what that phrase means is unclear. There may have been a physical incident or relationship, but it should also be noted that their first child was born ten months after their marriage. In any event and whatever its cause, Lenerl seems to have felt pressured by guilt or convention into marrying Hans, with perhaps additional pressure coming from her grandmother or from Hans himself. This, and frustration with Hayek’s reticence, were the two motivating factors we think most plausibly explain her decision to marry. Lenerl’s descriptions of the behavior of Felicitas and Fritz, on the other hand, sound exaggerated, if not fantastical. If Felicitas in her letters expressed a willingness to encourage Hans and Lenerl to live in the same

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building as the Hayek family, it is difficult to imagine her also trying to get Lenerl to desert her husband while she was nursing her child. Fritz’s alleged reproach of her seems equally bizarre, and if it occurred would have been grossly unfair, given his apparent unwillingness to discuss things with Lenerl before he left for New York. There may, however, be a way to make sense of what happened that gives due credence to Lenerl’s reminiscences. After returning from New York Fritz visits Lenerl and her new baby to congratulate her on her nuptials and the new birth. At some point they have the conversation that they failed to have before Fritz went to New York. She admits that she never loved Hans and had long hoped to marry him. Fritz, beside himself, reproaches her for marrying too quickly and urges her to get a divorce. When he tells Felicitas what has happened, always the doting mother when it came to her firstborn son, she also subsequently encourages Lenerl to divorce Hans. But Lenerl was either unable or unwilling to leave her first marriage. In the end, though, all of this is conjecture. All we really know for sure is that sometime after his return to Vienna, Fritz and Lenerl finally had the conversation that established that they had feelings for one another. After that first encounter—and whatever may have happened at it—at some later point they both decided not to act on it or discuss it further. At least superficially normal contacts were maintained between Hayek and the Warhanek family as long as Fritz remained in Vienna, and after he himself married. The couples would see each other socially, at least for a while. Unfortunately, sorting out the relationship would only become more difficult for all concerned as time progressed. Meanwhile Fritz rejoined his family. (This may have literally been the case, for we have no evidence that he continued his sublease.) We do know, as was then the common practice, and especially given the scarcity of apartments, that his brothers lived with their parents at the flat at Margaretenstraße 82. Heinz had just completed his doctorate in medicine in March 1924, and Erich was still studying chemistry, both at the University of Vienna. On his return Fritz had to resume work immediately at the Abrechnungsamt. Only in August were he and his brothers able to take a climbing tour in the Ötztal Alps in Tyrol. Weather is unpredictable in the mountains, and in this case it turned out to be a disappointment, raining much of the time. The trip was the cause for some anxiety for their parents, who were themselves vacationing in Malveno, an Italian town on a lake near Trento. When the expected letters from Fritz did not arrive at the parents’ resort, they feared that the brothers might have fallen victim to a climbing accident. It turned out to be a false alarm—the Italian postal service was the

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cause of the problem.2 Nonetheless, after two weeks August contacted the Alpine police in Sölden to report that they were missing. Toward the end of the ordeal matters were made even worse when the body of a dead German climber was carried down from some nearby mountain to be buried in Molveno, and as the only “fellow German” (speaker) present, August was asked to say a few words at the burial. Felicitas took it as a sign of his great distress that even though he was a nonbeliever her husband invoked God at the funeral. When she learned her sons were safe, Mama Hayek “cried like a dog from happiness and relieved tension” (Felicitas to Fritz, Aug 31, 1924). In any event, the episode set the pattern for the family’s activities in the following few years, with the parents traveling to historical sites, like Italy in the summer of 1925, while Fritz and his brothers enjoyed skiing and climbing tours. This may have been because, with his deteriorating health, that was all that August could handle.

Preparing for the Road Ahead In the first few years after returning to Vienna from New York, Hayek busied himself preparing for a career as an economist. This included, of course, earning a living, and making sure he could do so in the future, which was so important if one wanted an academic career in Vienna. For intellectual stimulation he kept up his engagement with his friends in the Geistkreis, and also was pleased to be invited to join Ludwig von Mises’s circle, which provided further nourishment. He was careful, too, to maintain good relationships with various men of influence at the university. And finally, when time permitted he engaged in some academic work. seCUring A JoB Though Hayek dutifully returned to the Abrechnungsamt on arriving back in Vienna, it certainly could not provide a permanent solution to his employment problem. A temporary institution, as time went by and its tasks were fulfilled the office began reducing its staff. While he still worked there Hayek received a number of important assignments. He served on a commission responsible for controlling the issuing of Austrian government bonds in various currencies that were used to settle obligations from prewar debts—we remember that the government had to pay Austria’s private foreign debts. In addition, on a visit—his first—to London in October 1926 he was in charge of the negotiations with Canada on the clearing of Aus2. See IB 67 and Felicitas to Fritz, Aug 31, 1924.

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trian claims and with Britain and the United States on the release of Austrian collective securities deposits.3 While still in New York, Fritz had laid out some possibilities for future employment in a letter to his father, chief among them a position as an economist at the Austrian National Bank, but despite his hopes the job did not materialize (Fritz to August, Nov 30, 1923). Mises also failed in his attempt to secure for Hayek a position as a “scientific assistant” at the Vienna Chamber of Commerce (IB 67–68; see also AF 16, 1994, 69). Eventually, though, Mises would come up with an idea on a much grander scale that would indeed prove successful: the foundation of an institute for business cycle research. in The CirCLes The return to Vienna allowed Hayek to rejoin his friends in the Geistkreis. During his absence Herbert Fürth had made sure that its activities continued regularly. Hayek presented a description of his experiences in New York to the circle almost immediately on his return, before the summer break. As indicated above, in the following years some of Hayek’s economist friends and colleagues were admitted: Haberler read his first paper in 1925, Machlup in 1927, and Morgenstern after a personal invitation by Hayek (see Hayek to Morgenstern, Dec 7, 1927) in 1928. The invitation to join Mises’s private seminar on his return in 1924 must have been a special honor for Hayek. The Mises private seminar had started in 1921 or 1922, possibly as an outgrowth of Mises’s regular university seminar, and its format differed from that of the Geistkreis in various respects. Membership was by invitation and as a rule restricted to graduates, who almost exclusively came from the Vienna Faculty of Law. The seminar took place during the university’s winter and summer terms, biweekly on Fridays, at 7:00 p.m., in Mises’s office at the Chamber of Commerce.4 He would sit at his desk, and the others would sit at a small conference table on the other side of the room. After presentation and debate, usually lasting two hours or so, discussion would then continue, first in the restaurant Ancora Verde, and for the more robust after midnight at the Künstler Café. Top3. We know about his negotiating trip because it is mentioned in a report, one most probably based on Hayek’s own account, of the University of Königsberg, when Hayek in 1929 was considered a candidate for an economics chair there (reprinted in Spenkuch, ed. 2016, 827–28). On the Königsberg episode see below. 4. As Sorokin 2020 points out, the idea of a regular seminar on Friday nights, quite acceptable in Viennese culture in the interwar period, did not transfer very well when people like Machlup moved to the United States.

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ics ranged over economics and sociology, and particularly in the later years problems of methodology. Mises acted as chairman, and apparently did so politely and impartially, but also with authority. Hayek said of the private seminar that “during the middle ’twenties this was much the most important center of economic discussion at Vienna,” a view that was echoed by nearly all who participated in it (AF 15–16; Hayek 1994, 69, 71–72; Hayek 1983a, 39, 179).5 During the period that both the Mises circle and the Geistkreis coexisted there was a strong overlap in participants. Of the founding members of the Geistkreis, Hayek, Fröhlich, Kaufmann, Mintz, Schütz, Voegelin, and Winternitz were all part of the Mises circle, and later on Haberler, Machlup, and Morgenstern joined. Significantly, Fürth did not. There may have been no reason, or it may have been owing to reluctance on one, or both, of their parts.6 In contrast to the Geistkreis Mises allowed women into his private seminar: Martha Stephanie Braun (later Browne), née Hermann, Marianne Herzfeld, Helene Lieser, Gertrud Lovasy, Elly Offenheimer, née Spiro, and Ilse Mintz (see, e.g., Nautz 1997). Ilse Mintz was the wife of Max Mintz and the daughter of Richard Schüller, a former pupil of Menger who worked as a high-ranking civil servant in the Austrian Ministry of Trade. All of them excepting Herzfeld, who had studied history, had a doctorate from the Faculty of Law; Lieser was the first graduate of the new study program of state sciences in 1920. Like their male colleagues they sustained an interest in the progress of the social sciences after leaving university—in the Viennese Zeitschrift their presence was felt in their many articles, book reviews, and translations of contributions from other languages. Braun worked as a journalist and in the Chamber of Commerce, Herzfeld and Lieser at the Austrian Bankers’ Association, and Lovasy and Mintz for some time at the Institute for Business Cycle Research. The remaining male members of the seminar included civil servants 5. Mises’s private seminar and the circle associated with it have long been the subject of extensive investigation by historians of Austrian economic thought. For a nonexhaustive list, see, e.g., L. von Mises [1978b] 2013, chap. 9; M. von Mises 1984, app. 1; Hülsmann 2007, passim; Browne 1981; and Haberler 1981, and in connection with Hayek, Ebenstein 2003a, chap. 5; Caldwell 2004, 143–44 and passim; and Hayek 1983a, 39–43. On the Viennese economic circles in general, see, e.g., Dekker 2016 and Wright 2016. 6. In “Austrian Economics,” 3, 5, Furth summarizes Mises in part as “narrow-minded in polemics.” Of Hayek he says: “Largely influenced by Mises but much less dogmatic: realization of need of ‘welfare state’ (responsibility of society to care for those unable to care for themselves).”

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like Ludwig Bettelheim-Gabillon and Karl Forchheimer, the bankers Victor Bloch and Karl Schlesinger(the latter noteworthy for an early attempt to apply the Walrasian approach to a monetary economy [Schlesinger 1914] and for his membership in the Karl Menger Kolloquium), the lawyers Rudolf Klein, Rudolf Löbl, Alfred Redlich (later Redley), and Fritz Schreier, and the economists Richard Strigl and Erich Schiff. Hayek’s allegiance to Mises and participation in his circle provide one more instance of his contacts with Vienna’s Jewish intelligentsia and of his moving within “mixed circles.” Even more than in the Geistkreis, the vast majority of the Mises circle was of Jewish descent (see, e.g., Beller 1989, 20). The preponderance of Jewish members left not all observers unmoved. Morgenstern sometimes felt uncomfortable in such company, and privately wondered whether Hayek might be of only partly—“1/2 or 2/3”—Aryan descent (Morgenstern diaries, Apr 25, 1926; see also Jan 17, 1929). Participation in these circles allowed Hayek to establish firm contacts, if not friendships, with three men who would participate in various ways in developing the ideas of the Austrian school, namely, Gottfried Haberler, Fritz Machlup, and Oskar Morgenstern. Gottfried (von) Haberler (1900–1995), like Hayek and Fürth, belonged to Vienna’s lower nobility. Gottfried’s father, Franz von Haberler (1859– 1928), worked as a civil servant in the field of public health. Gottfried, one of five children, started his studies at the Vienna Faculty of Law after the war, earning a doctorate in state sciences in 1923 and in law in 1925. Just after receiving the first degree he took a post under Mises as a librarian at the Vienna Chamber of Commerce. In 1926 he was chosen for a two-year Rockefeller Foundation (RF) fellowship, which he spent in the United States. There had been long-lasting ties between the Haberler and Fürth families that were rooted in the progressive milieu of the turn of the century. Herbert Fürth remembered that his father, Emil, Haberler’s father, Franz, and their future common father-in-law, Julius Kaan, once “in 1895 had been the three speakers at the meeting of the Vienna branch of the German Society for Social Reform” (Furth to Stephan Boehm, July 18, 1993; see also Furth 1990, 404). Haberler and Fürth became brothers-in-law when they married two Kaan daughters; Fürth in 1929 married Emma Paula Kaan, and Haberler in 1931 married her elder sister Friederike Ida Kaan. Hayek and Haberler probably came to know each other either during their time together at the university or through their mutual friendship with Fürth. In any case, Haberler participated in Mises’s regular university seminars (and would have met Hayek there by 1922/23), and apparently was also an early member of the Mises circle. After almost sixty years Hayek recalled the days when both were working in the same building, Haber-

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ler at the Chamber and Hayek at the Abrechnungsamt, when they used to lunch with their future wives at a vegetarian restaurant (Hayek to Haberler, on the latter’s eighty-fifth birthday, July 1985). Friedrich Eduard (Fritz) Machlup (1902–83) was the son of a cardboard factory owner and a leading figure in the Austrian paper industry. After the war Machlup studied state sciences at the University of Vienna, finishing a doctorate in 1923 with a thesis supervised by Ludwig von Mises on the gold exchange standard (Machlup 1925). He was proud to call himself Mises’s only pupil at the University of Vienna, and at the time informally assisted Mises in organizing his university seminars, where he must have met Hayek. After his father’s death in 1922 Machlup consolidated the family business, with firms in Styria, Lower Austria, and in Budapest. He married in 1925—the ritual marriage indicating his enduring allegiance to the Jewish community—and his wife gave birth to two children. All of his business and familial obligations and activities did not keep him from doing further serious work in economic theory, in particular on currency questions (e.g., Machlup 1927).7 The Prussian-born Oskar Morgenstern, son of a merchant and allegedly the illegitimate grandson of Prussian Emperor Friedrich III, moved with his family to Vienna before the war. He studied state sciences and philosophy at the University of Vienna. Like so many others he also was taken for a while with Othmar Spann, becoming a member of his private seminar. Spann recommended him to Hans Mayer for the position of assistant, a post that entailed helping Mayer with research, teaching, and administrative tasks. Then, like Hayek and Fürth before him, Morgenstern became acquainted through Wieser and Mayer with the teachings of the Austrian school, eventually breaking with Spann in 1924. The result was an enduring hostility on both sides. Morgenstern earned his doctorate in 1925 with a thesis on marginal productivity theory. Immediately afterward, he left Vienna on an RF fellowship for three years that he spent in the US, Britain, France, and Italy. Morgenstern’s first contacts with Hayek must have dated from 1924, when Morgenstern was at the university and Hayek had just returned from the US (see Morgenstern diaries, June 13, 1924). In September 1925 Hayek supplied Morgenstern with letters of introduction to, among others, Mitchell and Thorp, for his trip to the United States (Hayek to Morgenstern, Sept 20 and 23, 1925). Beyond the Vienna circles, another opportunity to connect with the elite of German-speaking economists came in September 1926 when the Verein für Sozialpolitik (the German Economic Association) held its bian7. On his early work on monetary problems see Machlup 1980.

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nual meeting in Vienna.8 Topics dealt with at the meeting included the crisis of the world economy, overpopulation and unemployment in Western Europe, and the problem of tax shifting. Most of the invited speakers on each topic, Bernhard Harms and Franz Eulenburg, Friedrich Areboe and Paul Mombert, and Fritz-Karl Mann, respectively, represented remnants of the German historical school. The Austrian contributions came from Richard Schüller (on trade), the statistician Wilhelm Winkler (on population), and Hans Mayer (on taxes)—the last’s presentation was apparently well received. Hayek attended and made his first contacts with Wilhelm Röpke, who—jointly with Walter Eucken—would become German allies of the Austrian economists in many future controversies (see Hayek 1992g [1983c], 188). AT The UniversiTy For the sake of his academic career, Friedrich Hayek also had to reestablish his ties to the University of Vienna and to its Economics Department. Because of his trip to the US, he had narrowly missed the arrival of Hans Mayer. When Mayer started lecturing in 1923, three scholars competed for leadership within the Vienna economics community: Mayer himself, as the successor to Wieser in the chair assigned to the Austrian school; Ludwig von Mises, the extramural rival, who thought (and indeed said) of himself, “I was the economist of the country” (Mises [1978b] 2013, 50); and Othmar Spann, the prophet of the new creed of universalism that he was certain would revolutionize economics and social philosophy. John van Sickle, the representative of the Rockefeller Foundation, aptly characterized them as “the prima donnas” (Leonard 2010, 79).9 The conflict between Mayer and Mises had a number of flashpoints: Mises’s propensity to link the theoretical teachings of the Austrian school with his own commitment to classical liberalism, which Mayer abhorred; Mises’s resentment at having been neglected as a candidate for Wieser’s successor; and Mayer’s jealousy of the prominence in Vienna of the Mises private seminar.10 The relationship between Spann and Mayer was at first one of benign neglect. Only from the mid-1920s onward did Spann break with the Austrian school and vehemently reject it as a prime example of that “individualism” to which his universalism was opposed. Thereafter 8. See Boese, ed. 1926 and Boese 1939, 192–200. 9. The following draws on Klausinger 2014, 2015a, and 2016a, b. 10. For evidence of this mutual animosity, see, e.g., Mayer 1952 and Mises [1978b] 2013, 65.

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the conflict between Mayer and Spann soon went far beyond scientific disagreements, degenerating into a series of personal attacks whose intensity plagued academic life within the faculty for more than a decade. In the end, according to Hayek, for Mayer “to fight against Othmar Spann became his life purpose” (Bartley interviews, Nov 4, 1983). The conflict was exacerbated by some critical events that took place in the Faculty of Law. Demoralized by the permanent feuds with Spann and other members of the German nationalist faction in the faculty, in 1923 Carl Grünberg left Vienna for a chair at the University of Frankfurt and the associated directorship of the newly founded Institut für Sozialforschung. It took over four years to find a successor, owing to the discord within the faculty as well as restricted means for attracting “big name” professors like the first two candidates from Germany, Arthur Spiethoff and Goetz Briefs. After they had refused offers of appointment, the chair fell to the Austrianborn Ferdinand Degenfeld-Schonburg, who had taught for some time in Würzburg. Nondescript as a scholar, he eclectically combined elements of Catholic social teaching and of the historical school. Hayek on one occasion characterized him, in contrast with Spann and Mayer, as “honest, respectable and sensible, but very mediocre” (Bartley interviews, Nov 4, 1983). Another crucial event was Wieser’s death in summer 1926. It had been Mayer’s idea to celebrate Wieser’s seventieth birthday by publishing a Festschrift in his honor. This work was to exceed the usual format, justified by the international composition of its authors: in the end it comprised four volumes and more than 1,400 pages (Mayer, Fetter, and Reisch 1927–32). Mayer had been able to present to Wieser the galley proofs of the first volume on his birthday at the Brunnwinkl resort, just a fortnight before Wieser died. The loss of Wieser’s respected presence and voice in the faculty heightened the conflict among those who wished to be viewed as the new leader. The rise and fall of an economic journal also took its toll. The venerable Zeitschrift für Volkswirtschaft, Sozialpolitik und Verwaltung had stopped publication at the end of the war, but started anew in 1921 under the slightly altered title Zeitschrift für Volkswirtschaft und Sozialpolitik. After four volumes had appeared on a regular schedule, it took three years for the editors to complete the fifth (and, as it turned out, last) one, with delays due mostly to financial exigencies. The final editorial board consisted of Spann, Reisch, Mayer, and Schüller, with Franz Xaver Weiß the managing editor. All of them were affiliated with the University of Vienna, Reisch and Schüller serving as honorary professors. Any attempt to keep the journal going faced two distinct hurdles, namely, solving its financial difficulties and getting Spann and the other editors to cooperate. The financial prob-

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lem was solved by a change in the publisher (from Deuticke to Springer), but the second one defied resolution. In the end, the other three editors decided to relaunch the journal under a new name and exclude Spann from the board. Thus in 1929 the Zeitschrift für Nationalökonomie came into existence, with Rosenstein and Morgenstern (who, significantly, were respectively a current and a former assistant of Mayer) serving as managing editors. By the 1920s the process of awarding lectureships (Habilitationen) to young scholars within the faculty in general and within the field of economics in particular had become even more contentious than before. The increasing weight of German nationalism and anti-Semitism within the faculty eventually brought about a de facto numerus clausus for Jewish scholars. After 1918 five scholars of Jewish descent had obtained lectureships: the Austro-Marxist Max Adler in 1919 in sociology; the jurists Fritz Sander (1920), Felix Kaufmann (1922), and Fritz Schreier (1925), the latter two members of the Mises circle; and finally, in 1926, Franz Xaver Weiß, a pupil of Böhm-Bawerk and the editor of his minor writings (Böhm-Bawerk 1924, 1926), after a battle that pitted Mayer and Wieser against Spann. From that year right through the Anschluss the faculty’s majority prevented the habilitation of Jewish scholars. This proved fatal for such promising candidates as Herbert Fürth, Martha Stephanie Braun, and Paul RosensteinRodan. Fürth withdrew from academia and eventually started a career as a lawyer (see Furth, “Memorandum,” 5). Braun didn’t even apply for a lectureship for her monograph on the theory of economic policy (Braun 1929), although it was well received by critics (see, e.g., Robbins 1931c). Finally, Rosenstein chose to leave Vienna without an attempt at habilitation. * * * Morgenstern’s diaries (Sept 22 and Oct 17, 1924) confirm that from the beginning of the 1924 winter term Hayek was again present at the University of Vienna. Hayek understood immediately that the person whose goodwill he needed to retain was Hans Mayer. Their relationship though was always “a little bit strained,” as an episode he later recounted made clear (Bartley interviews, Mar 28, 1984). Mayer had been commissioned by Wieser, one of the editors of the Handwörterbuch der Staatswissenschaften, to contribute the crucial article on “Zurechnung” (imputation), the very theme of Hayek’s thesis. When Wieser started to worry about getting the article in time, because Mayer was notoriously late for all deadlines, he approached Hayek before his departure to the US to see if he might provide it. When Hayek came back in 1924 with his own article ready for publi-

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cation, and Wieser let Mayer know, the latter was not amused. In the end Hayek’s ar ticle was published in a German journal (Hayek 1926a). Predictably, Mayer’s came out only in 1928 (Mayer 1928). But right from the start there was tension. Mayer ran a regular university seminar, but not on the range of subjects that were being explored in Mises’s private seminar, nor did he establish a comparable circle of adherents. As Hayek recalled: Mayer’s seminar was almost completely confined to marginal utility analysis . . . I’m not certain at all that I ever attended a seminar of Mayer’s. I did see Mayer. Mayer was a coffeehouse man, mainly. If there was any place he was to be found, it was at the coffeehouse Künstler Café, opposite the university; and I did sit there with him and a group of his students many times in quite informal talk, which I’m afraid was much more university scandal than anything serious. Occasionally there were interesting discussions. He could get very excited, particularly if he strongly disagreed with somebody. And there were all these stories about his constant quarrels with Othmar Spann, which unfortunately dominated the university situation. But, on our generation his influence was very limited. (Hayek 1983a, 38)11

Regular participants in Mayer’s university seminar included, of course, his two assistants, Morgenstern and Rosenstein-Rodan, doctoral students like Haberler, economists of the intermediate generation like Ewald Schams, and occasionally Strigl and Weiß. Paul N. Rosenstein-Rodan (1902–85), born in Cracow (Galicia, now Poland), took his doctorate in state sciences in Vienna, where he wrote a thesis on the theory of imputation. He served as Mayer’s assistant from 1925 to 1929, when he left Vienna on an RF fellowship. His main achievement from his Vienna days was his formidable entry on marginal utility in the Handwörterbuch (Rosenstein-Rodan 1927, trans. 1994); yet despite that, the majority in the faculty were determined to deny him a lectureship for reasons of “race.” Ewald Schams (1889–1955) studied in Graz, having been “Schumpeter’s only Austrian disciple” (Hayek 1992f [1980], 166). After his move to Vienna, he worked as a senior civil servant at the Ministry of Education and taught law, public finance, and economics at the Vienna University of Technology (Technische Hochschule). His main areas of research were methodology and—an exception among Austrian economists—mathematical economics. Notably, he was

11. Spelling errors in the original have been silently corrected.

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the owner of a part of Carl Menger’s library, which he had purchased from an antiquarian bookseller.12 A story told by Haberler to Morgenstern (letter, Nov 12, 1925) confirms the climate of rivalry and distrust that pervaded the Mayer seminar. Mayer once indicated that he considered Hayek and Haberler as “spies of Mises, attending the seminar only for the sake of fanning opposition.”13 Both though were soon able to mend fences with Mayer (see Haberler to Morgenstern, Jan 28, 1926). The incident highlights the tensions that existed between Mayer and Mises, which of course created a dilemma for young economists like Hayek who were close to Mises but who for the sake of an academic career had to rely on support from Mayer. One of the attempts to bridge the gap between Mayer and Mises was the revival of the Nationalökonomische Gesellschaft (NOeG), the Austrian Economic Association (see Klausinger 2016b). After years of inactivity, Haberler was able to report to Morgenstern (letter, Apr 6, 1927) that “Mayer and Mises are going to revive the economics association.” The goal was to provide a forum for discussion open to both strands of Austrian economics as represented by Mayer and Mises and their respective followers. At the same time, Spann and his pupils were kept out, and Degenfeld-Schonburg was also sidelined, so never played a role in the society. The audience at the meetings included members from the Mayer and the Mises circles and some uncommitted senior industrialists and civil servants, about thirty people in all (see Hayek 1983a, 44–45). Hayek claimed credit for getting the NOeG going again, stating later that he “took the initiative of reconstituting” it and “more or less revived it” (AF 15–16; IB 51; Hayek 1994, 69; 1983a, 44–45 and 410–11). The NOeG successfully relaunched on December 16, 1927, when a general assembly convened and elected members of the board. Mayer and Mises became president and vice president, respectively, Hayek secretary, Machlup treasurer, and Strigl and Rosenstein ordinary members of the board, a lineup that on the whole finely balanced the two camps. On the same day, Mises presented the first paper, and in subsequent months talks by Karl Menger, Morgenstern, and soon enough Hayek (in December 1928, on rent control) followed.14 12. On Rosenstein-Rodan see Eßlinger 1999, and on Schams, Hayek 1992f [1980]; Hayek told the story of Schams and the Menger library in a letter to the Austrian Academy of Sciences, Dec 18, 1983. 13. This story if true suggests that Hayek’s statement that he did not recall ever having attended a seminar of Mayer’s may indicate poor memory on his part. In any event he was not a regular member of it. 14. Hayek’s paper was published as Hayek 1929e in Victor Graetz’s publishing house.

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The Young Economist Hayek’s research in the first years after his return to Vienna derived mostly from his American experiences. The fruits were manifold. He had devoted much time and effort to empirical studies and business cycle research; he had studied the characteristics of the American banking system and the Fed’s instruments, aims, and policies; he had outlined a plan for a PhD thesis at New York University; and he had made contact with Wesley Clair Mitchell. All would play a role in his future work. Hayek recalled that after a period of wholly theoretical research in Vienna, in New York he was exposed to a statistical approach to the study of industrial fluctuations (IB 62). Apart from his research for Jenks and Thorp, it was Mitchell, then the foremost American scholar in the field of business cycles, who introduced Hayek to this fashionable topic. Their correspondence indicates that he and Mitchell established close contact, and, unsurprisingly, that while Hayek appreciated he did not fully concur with Mitchell’s facts-driven approach to economic science. We will see that what he learned from Mitchell would ultimately help Hayek find a new job. As we saw earlier, the cooperation that evolved between Mitchell and Hayek also concerned the work of Hayek’s teacher Friedrich Wieser. A largely unchanged second edition of Wieser’s 1914 treatise Theorie der gesellschaftlichen Wirtschaft was to appear in 1924, and Hayek, possibly following a request from Wieser, broached the idea of a translation into English to Mitchell, who had already reviewed the first edition (Mitchell 1917). Mitchell agreed, and the book, translated by A. Ford Hinrichs as Social Economics (Wieser 1927), carried an acknowledgment from Hinrichs that “Dr. Friedrich A. von Hayek, a pupil and close friend of von Wieser, has read the proofs and submitted many suggestions” (Hinrichs 1927, xvi). Mitchell contributed a laudatory introduction (Mitchell 1927). It was this project (one that Mitchell at one point referred to as “our project,” Mitchell to Hayek, Apr 10, 1924) that led to the Mitchell-Hayek correspondence after Hayek returned to Austria. From Hayek’s letters, something can also be learned about his judgment of Wieser’s work, in particular of the last voluminous treatise on mass psychology, Das Gesetz der Macht (Wieser 1926). Erich Streissler (1986, 86–91) in a harsh retrospective critique claimed that the book was not a typical product of “Austroliberal” thought, that Wieser exhibited in it a proclivity toward interventionism and authoritarian rule in the guise of a call for leadership justified by power over the masses, coupled with mild doses of racism and anti-Semitism. At the time, though, Hayek praised the book as “perhaps one of the greatest and certainly the most original achievement in sociology during recent

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years and equally marvelous as a scientific production [and] as a work of literary art” (Hayek to Mitchell, June 3, 1926). In other projects, Hayek spoke of his idea of investigating the development of the American banking system from 1900 onward in letters to Mises as early as the summer of 1923 (see Aug 17, 1923, and also Feb 8, 1924). In 1924 he published a version of his paper on the incompatibility of stabilizing prices and stabilizing the exchange rate (Hayek 1924a) as well as a review in the Viennese Zeitschrift of a series of books on the topic of stabilization in countries on the gold standard (Hayek 1924c). Among the authors of books he reviewed were Irving Fisher (Stabilizing the Dollar, 1920, and The Making of Index Numbers, 1922), Wesley Clair Mitchell, Lionel Edie, and William Trufant Foster and Waddill Catchings. Hayek’s general tone is a mix of appreciation for new ideas and new methods of empirical research together with skepticism about the insights to be gained for economic theory and fear about unintended dangers of attempts at stabilization. Interestingly, and in marked contrast to his later criticisms (Hayek 1929b), he expressed “unconditional approval” of Foster and Catchings’s Money (1923) and highlighted their “perspective in which money is viewed not as an unessential element . . . , but as a key feature: A good understanding of its operation constitutes an indispensable starting point for understanding all economic phenomena” (Hayek 1999c [1924c], 51). It was initially intended that the review would be complemented by another on recent literature on American banking, the first part of which, although written in 1926, was published only in 1929 owing to problems with the relaunch of the Zeitschrift (Hayek 1929d). The second half of it was announced (Hayek 1929d, 146) but never appeared. Hayek’s talk on the American banking system since 1914 at the Vienna Chamber of Commerce on December 17, 1924, was later published in the Österreichischer Volkswirt (Hayek 1925a). Hosted by the time-honored Gesellschaft österreichischer Volkswirte, this may have been Hayek’s debut within the established Viennese economics community, an occasion distinguished by the presence of among others Mises, Wieser, and the éminence grise of Austrian banking, Alexander Spitzmüller. This rather short paper was only a preliminary to his main contribution, a critical description of the institutions and principles of the US monetary system, published as a two-part article of monograph length in the Zeitschrift (Hayek 1925b, trans. 1999e). Entitled “Monetary Policy in the United States after the Recovery from the Crisis of 1920,” it provided a comprehensive overview, written in the same spirit (a combination of skepticism and admiration) as his earlier piece on the stabilization problem. The 1925 paper described in some detail the evolution of US monetary

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policy, as shaped by the foundation of the Federal Reserve System in 1913, the experience of the short postwar depression, and attempts to formulate an appropriate monetary strategy for the postwar era. A crucial challenge was that the United States, as the only major country still on the gold standard, was receiving such large inflows of gold that the gold cover ratio, the ratio of banknotes and deposits at the Fed backed by gold reserves, no longer provided an adequate guide for monetary policy. Fed policy was consequently torn between the banking-school-inspired prescription of satisfying the legitimate needs of trade on the one hand, and the novel ideas of “stabilization,” of either the price level or business activity as a whole, on the other. The outcome was a policy of neutralizing gold inflows that, although successful in the short term, could ultimately lead to inflation. Some of Hayek’s pronouncements in this regard came close to warning that the situation might prove unsustainable in the long run and thus prone to a severe backlash—one of the sources of the myth of Hayek’s “prediction” of the 1929 crisis, more of which anon. In retrospect, the paper is also noteworthy for containing, in a famous footnote (Hayek 1999e [1925b], 105n), the first appearance in print of Hayek’s own version of Austrian business cycle theory. He remembers that in the article there was “a passage suggesting that an expansionist credit policy leads to an overdevelopment of capital goods industries and ultimately to a crisis. I assumed that I was just restating what Mises was teaching, but Haberler, who was as much a pupil of Mises, said, ‘Well, it needs explanation; that is not sufficient.’ So I first put in that article a very long footnote . . . sketching an outline of what ultimately became my explanation of industrial fluctuations” (Hayek 1983a, 277; see also 2012a [1976c], 60–61). In any case, there was not much reaction to the paper. Hayek himself (2012a [1976d], 186) conceded that the article was probably little read, as its second part contained a pagination error that in fact made the argument rather incomprehensible, apparently without anyone’s noticing. Neglect was due not only to the difficult subject of the article but also to the young Hayek’s habit of formulating his insights in long and convoluted sentences—typical for both the German language itself and the scholarly manner of expression common at the time.15 Hayek’s papers on the American economic system were sufficiently voluminous that he intended to use the material for a monograph on the evolu15. The pagination error, whereby the order of pages 289–291 and 292–294 had been reversed, even escaped the attention of the translator of the English version and has thus been preserved there (see Hayek 1999e, 129, 131, and 133—only on page 133 has the break in the text been noticed).

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tion of currency and banking in the United States after 1900 (Hayek 2015c [1925b], 69).16 In 1925 Hayek tried to interest the publisher Gustav Fischer in Jena in printing such a treatise. Fischer declined the offer, saying he had to restrict the number of book projects brought to press.17 * * * Closely related to the institutional and historical treatment of US monetary policy, and similarly an outcome of his American experiences, was another more theoretical strand of research. It was first discussed in the already-mentioned PhD thesis that he began while at New York University. And though it consisted of only a few pages, in the thesis outline (in FAHP 104.26) we encounter, for the first time, themes that guided Hayek’s thinking for the rest of his life. The main problem addressed was whether and under what conditions a monetary economy might reproduce the equilibrium results imputed to an ideal barter economy. The outline mentioned the idea of a potential incompatibility between the stability of the economy and the stability of the value of money, combined with the notion that “artificial” stabilization might introduce disturbances into the economic process that would not exist under the ideal conditions presumed for equilibrium. In the outline Hayek defined “artificial stabilization” as the “stabilization of purchasing power contrasted with the mere elimination of the monetary causes of price fluctuations,” asking whether “sometimes changes in the price level [were] necessary to reestablish the equilibrium between demand and supply” (FAHP 104.26). This view contradicts the stabilization proposals of Irving Fisher and John Maynard Keynes, and accordingly in criticizing Fisher’s Stabilizing the Dollar, Hayek pointed to the crucial distinction of whether price level stabilization should be directed only at “irregularities in gold production,” that is, disturbances arising from the money side, or also at “problems on the commodity side.” He asked, “Might not the attempt to maintain the price level artificially . . . merely postpone the unavoidable balancing of demand and supply . . . ? And in truth, would perfect stability in the purchasing power of money be an ideal state of affairs? Should the aim not be, instead, to have the share of the social product assigned to each entity of the money in circulation vary in line with the expansion or contraction of the social product?” (Hayek 1999c [1924c], 43). These are indeed the questions he would struggle to answer 16. Not included in the English translation (Hayek 1999e). 17. See Hayek to Gustav Fischer-Verlag, Aug 23, 1925, and Gustav Fischer-Verlag to Hayek, Sept 4, 1925.

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in his future monetary writings. And Hayek would repeat his doubts about stabilization in his major 1925 paper, noting problems that arise from the incomplete co-movement of the price level and economic activity, nonmonetary causes of price fluctuations, and the delicate choice of which price index to stabilize (Hayek 1999e [1925b], 113–14). Hayek’s correspondence with Oskar Morgenstern shows how seriously he took these investigations. What apparently had started as a short paper evolved during the spring of 1926 into an outright book project, conceived in three parts, entitled “On the Goal of Monetary Policy.” The detailed subtitle, “A theoretical investigation into the rationale for an artificial stabilization of the value of money and the relation of fluctuations in the price level to the stability of the economy,” reveals the line of the argument. Part 1 was to treat monetary disturbances to economic activity, part 2 measures of the value of money, and part 3 the consequences of artificial stabilization: “All that . . . partly in strong opposition to I. Fisher and his school” (Hayek to Morgenstern, undated [1926] and Aug 20, 1926). Hayek offered the planned book to the German publisher Prager, with whom he was in contact for the project of a Gossen edition; it was politely rejected (see Hella to Fritz, Oct 22, 1926). Toward the end of 1926, Hayek admitted (Hayek to Morgenstern, Dec 11, 1926) that he had been forced to abandon temporarily the work on the book because of other more urgent obligations. One of these, as will be seen, was preparing to found the Institute for Business Cycle Research. But Hayek would continue to work on the project in the coming years. * * * There were other distractions from the book project. He undertook the finishing touches that were needed to transform his thesis on imputation into a shorter paper, the one that ultimately appeared in the Jahrbücher (Hayek 1926a; see IB 61). Next was an article published in the German Archiv (Hayek 1927a)—his first contribution (to be followed by numerous others in the future) to the theory of interest, which built on Böhm-Bawerk’s famous “three reasons” approach. Although both these articles are not free from—sometimes fatal—confusions, there is an important common ground between them. Crucially, Hayek insisted that both problems can only be solved satisfactorily if the interdependencies among the elements of the problem are properly taken into account. In the case of imputation it would be erroneous to impute a given value of the consumption good to its factors of production instead of deriving all the values simultaneously, so that the value to be imputed becomes endogenous to the solution. Sim-

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ilarly, in the case of interest theory, it would be erroneous to determine the rate of interest for a given structure of production—a procedure that Hayek attributed to Böhm-Bawerk, perhaps wrongly. Rather the structure of production must again be obtained simultaneously with the rate of interest from the data of the problem. Unfortunately, the interest article was marred by inconsistencies and mistakes that arose from Hayek’s refusal to use—as he did later on—Irving Fisher’s superior analytical apparatus of intertemporal consumption and production decisions. Nevertheless, Hayek’s points are valid and seem to indicate his early allegiance to a general equilibrium framework of sorts, possibly inspired by his teacher Wieser. Hayek also tried his hand at editing. Even as a young scholar he appears to have been keen on the history of his discipline and on rescuing important but forgotten contributions from oblivion. His first successful venture in the field was a new edition of the major work of a German predecessor of the marginal utility school, Hermann Heinrich Gossen (1927 [1854]). The volume was published by Prager, and Hayek added a detailed introduction (Hayek 1927b, published separately as Hayek 1928c). He would undertake numerous similar projects in the coming years, only some of which could be realized. Finally, Hayek continued to review books. There were two very short reviews for the Zeitschrift, which dealt with monetary issues (Hayek 1924d, e). The 1925 review of Leo Schönfeld’s Grenznutzen und Wirtschaftsrechnung (1924) for the leading German journal Archiv für Sozialwissenschaft und Sozialpolitik (Hayek 1925c) was more substantial, and indeed Hayek struggled in his efforts to dissect Schönfeld’s message. The book is significant for showing the preoccupation of Mayer and his disciples with the intricacies of utility theory and for the mixture of insight and error that resulted from it. Suffice it to say that Mayer’s quest for substantive laws of marginal utility was largely in vain, while most of his attacks on the evolving “ordinal revolution” were misguided. Hayek like his Viennese colleagues puzzled over how to make sense of Schönfeld’s notion of “Gesamtwirtschaftsnutzen” (or “total utility”) within the traditional marginal utility approach—a mathematical treatment would have shown that the novel element introduced by Schönfeld was the nonadditivity of utility. In any event, Hayek upheld that utility was measurable only in an ordinal sense and that the interpersonal comparisons of utility must be rejected.18

18. For representative contributions of the “Mayer school” see Mayer 1921, 1922, 1932 and the survey by Rosenstein-Rodan 1927. On the Austrian view on utility measurement see Moscati 2015.

· 13 · Hella Joins the Family

Hella When Fritz Hayek arrived back in Vienna in June 1924 following his American adventure, he had to return to his job at the Abrechnungsamt immediately. Soon thereafter he began spending time with one of his co-workers, Hella Fritsch, a person who we recall was mentioned by name (though misspelled and with a question mark following it) in his letter to his friends at the Aba the year before. Helena Bertha Maria Edle von Fritsch, daughter of Julius Ritter von Fritsch and Marianne, née Seyschab, was born in Vienna on August 18, 1901, a little over two years after Fritz.1 Like so many of the circles with which Fritz Hayek came in touch, the Fritsch family also belonged to the so-called second society. Although Hella (in a letter to Fritz, Feb 21, 1928) once referred jokingly to her “robber-knight ancestors,” the genealogical facts are more mundane: knighthood had been awarded in 1854 to Hella’s great-grandfather Johann Fritsch (1791–1872) for services rendered as a civil servant in the provincial administration of Upper Austria. Her grandfather Wilhelm Ritter von Fritsch (1829–88) was a mining engineer who eventually became director general of the Wolfsegg-Traunthaler Kohlenwerks- und Eisenbahn-Gesellschaft, a firm based in Upper Austria that combined lignite mining with the operation of a railway (see the obituary H.H. 1888). His firstborn son, Julius (born 1862), was Hella’s father. Following in his father’s footsteps, Julius specialized in mining law and earned his living as a lawyer. In Graz he married the Viennese Marianne (or Maria Anna) Seyschab in 1889, then moved his office to Wiener Neustadt in Lower Austria, and finally in 1895 to the capital, Vienna, where his family occupied an expensive residence well located in the first district, Tuchlauben 14. The couple had four children, all daughters: Margareta Albine Maria 1. For genealogical information on the Fritsch family see FH and the entries in Genealogisches Taschenbuch 1905–1912, vol. 3, and Stratowa, ed. 1930, vol. 3.

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(Gretl), born in 1890; Maria Anna Francisca (Mariandl) in 1891; Hildegarde Maria (Hilda) in 1898; and finally Hella in 1901. On the maternal side Hella’s grandfather, Adolf Seyschab (1837–96), worked as a civil servant in the Austrian railway ministry; her grandmother, Maria Philomena, descended from the Caucig family. Besides Hella’s mother Marianne (1867– 1946) there was another daughter, “Aunt Bertha” (1880–1976), Hella’s godmother, who in her youth had been an opera singer. The large apartment (or mansion flat) that Hella grew up in was a flight of rooms connected by double doors with a service passage alongside. As a child Hella was quite athletic, so her parents hung a set of trapeze rings in the doorways where she and two of her two sisters, Mariandl and Gretl, could do gymnastics. She also was an accomplished ice skater—occasionally while working at the Aba she would go skating with Dr. Fritz Goedicke, the section head on whom she had a nonserious but lifelong crush (Christine interviews, Oct 14, 2012). Hella retained her athleticism well into adulthood. Her daughter Christine recalled that when they were walking and her schoolfriends might say, “Race you there,” Hella would take off “like lightning.” The two of them sometimes went to gymnastics classes together that were held at an institute near their home, and Christine remembered one embarrassing incident that involved rope climbing. As Christine studied the rope, she suddenly looked up, and “there was my mother at the top of the rope (with me at the bottom), saying, ‘Come on up, what’s the problem?’ . . . My mother would have been 47–48ish at that time. And she went up that rope like a monkey” (Christine interviews, May 20, 2013). Like so many of the families we have encountered, the von Fritsch family also suffered a traumatic early loss: Hella’s father died in 1912, when Hella was only ten. The mother and daughters continued to live in their home on Tuchlauben, albeit under financially diminished circumstances. Still, she enjoyed the type of education deemed appropriate for a girl from the upper middle class, first at the girls’ Liuthen-Lyzeum on Tuchlauben and then for three years at the Schwarzwald Institute. From her letters we know that she kept in contact with some of her classmates well into the 1930s, though most of those mentioned are just names without a history. Hella being one year junior to Lenerl Bitterlich, the possibility cannot be excluded that they met at the Schwarzwald Institute, though they attended different types of school offered in the same building at the Kohlmarkt—Hella the Lyzeum and Lenerl the Gymnasialkurs. After finishing school Hella spent some time in Denmark, most probably in one of the postwar exchange programs organized for Austrian youngsters (Hella to Fritz, June 23, 1934). She and her family also enjoyed the cultural amenities that Vienna pro-

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vided. The Fritsch house was not far from the Burgtheater, and like Fritz, she went frequently and knew all of the classical Greek plays. Though (as was true for most young women of her era in Vienna) she did not attend university, she was still able to gain a position of considerable responsibility at the Aba. As we will see, she also had a more practical side, a trait that would prove necessary and even invaluable in her married life to come. It does not appear that the families knew each other when Hayek and Hella were growing up. They were of similar social standing, though the Fritsches were perhaps a bit wealthier prior to the war. Of course, the wealth of both families was considerably reduced in the great postwar inflation. When Fritz returned to the Aba in June 1924, his contact with Hella intensified. That summer they exchanged postcard greetings, Hella writing from Venice (postcard from Aug 24, 1924), though at this point both still used the formal “Sie” when addressing each other. By the next winter they were on friendlier terms, Fritz writing a card (Jan 28, 1925) from the Salzburg resort Mitterberg, where he was skiing, in which he playfully expressed his hopes that despite the frozen snow Hella would not accidentally slip and kill herself, “but return as a whole.” As she came to know Fritz better, Hella must have enjoyed his sense of humor, but also been impressed by her suitor’s intelligence, career potential, and worldly experience. He was clearly the favored employee of Ludwig von Mises, which had led to the opportunity to go to America. He might even have been a bit of a father figure: he was after all the eldest of three sons, tall, somewhat reserved, and competent, whereas she was the youngest of four daughters, and someone who at a tender age had lost her own father. For his part, Fritz would have been impressed by her athleticism and openness to new adventures. For example, in summer 1925 she joined Fritz when he went on a climbing tour in the Dolomites with his brothers (IB 67), and after they were married he taught her to ski. Though Hella doubtless had many other attributes that attracted him, she was also a dead ringer for Lenerl, as he later bluntly admitted: “I clearly became interested in my first wife because she somewhat resembled my early friend” (IB 121–22). In spring 1926, Fritz and Hella became engaged.2 That coming summer was one of transitions. Poldi Wittgenstein, Ludwig’s mother and the person who had introduced Fritz to automobiles, died in early June. August Hayek celebrated a number of important milestones in 1926. First, he retired from his position at the Vienna health office. He also undertook an extensive botanist excursion in May to Mount Olympus in Greece, on which he reported in a lantern slide lecture the next 2. Mentioned in Haberler to Morgenstern, Mar 31, 1926.

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year.3 Had he not been refused the usual remuneration, he probably would have gotten the most satisfaction from becoming that same month extraordinary professor for systematic botany at the University of Vienna, which although not a full professorship was still a regular position within the faculty, not just an honorary title. And on August 4, 1926, Fritz and Hella married at Vienna’s Peterskirche, with Fritz’s uncle Paul Hayek and Hella’s brother-in-law, the physician Ludwig Würffel, as their witnesses. Four days later, Hella turned twenty-four. Though Hella’s sisters on getting married had been able to furnish their homes quite nicely as a result of parental gifts, as was the custom, Hella because of inflation received “not enough to buy a tram ticket across Vienna” (Christine interviews, Oct 14, 2012).

Married Life The couple honeymooned in Fischleinboden, in the Dolomites where they had spent time the summer before. We know the location because it was from there that Hayek, three days into his marriage, wrote to Wesley Clair Mitchell, offering comments on Mitchell’s draft introduction to the translation of Wieser’s Social Economics (Hayek to Mitchell, Aug 7, 1926; cf. Hayek to Morgenstern, Aug 20, 1926). On their return to Vienna, the newlyweds moved to Strohgasse 3 (in Vienna’s third district), the residence of Herbert Magg, who rented it to them for a year while he was studying cello at the conservatory in Graz—when he returned to Vienna, he became a member of the Vienna Philharmonic Orchestra. The next year the Hayek couple found their own flat at Leonhardgasse 3–5, in one of the less attractive parts of the same district, more distant from the center (although not far away from Fritz’s place of birth). Curiously, the house had only recently been converted into apartments. It had been a psychiatric asylum (Svetlinsche Nervenheilanstalt), and was commonly referred to as “Narrenturm,” that is, “fools’ tower.” Its most famous inhabitant had been the composer Hugo Wolf, who after showing the first signs of his fatal psychic disease was transferred to the asylum in September 1897; when he was permitted to leave it for the last time, he spent two weeks recovering at the Styrian estate of Fritz’s great-uncle Moritz Stallner in Hochenegg (Zangger 1928). Furth’s Vienna again, where everyone knew everyone! When looking for an accommodation in London, Fritz would explain to Lionel Robbins how they lived in Vienna: “we live . . . in a rather modernly furnished appartment [sic], i.e. with entirely white walls, as little furniture as possible in any room, the furniture itself smooth and unobtrusive, 3. See “Eine Naturforscherreise auf den Olymp,” Reichspost, Dec 23, 1927.

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etc. . . . The only thing to which we really object is the kind of furniture which, at least here on the Continent, was usual in the crowded and uncomfortable rooms of the 1870–90ties. The simpler and the less pretentious a room is furnished, the better” (Hayek to Robbins, Aug 22, 1931). Though financial exigencies may have played a role in Fritz and Hella’s choice of decor, their tastes appear thoroughly modern. For her part, Hella (letter to Fritz, Feb 25, 1929) was very fond of the neighboring garden, which although rather small was easily accessible from where they lived. Fritz and Hella remained at the flat in Leonhardgasse until they settled for good in London. We can get some glimpses of their early relationship from correspondence when Fritz was on business trips of various sorts. Hella’s letters were playful, teasing, affectionate, the letters of a person much younger than her husband in terms of maturity and temperament. She had a pet (literally) name for him, furry bunny or ugly bunny; indeed, she drew a cartoonish picture of a rabbit’s head as part of her salutation in her first letter to him after marriage (Hella to Fritz, Oct 17, 1926). She would address him using some variant of this (e.g., prickly bunny, spiky bunny) well into the 1930s. For his part, Fritz would sometimes refer to her as Fratzl, or naughty child, but most often by the abbreviation “L.W.” or “M.l.W.” (see, e.g., Fritz to Hella, Oct 17, 1926). Of course, this leaves open many possibilities, but the best guess might be “Mein liebes Weibchen,” that is, “My dear little wife,” a phrase well known from Papageno’s aria in Mozart’s Magic Flute. For her part, Felicitas in her letters always used the diminutive Hellachen. Hella seemed to feel that she was naïve compared to her apparently more worldly and certainly better traveled husband. She once reported to him that she had had dinner with a friend from the Schwarzwald school, who told her many stories about her colorful life: “A racy Jew, exuberant is not the right word, because in no way is she like a young girl, but extreme in her views about everything and everyone. I quite enjoyed these thrilling, kitschy stories, and one gets to know the world quite well and that there are such strange things. I stopped doubting that a while ago, even if my inherent naivety often distracts me from realizing such things” (Hella to Fritz, Oct 19, 1926). She took part in Hayek family outings in his absence, teasingly admitting that on one occasion in a restaurant Heinzi-Schweinzi (“Heinzi the piggy,” the pet name for his brother, used by everyone in the family) “entertained me greatly, so much in fact that some thought that I was married to him!! Ei ei ei, look at such a wife you have!” (Hella to Fritz, Oct 21, 1926). There are perhaps hints of brotherly rivalry here, as Heinz was closer in age to her, about 8½ months older. She doubtless enjoyed playing on the ri-

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valry as much as Heinz enjoyed playing the role of entertainer. On another occasion she reported that to kill time in Fritz’s absence she had planned to attend a cabaret-style revue, “Alles aus Liebe” (Everything for Love) with Heinzi, and that when the rest of the Hayeks found out they all came along too. This was, of course, the kind of show that Fritz would have despised and disdained when he was in New York. She was a little ashamed of herself for enjoying it so much, telling her husband that she found the revue both funny and, of course, a bit racy. Perhaps she was trying to become a bit less naïve? (Hella to Fritz, Feb 21/22, 1928) Part of her correspondence consisted of reporting on mail that Hayek the young economist had received. There was a package from the Pollak Foundation, home to Foster and Catchings. There was also something from Mitchell: Fritz’s own copy of Business Annals, the book on which he had worked while in New York. Hella told her husband that Mitchell’s letter had been “very friendly and cordial” and that in general she got “excited by the mail that arrives for you” (Oct 19, 1926). A letter from Fritz’s mother to her son suggests that Mama and Hella’s early relationship was a good one. Hella shared Felicitas’s love of nature, as became evident when she accompanied the Hayeks on a hike in the Vienna woods. Your absence does have the one advantage that we can now finally get into more direct contact with your dear “Fratzl,” as you call her for good reason. The excursion last Sunday was terribly nice, Hella is maybe even sweeter out in nature than she is usually and seemed to feel very comfortable; I thought that she is the tomboy that I always wished for but never got. She enjoyed kidding with Heinz and we had lots of fun with each other the entire time . . . [Later on] we had our daughter at the lunch table and sat the entire afternoon with needlework and chatting together; when I prepared dinner, Hella did not hesitate to help her mother-in-law, which was very kind, but absolutely not necessary.

In the same vein, when Hella attended a lecture given by Fritz’s father, Mama told her eldest son that Hella “was generally greeted with much pleasure and with admiring looks. (Naturally, of course! You will say!)” (Felicitas to Fritz, Oct 25, 1926). The extent to which Hella in the first years of the marriage was preoccupied with her role as a wife is illustrated by the continuous stream of her letters to Fritz whenever he was absent from Vienna, letters that left no detail of domestic life unmentioned: people she had visited, or who had visited her; her reactions to concerts she had heard, books she had read, and

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conversations she had had; the weather in Vienna, and that where he was; and so on. Hella was also learning the role of the protective wife, telling Hayek not to smoke too much and reminding him that smoking a pipe does not count as an exception. * * * Over the next couple of years life moved on for the extended Hayek family. There was another wedding in 1926: Felicitas’s artistic sister Beate, who lived in Munich and had never married, finally decided to tie the knot. Her husband was Karl Petraschek, a retired forest engineer, then already eighty years old. Fritz’s brother Heinz was working as an assistant at Ferdinand Hochstetter’s Second Institute for Anatomy in Vienna from 1923 to 1929, the same institute where Konrad Lorenz studied from 1928 onward. (The Hayek brothers may have known Lorenz even earlier, as he was a cousin of Grete Lecher, the wife of Herbert Magg.) Heinz also started studying zoology and paleontology at the Vienna Faculty of Philosophy, where he would finish with a doctorate in 1929. Meanwhile Erich beginning in 1926 worked at a low-paying job as a laboratory assistant at the First Institute for Chemistry directed by Rudolf Wegscheider. He would earn his doctorate in chemistry in 1928. In August 1927 Fritz’s parents embarked on another European tour, one that led them to South Tyrol and then to France. It was to be their last extended trip. August had never really recovered from the blood poisoning accident in 1910, and his slow decline after the war began to accelerate. In the spring of 1928 matters had gotten so bad that the family took him to the town of Velden, on Lake Wörthersee, for treatment, but these were ineffective. August Hayek finally died in Vienna on June 11, 1928, from chronic nephritis, or inflammation of the kidneys. He was only fifty-six years old. As a final indication of his views on religion, he waived a Catholic funeral and chose instead to be cremated at a recently built Vienna facility (IB 17; see the death register of the parish St. Josef/Margareten, 19/1928). We do not know how his father’s death affected Fritz. By his own admission, his youthful companionship with his father more or less ended in the winter of 1916–17 (IB 25). After each was drafted, they spent the war apart, and August did not return to Vienna until some months after the fighting had ended, by which time his health was already noticeably deteriorating and the accompanying depressions had set in. The trip to New York probably only increased the distance between them. Hayek later recounted his utter surprise when his mother told him that his father had been very disappointed on hearing that Fritz might extend the New York stay another

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year. August certainly was not a demonstrative parent—presumably he carried the Hayek family trait of being taciturn and reserved—but it also perhaps says something about their relationship that it never would have occurred to Fritz that his father would feel that way. In any event, two years after his return Fritz was married, and less than two years after that his father was dead. The adult Hayek also commented on his mother, whom he considered both strong and adaptable. “It’s only in retrospect that I have become aware how unusual a person she really was. She was never a problematic person. She fitted herself into her environment so absolutely perfectly. She didn’t pretend to be very original; she did not mind causing a little sensation by being unconventional; but that was wrong. She was certainly very strong, and yet very adaptable. I mean, I’m sure she was a perfect mother, wholly endeavoring to adapt herself to the interests of ours and her husband. Yet the fundamentally healthier of the two strong persons. Happy. And energetic” (Bartley interviews, Mar 24, 1984). Some of these traits are evident in the aftermath of August’s passing. Her husband’s death was devastating for Felicitas, but the traumas were not over—within a couple of weeks her sister Beate’s elderly husband also succumbed. Making matters worse, in her depressed state Beate was on the verge of making some bad financial decisions, so Felicitas took the train to Munich to make sure things did not get out of hand. We know all this because two weeks after his father’s death Fritz was on a business trip, so Hella wrote to let him know what was going on. With some insight she said that the trip might be good for Felicitas: “I imagine that the feeling of being the stronger one, or having to be the stronger one, actually will make her stronger. I don’t think that Aunt Beate will infect her” (Hella to Fritz, June 25, 1928). Hayek’s mother was sometimes referred to in the extended family as “the iron aunt,” which sounds accurate, but it should also be noted that it was very much a comparative concept: Beate was known as “the glass aunt.”4 In the end Beate resettled in Vienna, living with Felicitas for a while. This possibly marked the start of Beate’s public excursions into the field of belles lettres: She wrote a novel, Einsame Blume (Lonely Flower) (Petraschek 1932), which a review in a Viennese daily characterized as “a 4. For Beate’s being known as “the glass aunt,” see Felicitas to Fritz, Aug 20, 1950. Fritz once told his secretary that the “iron aunt” moniker meant that Felicitas was free of “the female evil of hysteria” (Cubitt 2006, 77). Cf. Bartley interview, Summer 1984, where it comes up again, in the context of Hayek’s war experience, where he asserts that his “stability” was inherited from his mother.

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lyrical book, especially recommended to women” (Neues Wiener Tagblatt, July 21, 1933, 5).5 Felicitas recovered from her own loss by spending most of the rest of the summer with various groups of relatives in places she felt most at home, in Admont, at the Stallner Villa in Hochenegg, and of course in her beloved Schladming. There were many letters home to her son in Vienna, as always conversational in tone and substance. After August’s death, Felicitas sold his botanist library and his herbarium—it ended up at the University of Gothenburg—and in this way acquired a modest fortune. She used it to purchase a plot of land in Grinzing (the nineteenth district), in Amalgergasse, a nice spot in the vicinity of vineyards. The idea was to build a house where Felicitas (and perhaps Fritz and Hella!) might live. Eventually, the plan was abandoned for lack of money, and when Fritz left Vienna for London, Felicitas used the plot as a garden, where she liked to work. The plan to build a house was not the only strain on her finances. Her half-brother Franz had a publishing house that produced fine books but was a commercial disaster. Over time, repeated attempts to avert bankruptcy diminished the fortunes of his mother, Ida, as well as Beate’s. Felicitas also complained about Franz’s slowness in paying back money that she had loaned to him (see EHH; Felicitas to Fritz, Apr 1, 1930). In 1929, Felicitas had another loss of sorts. Faced with bleak prospects for an academic career in Vienna, Heinz departed for the University of Rostock, in Germany, where he became senior assistant to the anatomy chair of Curt Elze, who had been a pupil of Hochstetter.6 Rostock although small had a fine reputation as a stepping-stone for talent: Karl von Frisch had spent three years there in a chair for zoology before he received a call to Munich. Within a year Heinz managed to get a lectureship. During the five years he spent in Rostock, Heinz married a German woman, Erika, née Sass (1933) and saw the birth of their first child Helga (1934). Two more children were to follow, Gerda in 1939 and Dieter in 1942. Certainly for Felicitas her son’s departure was a mixed blessing. Though it was an essential move for his academic success, after that she would see him only for brief periods when the family would gather for vacations in the Austrian Alps. Luckily for her, for the time being Erich was still in Vienna.7 5. Numerous unpublished typescripts, mostly of short novels, have been preserved in the papers of Eduard Castle, her brother-in-law. See Nachlass Eduard Castle, at the Vienna City Library. 6. On Heinz Hayek see Brücke 1969, Hildebrandt 2013a, and the materials in his personal file from the University of Vienna, AUW, Med PA 188. 7. On Erich Hayek, see, e.g., Gutmann 1987 and Goller 2000.

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At the university he had been promoted to an assistant position that lacked regular remuneration, and he became dependent on a stipend that itself decreased over time. Even after his marriage to Innsbruck-born Edith, née von Nitsche, in 1932, he continued to live in his mother’s home in Margaretenstraße which, all things considered, probably suited Felicitas just fine, the young couple perhaps less so. As for Fritz and Hella, from 1927 onward, a typical pattern of activities over the course of the year emerged.8 During the weeks around the Christmas and Easter holidays the couple (later on with their daughter Christine, in both cases often joined by Felicitas, Fritz’s brothers, or other relatives) spent their time skiing in the Alps. In summer, keeping to the patterns of bygone days, Hella and the child accompanied by some relatives left the capital for a stay in the countryside for up to three months while Fritz remained at his job in Vienna. He would join them for a few weeks, which he devoted to hiking and climbing. Thus in summer 1928 Fritz and Hella spent two weeks in Eggishorn in Swiss Valais; in 1929 Hella stayed for the summer in one of the Hayek family’s most preferred locations, the Ramsau in Schladming; in 1930 she went first to Vorchdorf, then to Ramsau. Hella became pregnant toward the end of 1928, and certainly by that date must have quit her job—the last time that she reported events going on at the office had been back in 1926 (in a letter to Fritz, Oct 24, 1926), so she may have left earlier. She gave birth to Christine Maria Felicitas (or Christerl, also called by the pet name “Maunzerl”) on July 5, 1929, in Vienna. From Hella’s and Felicitas’s letters to Fritz from this period it becomes clear that both mother and grandmother delighted in the new addition to the family. Fritz had apparently spent the last phase of Hella’s pregnancy with her in Vienna, but Hella and Christine spent the rest of the summer from August onward with Felicitas in Ramsau, while Fritz was either climbing with Erich or working at the Institute for Business Cycle Research. At the end of September he picked them up for their return to Vienna when he was on his way back from a trip to Germany. At this point the marital life of Fritz and Hella was, to all appearances, harmonious. And just as before, Hella provided her husband with all the care of a loving and dutiful wife, in her letters reminding him of all the things that men are prone to neglect in everyday life.

8. Here and in the following the timelines of Fritz and Hella have been reconstructed from the letters by Felicitas and Hella, and from Fritz’s datebook.

· 14 · At the Institute for Business Cycle Research

I remember being struck by the incongruity of the author of Morgenstern’s Wirtschaftsprognose being engaged in prognosis. (Frank Knight to Oskar Morgenstern, Dec 19, 1931)

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The Austrian Background: Politics and Economics in the 1920s For the Austrian Republic the decade of the 1920s was characterized by governmental attempts to restore political and economic stability.1 Within the political sphere the enactment of the 1920 constitution provided a solid foundation. Yet throughout the decade, the division into three distinct political camps—Christian Socials, Social Democrats, and German nationalists—hardened and a process of radicalization and militarization of political life set in. All three camps had their own militias: the Socialist Schutzbund, the rather heterogeneous right-wing Heimwehren (Homeguards), and various groups loyal to the Christian Socials. Political violence in the First Republic became commonplace, exacting a heavy toll on the population (see, e.g., Botz 1983). After the immediate postwar misery and hyperinflation, in 1925 the currency was stabilized and the debased crown replaced by the schilling. The period from 1925 to 1929 brought economic prosperity of sorts, with growth of about 3.5 percent and production just exceeding the prewar level. But even this brief respite would not last. 1. The following draws on Hanisch 2005, P. Berger 2007, Sandgruber 2005, and Butschek 2011; for a recent reevaluation of the Austrian reconstruction see Marcus 2018.

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Nor did the moderate economic recovery allow the political tensions to abate. In an almost weekly rhythm, action provoked reaction, often ending with blood in the streets. In 1927 in the village of Schattendorf two bystanders were shot in the course of a Heimwehr raid on a Schutzbund meeting. The acquittal of the perpetrators in a jury trial led to demonstrations in July that quickly spiraled out of control. When the protesters stormed and eventually set fire to the Justizpalast, the seat of the Ministry of Justice, the police reacted with little restraint. By the end of the day, four policemen and more than eighty civilians were dead. In the wake of these riots, few members of the three major parties were in the mood for compromise or cooperation. Although split into various factions, the Heimwehr militias and their political wings in particular gained influence. While those closer to Italian fascism were ready to support for the time being the anti-Socialist coalition governments, others who modeled their groups on the Hitler movement in Germany opted for radical opposition to the existing system. These Heimwehr activities culminated in two events: In May 1930 parts of the movement pledged allegiance to the Korneuburg oath, which opposed democracy and propagated a fascist state in its stead; Walter Heinrich, a pupil of Spann, was one of its authors. And in September 1931 the Styrian wing of the Heimwehr attempted a putsch. Though it failed within a few days, the seeds of an Austrian Nazi movement were sown. It is against this fractious background of political and economic turmoil that Fritz Hayek struggled to earn a living, to pursue his research, and to promote an academic career. In this chapter we will show how, incongruously, he achieved the first goal by becoming the head of an institute, one of whose duties was the very un-Austrian one of providing forecasts of economic activity. As we will see, the balance that Hayek tried to strike between his job requirements and his own methodological commitments was not always easy to find. In the next chapter we will show how simultaneously he was taking all the steps that were necessary for him to launch an academic career. The scale and scope of his activities in these disparate areas were impressive. Eventually his many accomplishments and a dash of good luck landed him a professorship, not at one of the often mediocre German universities that were the usual destination for young lecturers, but at a most prestigious one in London.

The Founding of the Institute On December 11, 1926, Friedrich Hayek wrote to Oskar Morgenstern, then at Harvard on an RF fellowship: “You will wonder why it would be Professor

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Mises and me who, having always been rather skeptical of such research methods based on statistical inquiries, are responsible for creating this thing.” “This thing” was the Österreichisches Institut für Konjunkturforschung (Austrian Institute for Business Cycle Research, henceforth the Institute), of which Hayek would soon become the first director, and Morgenstern in due time his successor. The scruples that Hayek expressed to Morgenstern reflected both men’s hesitancies regarding the role of empirical work in economics. The foundation of the Institute proved a decisive step in Hayek’s career. The position there made it possible for him for the first time to reconcile the duties of a job with his research and his aspirations for an academic career. Mises again played a crucial role: It was also Mises to whom I owe the creation of the [Institute], conceived by him, I believe, largely for the purpose of providing scope for me . . . While the idea of the Institute arose out of conversations I had had with Mises about what I had seen of economic research in America, and while he left to me the writing of the various preparatory memoranda and the working out of the detail of its organization, it was he who persuaded the various government offices and trade organizations, etc. to provide the funds and to put me in charge. Once the Institute was established (from January 1, 1927), he continued to give me all the help needed but left me a completely free hand in the actual conduct of affairs. (AF 16; see also IB 67–68; Hayek 1994, 69)

In his new post Hayek could draw on his familiarity with modern methods of business cycle research that he had acquired while in America. Mises’s readiness to engage in such work may have been furthered by his own three-month RF-sponsored trip to the United States in spring 1926 (see Hülsmann 2007, 567–70). At the time, the Harvard Economic Service (HES) and the London and Cambridge Economic Service (LCES), founded in 1919 and 1923 respectively, provided the models on which the Austrian Institute was built. The German Reich founded similar institutes in the 1920s, the most important one in Berlin under the direction of Ernst Wagemann, and others in Bonn, Frankfurt, Hamburg, and Kiel.2 Mises and Hayek decided to go ahead with their Institute project soon after Mises had returned from the United States. Mises chose the Vienna Chamber of Commerce as the main vehicle for furthering the idea. In fall 2. On these flourishing of research institutes, see, e.g., Craver 1986b; Kulla 1996; W. A. Friedman 2014, chap. 4; and Cord 2017.

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1926 the Chamber called a meeting with other interested institutions and as a result sent a memorandum (Mises 1926)—signed by Mises but mostly prepared by Hayek—to the Ministry of Finance. The memo offered arguments for starting an institute and discussed possible modes of organization. As regards the latter, Mises was eager to include among its proponents representatives not only of business but also of the Chamber of Labor. He argued with its secretary Benedikt Kautsky over the Institute’s legal status, with Kautsky favoring a government institution, affiliated with the Austrian Statistical Office, and Mises a private association. In the end Mises prevailed, mainly with the argument that a private organization would be better able to ensure the Institute’s independence.3 The constituting assembly for the new private association took place on December 15, 1926 (see Wiener Zeitung, Dec 18, 1926, 13). Its members, drawn from various corporations, elected the president and two vice presidents who represented the Chamber of Commerce, the Chamber of Labor, and the Austrian National Bank. The Institute thus provided one of the rare, and certainly one of the last, examples in the First Republic of that type of cooperation, “social partnership,” for which the Second became famous. While the presidencies were of a more ceremonial character, the task of supervising the activities of the Institute was assigned to a large board of trustees. Its chair and the deputy positions were reserved for the Austrian National Bank, the Austrian Statistical Office, and the Chamber of Commerce, represented by Richard Reisch, Walter Breisky, and Mises. The other members of the board included high civil servants from various ministries, representatives of the chambers and of various branches of business (e.g., bankers, industrialists, and merchants), and then economists and statisticians. A look at its finances reveals the diversity of the institutions supporting the Institute.4 The contributions to the total budget of 60,000 Austrian schilling (ATS) originated inter alia from the Chambers of Commerce (10,000) and Labor (3,000), the Austrian Railways (5,000), the Austrian National Bank (10,000), the Bankers’ Association (5,000), and the Federal Government (5,000).5 The financial situation, in particular after the weak3. On the history of the Institute, see, e.g., Mautner-Markhof and Nemschak, eds. 1967; Hayek 1977b; Reichmann 2007; Butschek 2012; and Klausinger 2017. 4. The numbers are from the Institute’s statement of accounts for 1929, in Rockefeller Archive Center (RAC), Collection RF 1.1/705, box 4, folder 36: Austrian Institute for Trade Cycle Research, 1930–1934; see also Klausinger 2017, 936. 5. Thus Wasserman’s (2019, 123) statement that the Institute was financially “sustained by members of the increasingly conservative Austrian Großbürgertum” cannot be easily squared with the facts.

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ening of the Austrian economy, was relieved in 1930 when the Institute successfully applied for a subsidy from the Rockefeller Foundation, which henceforth took over approximately a third of the budget by granting an annual amount of $4,000. The Chamber of Commerce, located on the Ringstraße at Stubenring 8, provided offices for the Institute. Its staff, in contrast to the generous composition of the board, consisted only of the director, Friedrich Hayek, and a typist, later supplemented by a draftsman to compose graphs. By the end of 1928, when Oskar Morgenstern joined the Institute as Hayek’s deputy, it had grown to five people. In the early years much of the small staff was recruited from the circles in which Hayek moved. One of the Institute’s first employees was Ilse Mintz, who left after two years when she became pregnant with her first son. In 1931 Erich Schiff became a member of the scientific staff (until 1935). He was joined by Gottfried Haberler in 1932 for the period between the latter’s visiting professorship at Harvard and his departure in 1934 for the League of Nations in Geneva. Another participant of the Mises circle, Gertrud Lovasy, worked at the Institute from the mid-1930s onward. Eventually, when the Institute expanded under Morgenstern’s direction, its staff became more diverse and included people of various political affiliations, e.g., Alexander Gerschenkron, Gerhard Tintner, Josef Steindl, Adolf Kozlik, Max Mitic, Franz Josef Zrzavy, Reinhard Kamitz, and Ernst John.

Hayek Performs an Awkward Dance The bylaws of the Institute stated its role as “advancing and disseminating knowledge about the conditions and tendencies of the Austrian economy.”6 In his prospectus as the new director Hayek offered a rationale for why such knowledge was important.7 In making business decisions firms require information on firm- and industry-specific conditions, but also on the state of the economy as a whole, in particular on the stage of the business cycle. Entrepreneurs of course are much better equipped to process the former sort of information than the latter, so that “almost always business has been caught unprepared by the alteration of good and bad trade.” By providing objective information on the state of the economy on a regular basis, the Institute would aid managers to make better decisions and thus contribute to a more stable course for the economy as a whole (Hayek 1927e, 1). This rationale echoed a widespread view among contemporary 6. Most of the following draws on Klausinger 2010. 7. The prospectus was attached to Hayek to Morgenstern, Mar 25, 1927.

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economists that improvement of information about economic conditions could provide a tool for combating industrial fluctuations (see, e.g., Schumpeter 1934 [1926], 253). Starting with the first issue in June 1927, this type of information— consisting of verbal reports, figures, and graphs—was published in the Institute’s monthly reports (Monatsberichte). The goals of the Institute were, in ascending order of ambition, the collection of quantitative information, its statistical processing (e.g., adjusting for seasonal and trend components in time series), and the detection of regularities in the movements of the economic variables in order to ascertain the present phase of the business cycle and, hopefully, to predict its future course. The awkward position of Austrian school economists undertaking such an endeavor is evident if one compares their official pronouncements (see, e.g., Hayek 1926c, 1927c, d, 1928d), with reservations expressed in private correspondence. For example, Hayek described his 1926 article as a piece of “propaganda for the sake of founding the Institute” that “in no way contains all aspects of my own scientific position.” And he confessed: “Least of all am I pleased . . . that it [the funding of the Institute] was only possible by this kind of adaptation to a fashion of thought so that the funds cannot be spent as I would do it if they were provided without any restriction of its intended use” (Hayek to Morgenstern, Dec 11, 1926).8 The most important conflict between the kind of business cycle research that motivated the founding of the Institute and Hayek’s personal and professional opinions was, of course, over the question of economic prediction. Hayek was not opposed in principle to attempts to make forecasts. He believed, though, that a proper prediction must rest on a well-elaborated theory of the business cycle. No such theory was available, and even if it were, the accuracy of any forecast would be affected by political and other noneconomic factors that lie outside the realm of economic theory. So he arrived at the conclusion that the Institute’s ambitions should be modest, that it should “without formulating its own judgment of the prospects of the economy . . . just arrange in a suitable form the evidence on which such a judgment must be based and point out the most important tendencies discernible from it” (Hayek 1927c, 5). That would not, of course, have satisfied public expectations. Hayek noted with regret that “for the time being these people [who are providing funds] only appreciate the work on an Austrian business barometer,” and it was just “these business barometers which are somewhat dubious and 8. See also Hayek to Morgenstern, Mar 25 and Oct 13, 1927, and Morgenstern’s (1927) critical reply to Hayek 1926c.

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burden my conscience as a theorist” (Hayek to Morgenstern, Dec 11, 1926). However, as the very existence of the Institute was linked to it, he could not escape from producing such an economic barometer, and the prospectus formulated very clearly as one of its aims “to provide, similarly to the American ‘economic barometers,’ a direct basis for predictions” (Hayek 1927e, 5; emphasis in the original). The most famous of these barometers was that published by the HES. The so-called Harvard barometer consisted of three types of indicators, leading, current, and lagging, displayed graphically as A-, B-, and C-curves. These curves in turn represented indices of the stock market, the commodity market (called the Index of General Business Conditions), and the money market, respectively. Observing the relative positions of these curves was meant to give a clue to the present phase of the cycle and consequently to the economy’s future course. Soon the Institute started creating similar instruments to chart the path of the Austrian economy. From the July 1928 issue onward, the Monatsberichte calculated an Index of General Business Conditions, and in December for the first time published all three curves for the Austrian economy. Hayek (e.g., 1927d, 5) never stopped stressing, however, that the considerable interdependence of the economies of Central Europe made construction of a Harvard-like barometer for the Austrian economy especially difficult. Ideally, close cooperation with all  the other business cycle research institutes in the region would have been necessary. Hayek tried (but only partially succeeded in) providing a methodological justification for these barometers. His main argument was that as long as a fully developed theory of the business cycle was lacking, in its stead one might take refuge in “rules of thumb.” Although methodologically inferior to a theory-based approach, such a “simple interpretative rule” could serve as “a useful guide” if it had had reasonable success in the past (Hayek 1927d, 12). These barometers, then, occupied a kind of middle ground between highbrow deductive theory and purely inductive research. That Hayek’s attempted justification was in sharp contradiction to how the inventors of the barometer conceived it became clear from an otherwise sympathetic report on the Institute by Charles Bullock, developer of the Harvard barometer, who remarked sniffily that “The German [sic!] writers on the business cycle seem to be nuts on the matter of equipping themselves with a lot of theories about the subject before they go to work to study the facts” (quoted in Craver 1986b, 212–13). A still greater contrast existed with the type of business cycle research advocated by the Berlin Institute under Wagemann. When Mises ([1928] 2006b, 98) spoke of “modern students of cyclical movements [who] are

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contemptuous of theory—not only of this or that theory but of all theories— and [who] profess to let the facts speak for themselves,” in all probability Wagemann was the target of this attack. Wagemann dismissed not only abstract theory but also the use of “barometers” as too rigid for elucidating the intricate dynamics of the business cycle, preferring to base his typically rather vague predictions on a case-by-case analysis of the data (see Kulla 1996, 131). From Hayek’s methodological point of view, it was Wagemann, even more than the various barometers, whose program challenged the Austrian position. As a reviewer of Wagemann’s writings succinctly and accurately put it, “[this] direction of research appears just as a renaissance of the old Schmollerian school, with the sole difference that statistical analysis in a mathematical mode has replaced historical investigations” (Anderson 1931, 126). In any case, a full clarification of the role of empirical research for business cycle analysis had to wait for the first chapter of Hayek’s habilitation thesis (Hayek 1929a).9 There his central theme was the limited role and importance of empirical studies and statistical research when compared with that of a theory of the cycle. Empirical studies cannot by themselves explain the business cycle, because any scientifically adequate explanation must employ a theory. The validity of such a theory requires both that it is logically consistent and that the phenomena it explains correspond with the observed facts. Thus, the role of statistical research is either to verify a theory or to point out that “there still remains an unexplained residue of processes” (Hayek 2012a [1933a], 69–70).10 There is of course one useful and indispensable role for empirical research, namely, to ascertain what the “facts” are that theories are supposed to explain. Yet even in his early work, Hayek was insistent that there is no such thing as “plain facts,” that the facts that empirical studies uncover result from a search that is guided by some sort of theory, that is, facts are “theory laden.” This was a major point that Carl Menger had made in his disputes with the historical school economists (Caldwell 2004, chaps. 2–4). * * *

9. See for a more comprehensive discussion Caldwell 2004, especially 156–59. 10. Significantly, Hayek stopped short of speaking of the “falsification” of a theory by such a lack of correspondence with observed facts. He just recognized that such cases called for a further elaboration (or emendation) of the theoretical framework. It would be another decade before he was aware of Karl Popper’s important distinction between verification and falsification.

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There was a coda to this methodological difference of opinion that illustrates the importance of these issues to the principals involved. In 1931 the Vienna branch of the publisher Springer suggested introducing a new journal of business cycle research (Zeitschrift für Konjunkturforschung) as a joint undertaking of the Vienna and the Frankfurt Institutes, to be edited by their directors Hayek (or Morgenstern) and Eugen Altschul.11 Since Hayek was away, in the correspondence with Springer Morgenstern (with Hayek’s backing) represented the Vienna Institute. Although their immediate reaction to the proposal was sympathetic, in due course two main objections crystallized. The first was that the new journal would compete with the Vienna Zeitschrift für Nationalökonomie, which covered the subject of general economic theory. As an alternative Morgenstern proposed a journal for theoretical and applied statistics, with Altschul as the senior editor, which should also reach out to other fields, like biology or psychology. But then came a second sticking point: insofar as it would be concerned with economics, Morgenstern demanded that Hayek serve as a co-editor for such a journal, “to safeguard that statistical problems of economics will not be treated in a way that runs contrary to the modern view, that is, that it does not contribute to the overestimation of its possibilities” (Morgenstern to Lange, June 8, 1931). The publishers, who suspected Hayek as the true source of Morgenstern’s skepticism, took these objections seriously enough not to pursue the project any further, much to Altschul’s disappointment.

The First Encounter with Keynes In addition to publishing the Monatsberichte, the day-to-day business of the Institute also kept Hayek busy. Among his tasks were tutoring business people in how to apply the methods of economic statistics to firms and corporations, and lecturing on the principles and goals of business cycle research, both in person and on the radio (see Hayek 1928d).12 Such miscellaneous duties evidently reduced the time available for research. As a result of his activities at the Institute, Hayek also participated in various conferences. In March 1928 institutes from Central Europe met in Vienna in an attempt to coordinate their business cycle reporting. Dele11. The following is based on the correspondence preserved in the Springer-Archiv. On the publisher’s side the letters are from Otto Lange, director of the Vienna branch, and from Ferdinand Springer. 12. See Wiener Zeitung, Oct 9, 1927, and Jan 9, 1929, and the announcements in Reichspost, June 14 and Oct 5, 1928.

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gates came from Czechoslovakia, Hungary, Poland, Germany, and Switzerland. In June 1928 Hayek went to LSE for an international conference on economic forecasting hosted by the LCES; this was the meeting that took place only weeks after his father died. Among the participants, as listed on the program, were Dr. C. J. Bullock, the director of the HES; five representatives from the LCES (Sir William Beveridge, Professors Allyn Young and Arthur L. Bowley, and Messrs. Keynes and Whale); and a number of Europeans: Drs. Hayek from Vienna, Elsas from Frankfurt, Sipos from Budapest, and Professor Wagemann from Berlin. Bullock gave the opening talk, a rambling affair in which his major message seemed to be that rising prices were good, falling prices bad, and that bankers seemed not to recognize this. For his part, Keynes lamented the sad state of economics, which he thought needed a theory; he hoped he might soon be able to provide one in the book he was working on, A Treatise on Money. Over the next two days, two sessions were devoted to exploring schemes for collaboration, and another to the substantive issue of methods of forecasting, such as what variable to collect statistics on (Hayek suggested profits). At that point the minutes of the meeting contain the following laconic sentence, in parentheses. “Mr. Keynes, interposing, said he sympathized with Dr. Hayek’s definition of forecasting objectives, and the discussion turned to a rather loose debate on this point concerning profits or employment of purchasing power as objectives” (Minutes, Wed Afternoon, June 27, 1928, FAHP 128.22). Hayek’s own memory of meeting Keynes focused on another exchange, and he came away from it with a lasting first impression: “He had a somewhat intimidating manner in which he would try to ride roughshod over the objections of a younger man, but if someone stood up to him he would respect him forever afterwards even if he disagreed” (Hayek 1995a [1966], 240).13 This first encounter with Keynes was in retrospect significant for other reasons. First, despite their disagreements Hayek sensed in Keynes an ally, because unlike Bullock or William Beveridge or Wagemann (each for different reasons), Keynes understood the importance of theory. This was also the first time that Hayek met Beveridge and Allyn Young. Beveridge was the director of LSE and Young worked there. Within a year Young would be dead, a victim of pneumonia that followed a bout of influenza. As we will see, Young’s death would set up a series of events that eventually resulted in Lionel Robbins’s securing a post at LSE. But we get ahead. In July 1930, both Hayek and Morgenstern went to the biannual inter13. See also Hayek 1995b [1963b], 58–59 (where the meeting is misdated 1929); 1983a, 114–15; and 1994, 89; cf. W. A. Friedman 2014, 150–51.

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national meeting of institutes, which took place in Berlin (see Kulla 1996, 119). We know from Morgenstern’s diary (July 14, 1930) that many of the most eminent business cycle researchers, including Bowley of the LCES, Bullock of the HES, Constantino Ottolenghi from Turin, and Jan Tinbergen from the Netherlands, were there. The ever-caustic (when writing in his diary) Morgenstern could not help but note that he thought the Berlin Institute director Wagemann “especially stupid.”

The Institute Survives the Onset of the Great Depression If the Great Depression was bad for the economy, it was even worse for some of the institutes that had embraced the role of forecasting the economic future. The HES, after consistently underestimating the depth and longevity of the downturn, eventually had to shut its doors. Though naturally aware of Austria’s dependence on the rest of the world, the Vienna Institute had concentrated in its analyses on the Austrian economy. For forecasting economic activity in Great Britain and the US it undertook no independent research, but from February 1929 onward simply reproduced those of the LCES and the HES. As a result, its own reputation remained untarnished by the downturn. The very fact that the Austrian Institute did not produce its own forecasts should also bury the myth that it had in some way or other predicted the American downturn. Indeed, all that the Institute did was to provide information on current developments and then, only reluctantly, hazard forecasts about the Austrian economy. Most of the time these forecasts relied on the Austrian version of the three-market barometer that Hayek had constructed. For example, in December 1928 Hayek14 noted that in the Institute’s own barometer for Austria the A-curve had reached its peak in April and the B-curve in November 1927, while the C-curve was still rising. From this he concluded that “the picture presented exhibits the typical constellation of the curves at the onset of a period of depression” (Monatsberichte, Dec 1928, 188). Significantly, he immediately followed this with a very Hayekian warning that “although for the past period this 3 market-barometer has rather proved its worth for Austria and the predictions of the cycle based on it have turned out correct, in view of the intricate conditions prevailing we are not entitled to conclude that it can be used also in the future as a mechanistic basis for predictions of the cycle” (189). 14. Though the reports in the Monatsberichte were anonymous, until the end of 1928 Hayek was the sole author of contributions. After that date the (co-)authorship of Morgenstern must be taken into account.

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Looking at the Monatsberichte at the time when Hayek was in charge, that is from 1929 to 1931, reveals the awkward balance that he and Morgenstern had to strike between the public’s desire for forecasts, their own theoretical preconceptions, and the limited scope they had for economic policy recommendations. In the reports on Austria in this period, there is typically a paragraph, at the end or at the beginning of the report and emphasized by italics, providing the Institute’s outlook for the next months. After the onset of the crisis, the Institute—after congratulating itself for its correct forecast of the depression in December 1928—for some time was mildly optimistic that the bottom would soon be reached and the upturn lay just around the corner. This hope was grounded in the expectation of an easing of international monetary conditions. When throughout the first half of 1930 the forecast of an eventual revival had to keep being postponed, the Institute’s pronouncements became ever less sanguine. By July 1930 the Institute was hesitant even to predict that the bottom of the depression might be reached anytime soon, owing to a lack of stimulus from abroad, the failure of the Vienna Boden-Creditanstalt, and an unstable political situation.15 The November 1930 report observed the “extraordinarily low levels of some branches of production” (Monatsberichte, Nov 1930, 187), and over the next months the rosiest prediction they could allow was that the pace of the continuing downturn might slow. Even that moderate pessimism had to be discarded after the collapse of the Vienna Credit-Anstalt in May 1931 and its ensuing bailout by the government. It was at this point that the Institute abandoned any pretense of belief in its own forecasting methods: “An event of this sort constitutes such a break in the overall economic development that even the most recent data from economic statistics permit no conclusion on the existing tendencies and the analysis of these data has hardly more than merely historical value” (Monatsberichte, June 1931, 99). In 1930 the Institute became involved in an official inquiry into the causes of the economic crisis (see the report in Wiener Zeitung, Jan 14, 1931, 8–9). The investigation had been assigned to a government-appointed committee under the direction of Richard Schüller from the Ministry of Trade, with Ludwig von Mises, Edmund Palla, and Engelbert Dollfuß (Austria’s future ill-fated chancellor) representing the Chambers of Commerce, of Labor, and of Agriculture, assisted by various experts, among them Hayek and Morgenstern. Hayek remembered sitting next to Dollfuß at the round 15. The bankruptcy of the Boden-Creditanstalt in 1929 was prevented by merging it with the Credit-Anstalt, which was one of the factors contributing to the latter’s failure in 1931.

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table: “He gave the impression of a very naïve person. A peasant” (Bartley interviews, July 1984). The eventual joint report (Redaktionskomitee, ed. 1931) placed blame for the downturn on the rise of production costs relative to prices and urged parsimony in public expenditures and wage cuts as remedies, at the same time warning of the dangers of inflation and excessive consumption.16 Thus these recommendations, though expressed cautiously, appeared quite in line with what Hayek might have advised. In addition, Morgenstern produced a paper on the losses that had hit the Austrian stock market since 1913, which owing to its critical tone was not published by the committee, but separately in the Zeitschrift (Morgenstern 1931). All these recommendations and resolutions became moot when the breakdown of the CreditAnstalt increased the demand for quick fixes. The last report before Hayek left the Institute referred to the “new exacerbation of the depression” caused by “the close economic links [whereby] the financial turmoil is transmitted to ever more countries” (Monatsberichte, Sept 1931, 152). This referred to the German banking crisis of July 1931 but proved prophetic for the country he would soon make his new home, England. Possibly related to Hayek’s involvement in the Austrian debate on the origins of the crisis, the last issues of the Monatsberichte under his directorship were less restrained than usual. For the first time we find the diagnosis of capital shortage and the rather explicit policy recommendations of austerity and cost cutting, for which the Austrian economists became (in)famous (Monatsberichte, July 1931, 117–18). Furthermore, just at the time when Hayek was leaving Vienna for London, the remaining Austrian liberals—Morgenstern and Machlup supported by Mises and others—joined forces in a journalistic campaign to fight what they saw as the ill-conceived policies of the Austrian government and central bank (see Machlup et al. 2005). Hayek contributed some pieces from abroad (see, e.g., Neues Wiener Tagblatt, Oct 7, 1931; Aug 8 and 9, 1932; Aug 19, 1934).17 16. Hayek stuck to this diagnosis of the causes for the ills of the Austrian economy of the 1920s; see, e.g., Hayek 2015f [1932a], 62–63, and, immediately after the war, Hayek 1992a [1945, Apr 6]. 17. All these activities of the Institute do not—in our view—justify the assertions in Wasserman (2019, 123) that it represented “the convergence of liberal ideas and capital” and that “the Austrian School, the Chamber of Commerce, and private industry steered the direction of the Institute” (emphasis added). It is well known that major Austrian industries were keen on neither a renaissance of free trade and foreign

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In sum, over the period that Hayek was in charge, the Institute’s reports and forecasts of the Austrian economy, although often trailing actual developments, proved neither clairvoyant nor disastrous. At least up until the Austrian banking crisis, in their restraint and cautiousness they oscillated between mild optimism and mild pessimism, avoiding any extremes. This may have been to avoid being charged with creating a self-fulfilling prophecy. Morgenstern certainly might have harbored such a concern, having written a habilitation thesis (Morgenstern 1928) that examined this phenomenon, a study that led him to assert that economic prediction was impossible in principle. And it was this that prompted the Chicago economist Frank Knight to say in the letter to Morgenstern with which this chapter began how incongruous it was to discover that the latter was earning his living making economic prognoses. We can note in closing that unlike the HES and many other similar institutes, Hayek’s own Institute under his directorship achieved a fine reputation among fellow economists. This was confirmed by the Rockefeller Foundation’s reaction to its application for funding. In 1930 Charles Bullock wrote in a report: “Hayek and Morgenstern are both very good men; and they have a small but very well conducted Institute which is held in high regard in Austria . . . there can be no doubt about its scientific independence or the high character of the investigations it is carrying on.” As a result of this praise, the RF granted the Institute an additional sum of $1,000 annually, earmarked for an increase in the salaries of Hayek and Morgenstern in order to prevent their departure from Vienna. Their presence “would be of service, not merely to the Institute, but to the social sciences in Vienna” (Oct 13, 1930).18 A proposed salary supplement, by the way, made very good sense if the goal was to keep people like Hayek and Morgenstern around. In 1930 Hayek’s annual income, including the subsidy, came to ATS 14,440, while Morgenstern earned half that, and members of the nonscientific staff between 3,000 and 4,200. At the University of Vienna the annual incomes of the three full professors (Spann, Mayer, and Degenfeld-Schonburg) ranged from ATS 30,000 to 40,000, while research assistants had to con-

competition nor the easing of restrictions in other regards. Indeed, Morgenstern’s propagation of such ideas in the 1930s was a key reason for his failed attempt at making a career within the Federation of Austrian Industry (Hauptverband) (see, e.g., Klausinger 2008, 36–40). 18. In the RAC source, cited above.

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tent themselves with 2,600 to 4,800 a year.19 Thus there was a strong pecuniary incentive, on the one hand, for young economists to prefer a job at the Institute to an assistantship at the University, and on the other, for those with a lectureship (like Hayek or Morgenstern) to be on the lookout for an appointment to an economics chair. It is that quest that we will take up next.

19. See the Institute’s statement for 1929, cited above, and for the University of Vienna ÖStA/AVA, Unterricht, K. 796, Zl. 26733/1930. In comparison, the annual income of the traditionally well-paid workers in the Austrian metal industry was about ATS 4,000.

· 15 · The Young Academic

While working at the Institute Hayek was also busy advancing his career as an economist. This consisted of two key components: developing his institutional connections and advancing his research. Though such activities are evidently intertwined, we will treat them separately here.

Networks and Networking Vienna’s importance as a center of economic research, especially through its multiple and famous extramural circles, and Hayek’s position as the director of the Institute, made it easier for him to connect to relevant academic networks, both in the German-language area and internationally. He took full advantage of the opportunities that were presented. In the first instance, he attended meetings of the various business cycle institutes, in Vienna and London in 1928, and in Berlin in 1930. He visited London again in March 1930 on the occasion of an official economic exhibition of the Austrian Republic. And he regularly attended meetings of the Verein für Sozialpolitik (more about this soon) and made extended visits to German universities, places where he could meet all the right people and where, with luck, he might someday be offered a position. Thus on a trip in February 1928 he met Ladislaus von Bortkiewicz and Melchior Palyi in Berlin, Adolf Löwe and Hans Neisser in Kiel, Eugen Altschul in Frankfurt, and Ludwig Elster and Wilhelm Röpke in Jena. In March 1929 he visited Adolf Weber in Munich. All belonged to the elite of German economics. Löwe and Neisser were members of what came to be known as the Kiel School of Economics, located at the renowned Institute of World Economics. Adolf Weber was one of the rare German liberals. Just being present in Vienna offered Hayek opportunities for exchanging ideas with sometimes more, sometimes less, important economists from abroad. The institutes’ meeting in 1928 drew Löwe, Altschul, and the

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Swiss Louis Vladimir Furlan, and immediately afterward, in April, Löwe, Adam Heydel (of Cracow), and Wilhelm Vleugels (of Königsberg) all presented papers to the NOeG. The same month the NOeG awarded an honorary membership to the Frankfurt lawyer and economist Henri Oswalt, as it had done earlier to John Bates Clark and Richard Reisch.1 A frequent and most welcome visitor was Wilhelm Röpke, whom Hayek had met first at the 1926 Verein meeting in Vienna.2 Röpke had been appointed to an extraordinary chair at Jena in 1924 at the age of just twentyfive, and during his next visit to Vienna, in February 1928, he was returning from half a year spent as an RF fellow in the US and had just accepted a call from the University of Graz for a full professorship. He taught in Graz only for the winter term of 1928/29, after which he left for Marburg in Germany. Hayek was apparently quite taken with his successful peer from Germany, later describing him as “the only bright spot” (Hayek 1992g [1983c], 189) among economists attending the meetings of the Verein. When Röpke gave a lecture at the NOeG in February 1929 on the theory of capital formation, Hayek provided him accommodation in his own home (see Hella to Fritz, Feb 27, 1929) and later wrote a friendly review of the published version (Röpke 1929; Hayek 1929m). Indeed, the next time Röpke visited Vienna, by then a full professor at a well-known German university, Morgenstern complained to his diary (Sept 11, 1929) that Hayek’s behavior toward him was excessively deferential. In the course of time, the Hayek-Röpke relationship would become an important one. As we will see, Röpke would later join Mises at the Graduate Institute of International Studies in Geneva, attend the Colloque Lippmann in 1938 in Paris, and play a key role in the foundation of the Mont Pèlerin Society. Especially at the beginning of the 1930s, the list of first-rate economists from Anglo-Saxon countries coming to Vienna was impressive. Just in 1930, Frank Knight was there for more than a month and presented a paper on the problem of value freedom at the NOeG. In August A. Ford Hinrichs, the translator of Wieser’s Social Economics, visited Vienna. For the whole of September Dennis Robertson was there, accompanied by one “Mr.  Hicks,” a young economist he had run into there. Hayek, who had read Robertson’s book (probably the most recent edition of Money, 1928) in summer, “got along very well” with him (Hella to Fritz, July 19, 1930). Around the same time Jacob Viner arrived and on September 26, 1930, pre1. Heydel would later translate Robbins’s Great Depression into Polish. For more on the NOeG and its activities, see Klausinger 2016b. 2. For general biographical information on Röpke, see, e.g., Hennecke 2005; Gregg 2010; Commun and Kolev, eds. 2018, part I; and Kolev 2019.

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sented his famous lecture on cost curves and supply curves at the NOeG (see Viner 1931). In the fall, Bertil Ohlin, the statistician Oskar Anderson, and the Italian economist Umberto Ricci stayed in Vienna for a few days. In most cases, besides the lectures and presentations there was ample opportunity for exchanging ideas over lunch or dinner. Hayek was assiduous in cultivating relationships. His address book from the period 1920–31 reads like a Who’s Who of the international economics profession of his day. For example, under “C” we find Cassel, Cannan, Carroll (Dudley Dewitt Carroll taught at the University of North Carolina), Carver, Conrad, and both J. B. and J. M. Clark. On many pages each name is followed by a series of numbers. The code becomes clear at the end of the book, where Hayek’s various articles are listed, each with a number. He was keeping track of what he had sent to whom (FAHP 119.2). He did not limit his contacts to academics. Representatives of the Rockefeller Foundation, people like John van Sickle, Selskar M. Gunn, Charles Bullock, and Alexander Loveday, all stopped in Vienna during their trips to Europe. John van Sickle for a time wanted to establish an independent institute for social sciences in Vienna (see Fleck 2000), something he thought was justified by “the low level to which the university is sinking” (in a letter to Edmond Day, Aug 12, 1930, quoted in Fleck 2000, 18). Although the Foundation’s officers were less than enthusiastic, the project remained on the agenda, and the Vienna proponents produced a formal application, “Memorandum on the Situation of Research in the Social Sciences in Austria,” dated July 27, 1931. Hayek was among the five signatories, besides Mayer, Mises, Reisch, and the Foundation’s Austrian representative, the historian Alfred Francis Pribram. Hayek’s Institute provided the model for the bigger institute that the proponents had in mind as a refuge for academics outside the university. The sum applied for was $15,000 annually, a considerable amount compared with the grant for Hayek’s Institute. After the initial application, nothing happened while Hayek was in Vienna. The scheme was revived in 1932, but after some promising further activity it faltered again, and it eventually was put to rest in 1934. * * * In the German-language area the Verein für Sozialpolitik provided the most important network for economists, and indeed it proved vital for Hayek both as a venue for presenting his research and as a vehicle for engaging in academic politics.3 Hayek had attended his first meeting when 3. On the history of the Verein see Boese 1939.

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the Verein met in Vienna in 1926. On that occasion it was resolved that its theoretical section should investigate the problem of the business cycle. Hayek and several others were invited to contribute a report to a volume that appeared in June 1928 (see Hayek 1928b). At the September 1928 Zurich meeting again one of the topics chosen was credit and the cycle. It continued the work of the theoretical section, and Hayek was among the discussants when Walter Eucken and Adolf Jöhr presented their papers (Hayek 1929c; see Boese, ed. 1929). About eight years Hayek’s senior, Walter Eucken was already a highly respected economist. Born in Jena, the son of Rudolf Eucken, a philosopher in the German idealist tradition and winner of the 1908 Nobel Prize for literature, he studied economics and history at the universities of Kiel, Bonn, and Jena.4 After his service in World War I, he acquired his lectureship in Berlin. After a period in industry he returned to academia, first at an economics chair at Tübingen in 1925, and then two years later at Freiburg, where he would remain until his death. Though he would later become known as a leading German liberal, he came to those views gradually. For a time after the Great War Eucken was active in the German nationalist movement and later in his father’s circle, the Eucken Bund, both of which propagated antiliberal solutions to the postwar “spiritual crisis.” During the 1920s Eucken slowly turned toward a more individualist position, one that decried the absorption of the individual personality within a community, be it socialist or nationalist. He came to recognize capitalism as an efficient system for the provision of material goods, but sought a reshaping of the economy and society so as to better guarantee the free development of the individual. This was a theme of his important article on structural changes and the crisis of capitalism (Eucken 1932), in which he identified both private and public power as threats to individual autonomy. In that piece he rejected various proposals for solving the economic crisis, such as a socialist takeover of the economy or giving the state total power. He also criticized the policies of the Weimar Republic, which he characterized as an “interventionistischer Wirtschaftsstaat” (a state intervening on behalf of various economic interests), as ill suited for the purpose of supporting individual autonomy. Hayek was introduced to Eucken through Röpke, perhaps at the 1928 Zurich meeting (Hayek 1992g [1983c], 189). Although they at times differed, slowly both friendship and mutual appreciation grew between the two 4. For general biographical information, see, e.g., Klinckowstroem 2000, and on Eucken’s early years Dathe 2009. From the voluminous literature on Eucken and ordo-liberalism see, e.g., Vanberg 2004 and Goldschmidt 2013.

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men.5 Influenced by his close contacts with Alexander Rüstow, another future attendee of the Colloque Lippmann and Mont Pèlerin Society member, Eucken would eventually become a proponent of liberal economic policies, advocating free trade and Germany’s integration into the world economy, and opposing cartelization and social policies he deemed unsustainable. As for the Verein, it was still dominated by representatives of the “etatist” tradition of the “socialists of the chair,” despite the gradual decline of the historical school. In contemporary parlance these men were regarded as “right wing,” while their more theory-minded adversaries, be they Marxians or Austrians, were seen as “left wing” (see, e.g., Boese 1939, 211). The antagonism between the two groups was evident at meetings that dealt with the reparation problem, like that of the List Gesellschaft in Bad Pyrmont in summer 1928. There Hjalmar Schacht, then president of the German central bank, pronounced his wholehearted rejection of theory with the declaration, “I do not want to pay [reparations], therefore I will not accept any theory that proves that I must pay” (quoted in Janssen 2009, 102). This type of attitude inclined German theorists to try to seize a leadership role both in public discussions and in professional associations like the Verein. The opposition movement soon became known under the name “German Ricardians”—drawing on David Ricardo’s quest for abstract theorizing— and a leading role was taken by Alexander Rüstow, who was then on the staff of an association of the German engineering industry (VDMA).6 This theorists’ club was mainly composed of younger-generation scholars from the universities of Kiel (Colm, Löwe, Neisser), Frankfurt (Feiler, Hahn, Welter), Heidelberg (Lederer and Alfred Weber), and of course Vienna, as well as Röpke and Eucken. The group first made itself publicly known at the Zurich meeting when it submitted a proposal for a change in the voting bylaws. Mayer, Mises, Machlup, Strigl, and Hayek were among the signatories. The motion was made by Halle professor Georg Jahn—described by Hülsmann (2007, 588n) as “one of [Mises’s] closest allies in those years”— and aimed at broadening the electorate for voting on the chairman. This was quickly (and probably accurately) interpreted by the senior mem5. In the first letter preserved of their correspondence (Hayek to Eucken, Oct 28, 1932) Hayek expressed his “vivid agreement” with Eucken’s “splendid essay” of 1932, asking, “May we hope to initiate a new period of understanding, or will our fate be that of Cassandra?” We thank Uwe Dathe for making available to us copies of the letters from the 1930s from the Walter Eucken Papers, which are still in preparation. All other letters are from FAHP 18.40. 6. On the Ricardians see Janssen 2009 and Hayek’s (1992g [1983c]) recollections of “the rediscovery of freedom”; see also Hayek 1992h [1959].

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bers as an attempted takeover by an alliance of “liberalists” and Marxists (Boese 1939, 208–26). The Ricardians’ candidate for the chair had been Alfred Weber, but their adversaries were able to postpone a decision on the election until a meeting of the board in March 1929 in Berlin. There, in the presence of Hayek, Morgenstern, Schams, and Strigl, Cologne professor Christian Eckert was elected to the chair—a “devastating result” according to Eucken (Janssen 2009, 111). Moreover, at the next meeting of the board in Bad Kissingen in September 1929—a meeting where Hayek accompanied Mises—many of the changes in the bylaws were reversed. This political failure was exacerbated when differences in opinion arose among the German Ricardians about how best to deal with the economic crisis.7 Though the group then disintegrated, Hayek would continue to remain on good terms with Eucken, Röpke, and Rüstow. The next meetings of the Verein were held in Würzburg in June 1930 and in Königsberg in September. In the Würzburg session on problems of the theory of value, which had contributions from Mises and Morgenstern (see Mises and Spiethoff, eds. 1931), the theorists could once again dominate the debate. At the Königsberg meeting Hayek presented a paper on rent control (Hayek 1931h) in the last session on urban housing and settlement. In the vote for the board Mises, Spann, and Degenfeld were among the fifty-one members elected in the first round; and Hayek, Eucken, Hahn, Löwe, Mayer, Röpke, and Rüstow in the second. Hayek also attended the next Verein meeting, in Dresden 1932, which was the last one before its voluntary dissolution in 1936.

Hayek’s Road to His Habilitation In the later 1920s, decisions on lectureships at the University of Vienna became another arena in which the feud between Mayer and Spann was fought out (see Klausinger 2012c). In 1927 Haberler acquired a lectureship with a thesis on the theory of price indices (Haberler 1927), despite Spann’s attempt to delay the procedure. When Morgenstern applied in January 1928, with a thesis on the theory of economic prediction (Morgenstern 1928), there were three more proceedings underway, two for protégés of Spann, Walter Heinrich and Klaus Thiede, and another for Josef Dobretsberger, who was close to the ruling Christian Social Party (and the incumbent minister of education) and favored by Degenfeld. While Heinrich’s appli7. For example, at this time Eucken distinguished his own views from the “dogmatic” liberalism of Austrians like Mises and Hayek (see Janssen 2009, 110).

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cation was swiftly settled, the other three had to wait well into 1929 until, after infighting and logrolling among all the parties involved, their habilitations were confirmed by the ministry. Although Morgenstern in the end had succeeded, the convoluted and extended process did not bode well for Hayek’s own attempt. The habilitation was crucial because the granting of the “right to teach” was the first step toward an academic career. Although Hayek was by now close to Mises, both in his occupation and in the circles in which he participated, he was able to get Mayer to propose his habilitation to the faculty, a step indispensable for an applicant’s success. Mayer regarded Hayek’s successful habilitation as yet another way to increase his leverage over Spann in their academic battles. He more than once urged Hayek to finish up (see Hayek to Morgenstern, Dec 11, 1926) so that he could put him forward as a candidate for a chair in Graz (see Haberler to Morgenstern, July 13, 1927). The ever sharp-tongued Haberler added that for a chair in Graz, the ability to hold one’s drink was a prerequisite, a comment on the large number of hard-drinking German nationalist students there. Hayek did not, however, start immediately on the topic that would earn him the right to teach. Recall that in spring 1926 he had unsuccessfully floated a book project, a theoretical study of the goals of monetary policy, to the publisher Prager. The project was put on hold for a while when Hayek started working at the Institute, but when he returned to it the result was a considerably more ambitious project. In February and March 1928 he approached two different publishers, Gustav Fischer in Jena and the Vienna branch of the Berlin publishing house Springer, proposing a study that would be divided into two parts, the first to be published in the summer of 1928, and the second one or two years later. Springer was not interested, but Fischer accepted his proposal. In the final contract, the title had become “Geldtheoretische Untersuchungen” (Investigations into Monetary Theory, henceforth “Investigations”). By this time Hayek had finished the first seven chapters of the first part of the new book. The most innovative elements were in chapters 6 and 7, where Hayek introduced the concept of “intertemporal equilibrium.” He published these chapters separately as an article in the June 1928 issue of Weltwirtschaftliches Archiv (Hayek 1928a). He presented the same paper in a session of the NOeG; but according to Rosenstein (in a letter to Morgenstern, Mar 20, 1928) it was a failure because he had simply read the text, which was difficult to follow. In later years Hayek felt he had published the paper prematurely: “I didn’t see the things yet in the right way; it would have been wiser not to publish it at that time” (Hayek 1983a, 418). An at-

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tempt, possibly by Hayek himself, to translate that paper into English was aborted halfway through.8 The invitations to contribute a report to the Verein volume on credit and the cycle (Diehl, ed. 1928) and to be a discussant on the same topic at the Zurich meeting ended up being consequential, as they caused Hayek to pause his work on “Investigations.” He began work on the report in March 1928 and finished it in time to circulate part of the manuscript over the summer among his Vienna colleagues, not all of whom reacted enthusiastically (see Morgenstern to Haberler, June 24, 1928, and Rosenstein to Morgenstern, Aug 3, 1928). Nonetheless, after the Zurich meeting Hayek decided to use the report as his habilitation thesis. The thesis became his first book, Geldtheorie und Konjunkturtheorie (Hayek 1929a, trans. 1933a), which also became the first volume in the Institute’s series of contributions to business cycle research (Beiträge zur Konjunkturforschung). Of the book’s five chapters the first three consisted of a slightly revised version of his report (Hayek 1928b), the fourth derived from his contribution to the debate at the meeting (Hayek 1929c), and the fifth, an agenda for future research, was added afterward. Hayek presented a chapter at the Mises seminar (see Morgenstern diary, Jan 17, 1929), and in March 1929 the book was published. Justifying to Gustav Fischer the unplanned interruption of his “Investigations,” Hayek referred to the thesis as “the investigation of a special problem . . . the results of which cannot be squeezed into the framework of the main treatise, yet constitute a precondition for its conclusion” (Hayek to Fischer, Feb 22, 1929). In February 1929, Hayek submitted his thesis to the University of Vienna and applied for a lectureship in political economy and statistics.9 Spann’s opposition to a candidate supported by Mayer had to be taken for granted, but Mayer’s crucial task was to secure the compliance of Degenfeld, the third of the economics chairs. For some time this looked more difficult than had been expected. According to Morgenstern (diary, Apr 21 and 25, 1929), in two meetings—naturally at a coffeehouse—Mayer informed Hayek of the opposition from Degenfeld, who suggested that the thesis should be withdrawn. Yet, in the end, Degenfeld gave in and the denouement of Hayek’s proceedings came swiftly.10 Mayer delivered a highly favorable report on 8. For the fragment of the translation see FAHP 104.31; it took more than fifty years for an English translation to appear in Hayek 1984a; see now 1999h. 9. On the proceedings see Klausinger 2012c and ÖStA/AVA, Unterricht, Zl. 23620/1929. 10. Hayek (1983a, 16) somewhat vaguely recounted that “Count Degenfeld played a certain role when I finally got my Privatdozentur.”

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the thesis (although he criticized Hayek’s idea of the exclusively monetary origin of the trade cycle). Degenfeld’s report was mildly positive, and Spann delivered no report at all but only his usual diatribe in the faculty meeting. When it came to the vote, Hayek’s application was unanimously accepted with Spann abstaining. All three steps of the procedure—approval of the thesis, the trial lecture, and the candidate’s general examination—were successfully finished in June, and the ministry confirmed the decision of the faculty in short order, on July 25. In his trial lecture Hayek dealt with the “paradox of saving” (“Widersinn des Sparens”) associated with the view that maintaining the purchasing power of the consumers was a recipe for averting crises. Specifically, he subjected the writings of the American economists William Trufant Foster and Waddill Catchings, who had become popular at the time through their pamphlets published by the Pollak Foundation, to severe criticism.11 Eventually the lecture was published in the Zeitschrift für Nationalökonomie (Hayek 1929b) and as a slightly extended offprint in the same year by Springer. It would catch the attention of Lionel Robbins at LSE, one of those rare British economists capable of reading the German economic literature, and later would be translated into English and published in Economica (Hayek 1931c), the journal associated with LSE and edited by Robbins (see Howson 2011, 176–78).

A Very Active Young Privatdozent Though the eldest, I was the last to join Haberler and Morgenstern as Privatdozent. We then held a quite lively joint seminar on economic theory in which, however, the number of students hardly exceeded that of the teachers. (IB 72)

• With the lectureship Hayek had acquired the right to teach at the university on topics of his own choosing. The courses started in the winter term of 1929/30 and continued until the summer term of 1931. On Mondays the three young scholars offered a joint seminar on economic theory (winter) or economics in general (summer), and Hayek lectured over the two winter terms on money and banking, in summer 1930 on cycles and crises, and in summer 1931 on international monetary policy. As these courses were not compulsory, they were as a rule attended by only a few students, which ex11. See Caldwell 1995, 18–19 for more on Foster and Catchings and the Pollak Foundation.

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plains why Hayek would later report that the fees he got from teaching were only just enough to cover the cost of the taxi he would take from his office to the university (Hayek 1983a, 3). When Hayek gave his first lecture, fifteen students were present, Fritz Machlup and his wife among them (Morgenstern diary, Nov 27, 1929). We know some details of one of the seminars (winter 1931) from entries in Morgenstern’s diary.12 The works of Fisher, Wicksell, Johan Åkerman, and Cassel and the problems of unemployment and comparative costs were among the topics discussed, and Viennese economists like Erich Schiff, Gerhard Tintner, or the banker Victor Bloch presented papers; visitors from abroad included Albert G. Hart (who became professor at Columbia University) and, in the summer 1930 term, Nicholas Kaldor. The ever-caustic Morgenstern also offered a first glimpse of Hayek’s teaching style: “Today was seminar. Hayek had the chair . . . With H. you never know what point he is trying to make, and he also does not disclose it at the end” (Feb 9, 1931). The trio also entertained undertaking a joint book project. There had been an antecedent. In 1928 Hayek had asked Morgenstern if he was interested in joining him, Haberler, and the Frankfurt statistician Altschul in venturing a translation into German of Frederic Cecil Mills’s Statistical Methods (1924), but the publisher Springer declined the proposal. In spring 1929, sparked by the start of the joint seminar, they toyed with the idea of writing a textbook.13 Their ambitious goal was to replace the timehonored text of Philippovich’s Grundriß; the final (19th) edition of 1926, revised by Felix Somary, was out of print and the planned new edition entrusted to Hans Mayer appeared bound to fail. The authors would have been Morgenstern, Rosenstein, Hayek, and Haberler, and to avoid Mayer’s jealousy they planned on dedicating it to him on his fiftieth birthday. But in the end it too came to naught. Probably just as well, for Hayek had not yet finished the book on money that he had promised to Fischer, the “Investigations.” After his thesis he returned to the manuscript, incorporating parts of his article on the paradox of saving into the eighth chapter. In correspondence with the publisher Hayek remained sanguine well into 1930 about completing at least the first volume, for which only the final two chapters were lacking.14 But Hayek never wrote those chapters, either, so it was in that unfinished state that 12. See the entries of Jan 12 and 21, Feb 9 and 25, 1931. 13. For the first project, see Hayek to Morgenstern, Feb 14 and Mar 16, 1928. For the second, see Morgenstern’s diary, Apr 14, May 9 and 18, 1929. 14. See Hayek to Gustav Fischer-Verlag, Feb 22, 1929, and Aug 1, 1930.

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the typescript was preserved in his papers.15 The numerous references to the “Investigations” as a future more comprehensive treatise on the theory of a money economy, which are still present in Geldtheorie (Hayek 1929a, 47n, 56n, 114; see 2012a [1933a], 145), finally go missing from his writings later in the 1930s. Probably what distracted Hayek from finishing the project was the offer from another publisher of a prestigious assignment and the delays caused by ironing out the details of the contract. On his way back from the September 1929 Verein meeting in Bad Kissingen, Hayek stopped in Tübingen to meet with the publisher Oskar Siebeck, who asked him to undertake the volume on money and credit that was still missing in the Grundriß der Sozialökonomik.16 This eminent series, which had been initiated by Max Weber and continued by Emil Lederer and which included such pieces as Wieser’s 1914 treatise, was about to go into a revised edition. Although Siebeck’s proposal must have been welcome to Hayek, he hesitated until December before he answered with a detailed plan for the book—certainly also knowing that the acceptance of the Grundriß volume meant abandoning the book he was preparing for Fischer. It then took almost nine months for a contract to be signed in September 1930. The reason for the delay was doubts expressed by the editor Lederer, who had been involved in a controversy with Hayek on the “Widersinn” article (see Lederer 1930 and Hayek 1930a). Lederer also objected to the amount of space devoted to the history of the subject. Eventually, though, all the issues were settled. The contract set a 1932 deadline for the project, to allow Hayek the opportunity to respond to the forthcoming monetary treatises expected from Keynes and Schumpeter.17 The publisher’s correspondence provides a glimpse of his peers’ judgment of Hayek as a theorist.18 In discussing alternatives to Hayek, Lederer mentioned Melchior Palyi, Gottfried Haberler, and Erich Welter, and Siebeck after consulting Schumpeter put on his list Haberler and Hayek first, followed by Walter Eucken, Franz X. Weiß, and Hans Neisser. It appears 15. In FAHP 105.1–4, now published as Hayek 2015c [1925–29], chap. 9; see the English translation, Hayek 2012c. 16. The following is based on the notes and correspondence between Hayek and Siebeck preserved in the archival records of the Verlag Mohr Siebeck. See also Klausinger 2015b, 519–24. 17. While Keynes’s Treatise on Money appeared in 1930, Schumpeter’s money book remained a fragment, published posthumously (Schumpeter 1970). 18. See Lederer to Siebeck, Jan 3 and 20, 1930, and Siebeck to Lederer, Mar 8, 1930. Schumpeter refers to his support for Hayek in a letter to Haberler, July 5, 1930.

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that both Lederer and Siebeck would have preferred Haberler, but in the end they contented themselves with Hayek, a decision that saved him from the awkward position of having lost this very prestigious assignment to a younger Viennese colleague. The contract negotiations also reveal the importance that Hayek attached to the history part of his proposed book. He found the suggestion to delete that part “shocking” and “endangering the lifeblood” of his plan (Hayek to Siebeck, July 12, 1930). In his view, the history of the evolution of monetary institutions would reveal that they were formed by contemporary problems and debate but also themselves led to changes in monetary theory. The crucial passage is worth quoting in full: For various reasons today’s common practice of an exclusively theoretical approach towards monetary matters is deficient. I am justified to say so because, as you know, I am a fanatic adherent to theory and free from any inclination towards historicizing. Yet, apart from treating money as part of general economic theory, as has been done in particular by Wieser’s contribution to the Grundriß, it is also necessary to treat it separately. The reason is that here such a variety of factual preconditions, questions of organization, historical developments, etc. have to be taken into account that this can be hardly achieved within the framework of general theory. For almost any issue for which monetary theorists have formed something like a communis opinio this owes to rather definite historical problems and those concrete deliberations of the day have even left their mark on the terminology used presently for discussing them. Unfortunately, the knowledge of these processes is not widespread, not just among students but also among professional economists. I fear that in this field the majority of economics professors are just novices. And this is understandably so: There is, not only in the German literature, no useful book that concisely presents the evolution of the modern monetary system or that of monetary theory.

A few years later he reiterated, “The fact that the ‘historical school’ had such an untoward influence on the development of economic theory has unfortunately led to underestimating the importance of historical perspective and historical training for economists” (Hayek 1995c [1935c], 64). Hayek immediately started working on the volume in summer 1930. At first he concentrated on the historical parts, of which he was able to finish the first four (of a planned nine) chapters. These covered the period from John Locke and the origins of the gold standard to the debate surrounding

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Peel’s act.19 The immense knowledge that he was able to assemble on the history of monetary thought would prove invaluable when he was invited to give some lectures in England early the next year. * * * Remarkably, while Hayek was working full-time at the Institute and pursuing not one but two book projects, he also found time for other academic work. There were in the first instance various editorial projects. Probably his greatest achievement here was to edit Friedrich Wieser’s collected essays. Supplemented by a biographical introduction (reprinted from Hayek 1926b), this was published by Mohr Siebeck in Tübingen (Wieser 1929). Conceived soon after Wieser’s death, it attests to his lasting influence on Hayek’s early thought. Two projects that did not succeed were presented to Oskar Siebeck (see Hayek to Siebeck, Jan 3, 1930). The first was to be a new edition of the writings of Carl Menger, especially of his main works, the first editions of which had been out of print for a long time. Hayek’s plan accordingly called for reprinting the 1871 edition of the Grundsätze rather than the still in print revised second edition of 1923.20 Hayek’s second proposal was to edit a series of up to ten volumes of classics in monetary theory, among them Cantillon’s Essays and Thornton’s Paper Credit. In the end Siebeck dismissed both, noting not only deteriorating economic conditions but also the political situation, namely, the imminent rise of the Nazi party in the upcoming Reichstag election in September 1930 (see Siebeck to Hayek, Sept 11, 1930). In the next years, Hayek was at least partly successful in finding publishers more willing to take a risk with these projects, though both the Menger edition and Thornton’s Paper Credit had to wait for the London period. But in 1930 Hayek was able to convince Gustav Fischer to produce a German translation, Abhandlung über die Natur des Handels im allgemeinen, of Richard Cantillon’s masterpiece (Essai sur la nature du commerce en général, 1755), which came out the next year (Cantillon 1931a). The trans19. These chapters have now been reprinted as Hayek 2015c [1930–31], chap. 12; see the translation Hayek 1991b. 20. It may be noted that Hayek felt that the latter, which had been edited by the author’s son, Karl Menger, had been “very badly received, unjustly” (Bartley interviews, Mar 29, 1984; see, e.g., Weiß 1924; cf. R. Schumacher and Scheall 2020, 156). He was on good terms with Karl Menger and apparently urged the son several times to write a biography of the father (Bartley interviews, Mar 29, 1984).

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lation was done by Hayek’s wife, Hella, who thereby was able to utilize the linguistic proficiency acquired during her education at the Schwarzwald school. Hayek in June 1930 presented a paper on Cantillon to the Geistkreis (Morgenstern diary, June 17, 1930) and added a preface (Hayek 1931e) to the edition. But because the German translation was soon superseded by a reprint of the original supplemented by a translation into English (Cantillon 1931b; see also Hayek’s review, 1932f), it was not widely reviewed, and when it was reviewed, the emphasis was on the value of Fritz’s preface rather than on the quality of Hella’s translation (see, e.g., Batson 1932, 251). During this time Hayek also became a prolific writer of reviews. From 1927 to 1931 he wrote no less than thirty-three of these, most of them (23) for the Viennese Zeitschrift, the remainder for distinguished German journals. Writing reviews, of course, is a way both to familiarize oneself with the literature and to get one’s name before the readers of such journals, though we might add that Hayek had a close relation to the editor of the Zeitschrift, Hans Mayer, whose requests he could not easily or wisely have turned down. The reviews include some casual commentary on work now almost forgotten, and also some scathing critiques (e.g., Hayek 1929j or 1930e). Some, though, concerned topical issues relevant for Hayek’s research and cited in his own contributions (e.g., Hayek 1927f, 1929n, or 1930b). A few reveal Hayek’s esteem for various economists, or a shrewd judgment of their work. For example, his reviews of books by Alfred Müller (later known as Müller-Armack), Georg Halm, Röpke, Leonard Miksch, and his Vienna colleague Haberler (Hayek 1927f, 1929h, m, 1930b, and 1928f) were generally sympathetic, if also mildly critical. The same was true of his review of Hans Neisser’s book on the exchange value of money, which according to Hayek (2012d [1929k], 136), “even for those who are less convinced of the importance of its subject, like every careful piece of research . . . has much value to offer.” He hailed Enrico Barone’s textbook—a small masterpiece (Hayek 1928e)—and Marius W. Holtrop’s monograph (Hayek 1930c) on the velocity of money, of which he later edited a partial German translation (Holtrop 1933). And he congratulated the statistician Oskar Anderson for cautioning the “numerous credulous worshippers of all those results generated by mathematical-statistical methods” (Hayek 1929l, 326). Two reviews (Hayek 1927g, 1929i) of books by Gustav Cassel on money set the tone for Hayek’s future judgment of this author—“in the years immediately after the war the most famous of all living economists  .  .  . as much overrated then as he is underrated now” (Hayek 1992b [1963a], 32). Regarding Cassel’s handling of the quantity theory of money, Hayek noted how its mechanistic character made it unsatisfactory as an instrument of

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theoretical analysis, while acknowledging its potential usefulness in economic policy debates when simplification is in order to prevent politicians from monetary mismanagement. Hayek (1929f) appreciated Adolf Weber for writing a German textbook from a decidedly liberal point of view, but regretted that its theoretical structure lacked a base in value theory; in contrast, Hayek—in an early advocacy of methodological individualism— emphasized that prices must be explained by means of a “comprehensive system of equilibrium” for which the analysis of individual decisions constituted an indispensable first step (158–59). Finally, Hayek also persisted, in two reviews (1929g, 1930d), to praise the work of the LSE economist Edwin Cannan, a teacher of Robbins. His juxtaposition of Cannan, a historyminded man of principle, and those economists he thought fell prey to the fashions of the day, foreshadows Hayek’s later criticism of Keynes: “how far [has] economic policy in all countries departed from what economic reason would have called for . . . what an endlessly fertile field of activity would lie open to men as knowledgeable as they are courageous, were it not that they still remain, amidst the multitude of economists, rare and solitary birds whose cries fade away everywhere unheard” (Hayek 1995c [1929g], 69). Mises’s Geldwertstabilisierung und Konjunkturpolitik (1928, trans. 2006b) provided Hayek with the first occasion for reviewing a work by his mentor. Hayek (1928g) credited Mises for having sketched in his 1912 treatise a coherent monetary theory of the cycle, on which Hayek was to build his own contributions, but then criticized Mises on two points, criticisms he would repeat in his forthcoming thesis (Hayek 1929a). The first centered on Mises’s discussion of the monetary origins of cyclical fluctuations in terms of the value of money (see, e.g., Mises 2006b [1928], 97). In his thesis, Hayek defined Mises’s concern more precisely as directed toward the stability of the “inner objective exchange value of money,” that is, toward the elimination of so-called cash-induced effects. Although Hayek (2012a [1933a], 110n) thought this to be equivalent to his own notion of “neutral money,” he regarded the terminological link to the “value of money” as unfortunate. A second point of criticism was that Mises sought the origin of monetary disturbances in an exogenous source, namely, the ill-conceived inflationist policies of central banks, while Hayek preferred an endogenous explanation based on the banks’ behavior under a fractional reserve system. Hayek’s substantive claims in his review are noteworthy, but it might also have been shrewd for a young economist in pursuit of a lectureship at the University of Vienna to avoid the impression of being too closely associated with Mises. Remarkably Mises did not respond (in print) to Hayek’s criticism, in contrast to his harsh reaction (Mises 2006b [1928], 76n) when Haberler (1927, 109–10) criticized him along the same lines.

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The Search for a Professorship Of course the ultimate goal behind all of Hayek’s frenzied activity was to improve the prospects of securing an appointment to a university chair. The best chances for this were at less distinguished institutions, or those peripherally located. Of Hayek’s Viennese friends, Haberler had been a candidate for two extraordinary positions in Prague, yet as the decade turned it was Königsberg—the capital of East Prussia and an enclave surrounded by Polish territory (now Kaliningrad, Russia)—that appeared to offer the best career opportunity for them. In November 1929 Hayek was told (by Morgenstern, see diary, Nov 12, 1929) that he was being considered for the economics chair that had been vacated by Hans Teschemacher at the local Albertus University.21 In December though he came up second on the faculty’s appointment list, ranked behind the agricultural economist Constantin von Dietze, who at the time was teaching at Jena. Dietze (1891– 1973) would be the last president of the Verein and an active member of the Freiburg circle, barely surviving the Third Reich (see Dathe 2018). At first glance, it is not easy to explain how Hayek managed even to place second. The faculty’s conservative orientation would not have helped a professed liberal. Perhaps greater weight had been attached in their deliberations to Hayek’s experience as a director of a research institute, as the chair in question included also a leading position in the Institut für ostdeutsche Wirtschaft (Institute for the East German Economy). Furthermore, the Königsberg economist Wilhelm Vleugels, appointed in 1928, was an ardent supporter of Austrian candidates. The list did not satisfy the Prussian Ministry, which proposed that Gerhard Colm from Kiel be considered. The faculty rejected Colm and responded in March 1930 by naming three other somewhat inferior candidates. In the end the ministry chose to disregard the faculty’s wishes altogether and impose on them the appointment of Oswald Schneider, a high civil servant from the Ministry of External Affairs. This happened in June, so Hayek’s later conjecture that his chances had been hurt by the paper he presented at the Königsberg Verein meeting in September appears unwarranted.22 Yet, in retrospect, Hayek regarded his rejection as fortunate: “I might otherwise have been caught by Hitler’s advent to power as a newly appointed but internationally unknown professor in that city” (IB 76). Hayek got a second chance in Vienna, at the Hochschule für Welthandel (now WU, Vienna University of Economics and Business), a business 21. For details see the documents reprinted in Spenkuch, ed. 2016, 826–36. 22. See also Hayek to Helmut Schelsky, n.d., and IB 76.

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school that had only recently been granted the right to confer doctorates on its students (see Klausinger 2015c). There was only one economics professor at the school. As it seemed certain that soon a second (extraordinary) chair would be created, Hayek applied preemptively for a lectureship at the Welthandel, which he was granted in June 1931; other prospective candidates like Richard Strigl and Richard Kerschagl, who had taught at the Welthandel for some years, did the same. Consequently, Hayek lectured at the Welthandel on business cycle research for two terms in 1930/31. Finally, at a meeting in June 1931, when the faculty decided upon the appointments list for the new economics position, Hayek made the list, again in second place. Strigl and Walter Weddigen, a German economist teaching at Innsbruck, had jointly been put in first place, while Morgenstern and Walter Heinrich, well known as Othmar Spann’s foremost disciple, jointly occupied third. The eventual choice was up to the Ministry of Education. The person in charge was preparing a draft in favor of Hayek, who thus would have been on the brink of getting the chair, had he not been offered a position—incomparably more attractive—at LSE. It took two more years and a host of intrigues until the ultimate appointment of the third-ranked Heinrich.

A Final Transition In the next chapter we will tell the story of how the opportunity for Hayek to give some lectures at the London School of Economics in January 1931 soon led to an invitation for a one-year visiting professorship there, an offer Hayek quickly accepted. At the Institute this made it necessary to look for a replacement as director; Morgenstern, the obvious candidate, was happy about Hayek’s prospects both for Hayek’s and his own sake. Eventually, Hayek was granted leave from the Institute for one year and Morgenstern appointed managing director. Hayek’s last months were filled with work. He revised his LSE lectures into the monograph Prices and Production and provided a German version, Preise und Produktion, truer to the original text of the lectures, for the Institute series. As we will see, he also put much effort into a review of Keynes’s Treatise on Money. The usual work at the Institute was aggravated by Austria’s slide to the bottom of the economic crisis that necessitated some rewriting of the monthly reports. No wonder that Morgenstern noted in his diary (June 25, 1931) that Hayek had been close to a “nervous breakdown.”23 But there was some relief that summer. After spending July in Vienna, 23. See the entries in Morgenstern’s diary, Apr 8, 14, and 30 and Sept 19, 1931.

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Fritz joined his family, Hella with Christerl, sometimes accompanied by Felicitas, at various summer resorts in Carinthia and Tyrol. Returning to Vienna, Hayek was at the Institute’s office for the last time on September 19, preparing the last issue of the Monatsberichte of which he was in charge. After a farewell dinner in the Ancora Verde, he left the next day, first for Munich and Paris, and then London. Hella and Christerl stayed for two more weeks in Vienna, saying goodbye to family, relatives, and friends. Fritz’s colleagues Machlup, Morgenstern, and Mises all bid her farewell. Eventually Hella, Christerl, and their maid arrived in London, on the morning of October 9. Their life in England was about to begin.

A Preliminary Summary of Hayek on Money, Capital, and the Cycle By the time he went to England, Hayek had developed a coherent—if, as he later acknowledged, possibly oversimplified—picture of the theories of money, capital, and the cycle, one that he would seek further to develop throughout the 1930s.24 He had arrived at it by a series of steps: the preparatory work he had done in “Investigations into Monetary Theory” (1925– 29); his deliberations on methodology, equilibrium, and money in his habilitation thesis (1929a), which would be translated as Monetary Theory and the Trade Cycle (1933a); and finally his description of the mechanism of the cycle in his LSE lectures (1931a), which would become Prices and Production. “invesTigATions” The point of departure for “Investigations” was the notion of equilibrium in what Hayek called “static theory.”25 It refers to an imagined (or “fictitious”) economy where price formation and the structure of production are fully determined by the economy’s data, that is, by tastes, endowments, and technology (see Hayek 2012c, 53). Accordingly static theory establishes the norm of “correct prices” and (in response to changes in economic data) of “necessary price changes” (46). In “Investigations” Hayek dealt with both the state of equilibrium and the reactions to changes, the former as static theory proper and the latter as part of dynamics. Hayek’s main innovation consisted in the extension of static theory by 24. This section draws freely on the introductions, Klausinger 2012a, b. 25. In the following all references will be to the English translation Hayek 2012c of the German typescript (Hayek 1925–29).

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introducing the idea of “intertemporal equilibrium” (Hayek 1999h [1928a]) and applying it not only to an economy of idealized barter, but also to a monetary economy and an economy that uses capital, that is, time-consuming methods of production. Intertemporal equilibrium is a generalization of stationary equilibrium, meant to describe how an economy evolves over time. While in a stationary economy there are no changes so that the future can be taken to be identical with the present, intertemporal equilibrium is based on the assumption of perfect foresight, so that the economy adapts to changes in the economy’s data and these adaptations are correctly anticipated. Moreover, transcending the confines of the ideal barter economy, intertemporal equilibrium was assumed to exist (to be logically possible) even for an economy where money and capital were in use. In this sense, the notion of intertemporal equilibrium, although not always explicitly stated, underlay Hayek’s work all through the 1930s, from “Investigations” to The Pure Theory of Capital (see, e.g., L. White 1999). Hayek’s investigation of adjustment processes of various types of economies led him to see that the “tendency to equilibrium” presumed for a barter economy need no longer prevail if money and capital are taken into account. While in Hayek’s ideal barter economy the simultaneity of decisions within a period is guaranteed by the institution of “central commodity clearing” (Hayek 2012c, 76),26 with the use of money those decisions are split up into successive steps, e.g., when the generation of income (from the goods produced) precedes the use of income (directed at those same goods). Money, in combination with the use of capital, thus becomes a crucial “dynamic force” (Hayek 2012c, 47) capable of disrupting the tendency to equilibrium. This necessitated a general theory of a money economy, a view he would reiterate in a well-known passage in Prices and Production: “the task of monetary theory is . . . nothing less than to cover a second time the whole field which is treated by pure theory under the assumption of barter, and to investigate what changes in the conclusions of pure theory are made necessary by the introduction of indirect exchange” (Hayek 2012a [1931a], 279–80). hAyek’s hABiLiTATion Thesis: MoneTAry Theory And The TrAde CyCLe In his thesis Hayek (1929a) addressed three specific problems of business cycle research: he defended the primacy of theory over statistics; he main26. This assumption is, of course, reminiscent of Walras’s famous fiction of the “auctioneer.”

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tained the importance of equilibrium theory for questions of money and the cycle; and finally he insisted that a cycle is possible only in a monetary economy. With regard to methodology, Hayek in the first chapter clarified the position that had been implicit in the views he had cautiously expressed as the director of the Vienna Institute.27 In particular, he confirmed the primacy of theory over statistical investigations as the grounds for a scientific explanation of economic phenomena. Empirical research was not a substitute for theoretical investigation, but a means of verifying theories or, conversely, of pointing to still unsolved puzzles. Hayek made strong claims for the importance of using an equilibrium approach in analyzing money and the cycle, as evidenced in his 1928 article: “The concept of equilibrium is [an] indispensable tool . . . for any . . . investigation in economic theory. Strictly speaking, its field of application is identical with that of economic theory, since only with its assistance is it possible to give a summary depiction of the very great number of different tendencies of movement which are operative in every economic system at every point in time” (Hayek 1999h [1928a], 190). In his later writings Hayek specified the substance of the equilibrium theories that he proposed: in the English translation (but not in the original version) of his thesis he identified “equilibrium theory” with “the modern theory of the general interdependence of all economic quantities . . . most perfectly expressed by the Lausanne School” (Hayek 2012a [1933a], 75n); and in Prices and Production he insisted on “the individualistic method” (that is, methodological individualism) as a prerequisite for the “understanding of economic phenomena . . . it is the knowledge of how individuals react to changes in their environment that enables us to foresee the economic consequences of any such event” (195 and 195n). He insisted that the proper starting place for analysis was the economy in a state of equilibrium. The phenomenon of the cycle must not be treated as given; rather it is the task of theory to explain how an economy in equilibrium may give way to a cyclical movement (99–100).28 Furthermore, although the cycle is a process of intertemporal disequilibrium, the direction of prices and production over time must be determined by utilizing the “static” methods of the analysis of demand and supply (96). His next step was to identify money as the root cause of cyclical move27. See also Caldwell 2004, chap. 7. 28. In the German debate the main challenge had been from Adolf Löwe 1926, 1928, 1929. Hayek was in the audience when Löwe presented his paper, “Is there a monetary theory of the business cycle?,” at the NOeG on March 26, 1928.

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ments, because money is able to disrupt the “tendency to equilibrium” prevalent in the static theory of a barter economy and lead to movements away from equilibrium (Hayek 2012a [1933a], chap. 3). As he would later put it, money constitutes a “loose joint in the self-equilibrating apparatus of the price mechanism” (Hayek 2007b [1941a], 367), making a monetary approach to the theory of the business cycle necessary.29 Going beyond “Investigations,” Hayek (2012a [1933a], chap. 5) drew on Wicksell by identifying the market for saving (or loanable funds) as the main channel where money may enter and disturb the economic system. If there are no monetary disturbances, that is, if money is “neutral,” then the money economy will just replicate the intertemporal equilibrium of ideal barter. In this case, the equilibrium or natural rate of interest will be determined by the balance of the supply of (voluntary) saving and the demand for funds for investment purposes. If there are monetary disturbances, however, the prevailing money rate of interest may diverge from the rate in (intertemporal) equilibrium, e.g., when injections of money increase funds, or when money hoarding diverts the supply of funds. In the former case, monetary expansion, or what the Austrians then called “inflation,” will lead to a money rate below the natural rate and induce investment in excess of voluntary saving. This excess is what has been termed “forced saving.”30 In Hayek’s monetary theory of the cycle the upswing is generated by monetary expansions that cause an excess of investment over voluntary saving and a shift in the structure of production toward more timeconsuming processes. This structure, created by a depressed money rate of interest, cannot be sustained. Monetary expansion, then, will not produce an everlasting boom, and when the expansion eventually stops, crisis and depression follow. With regard to the sources of monetary expansion, while others like Mises put the blame on the misguided (“inflationist” or “cheap money”) attitude of the monetary authorities, Hayek pointed to the endogenous process of money creation by the banks, in particular in a system of fractional reserve banking (see, e.g., Hayek 2012a [1933a], chap. 4, vs. Mises 2006b [1928]).31 To reiterate, if money is neutral, a monetary economy will reproduce the results of an idealized barter economy in intertemporal equilibrium. Apart 29. Garrison (1984) uses the metaphor of money as a loose joint to place Hayek’s theory in a middle position between Keynesian theories of a “broken joint” and monetarist ones of a “tight joint.” 30. For a more sophisticated analysis of forced saving, which goes beyond Hayek, see, e.g., Garrison 2004. 31. For a critique see L. H. White 1999.

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from the equality of the market to the natural rate of interest, this requires correct anticipations (e.g., of the prices and wages included in long-term contracts) and the flexibility of all prices (Hayek 1933b). As an important corollary Hayek demonstrated that neutrality is not ensured by a stable price level. Rather in a growing (steadily progressive) economy, in order to keep the price level stable, money must be injected into the system, thereby depressing the market below the natural rate. Stabilizing the price level in a growing economy makes money nonneutral and may generate an inflationary upswing (Hayek 2012a [1933a], 108). Prices and Production While in his thesis Hayek dealt with “the monetary factors which cause the trade cycle,” his LSE lectures focused on “the real phenomena which constitute it” (Hayek 2012a [1931a], 180n7), namely, monetarily induced changes in the structure of production. Hayek based his description of the structure of production on Böhm-Bawerk’s theory of capital. In Prices and Production he represented this structure by a series of adjacent stages of production (220–26). Goods pass through the stages as they move through the production process, moving from higher (earlier) to lower (later) stages,32 while at each stage equal doses of labor and land services are added. In this special simplified case, it is possible to use the concept of the average period of production as an indicator of the capitalistic nature of production, with a longer period signifying a more capital-intensive mode of production. Furthermore, it will respond in the appropriate manner (that is, inversely) to changes in the interest rate. For the economy as a whole, output, the period of production, the real wage, and the rate of interest will all be uniquely determined in equilibrium given the economy’s data. Following Böhm’s approach, such data are the individuals’ time preference schedules as a determinant of the amount of voluntary saving, and the firms’ time productivity as a determinant of the amount of investment. For example, with a given labor force, a decrease in time preference will lead to an increase in the supply of saving and consequently to an increase in the period of production, in output, and in the real wage, and a decrease in the rate of interest (229–32). In an economy of idealized barter, or equivalently with neutral money, the workings of the system are characterized by such transitions from one equilibrium to another, or what has been called “suc32. For the change in terminology between the first and second edition see Hayek 2012a, 231n.

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cessful traverses.”33 If money is not neutral, however, unwarranted transitions may arise that in the end do not prove sustainable and hence are bound to fail. These failed traverses constitute the trade cycle. Hayek’s crucial idea was to connect these exercises in capital theory with an explanation of cycles and crises. The period of monetary expansion, forced saving, and overinvestment is identified with the upswing of the cycle. But when eventually the unsustainable structure of production created in the upswing must be readjusted, this becomes the source of crisis and depression. This crisis is also a period of “capital shortage” in two respects. First, voluntary saving has proved insufficient for completing the traverse initiated in the upswing. Second, owing to peculiar properties of the means of production, the readjustment is accompanied by unemployment and idle resources (see Hayek 2012a [1931a], 243–44 and 255–59). This is so because some capital goods are “specific,” that is, usable in only some but not all stages of production, and moreover most means of production are “complementary,” that is, productive only jointly with others. Specific capital goods in the higher stages that built up during the failed traverse cannot be moved swiftly to the lower stages. The excess of idle capital in the higher stages is thus mirrored by a shortage of capital in the lower stages. Owing to the lack of complementary capital goods in the lower stages, certain means of production, in particular labor, cannot be employed profitably. This may be so even at very low wages (258n). In the end, the way out of the crisis is thus predicated on “the slow process” (261) of the buildup of the required capital goods in the lower stages, something that could be accelerated by increased saving. In an earlier paper, Hayek (1931c [1929b]) had analyzed the effects of policies that attempt to stabilize “purchasing power” or to stimulate consumption. He there was dealing with the proposals of the underconsumptionists Foster and Catchings; later he would attribute the same sort of ideas to Keynes and his followers. In Hayek’s view, such policies when supplemented by monetary expansion will simply lead to another case of a failed traverse. Without monetary expansion, the intended increase in consumption will indeed generate a successful traverse, but the resulting equilibrium will have a shorter period of production, lower output, and lower real wages: capital has in effect be consumed. For Hayek such policies were mistaken and dangerous. It is clear from his frequent references to the danger of a starving population in his contemporary writings (see 33. The term has been used by Hicks 1965, chap. 16; see also 1973a, and Desai and Redfern 1994.

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2015c [1931i], 505, or 2015f [1932a], 64) that Hayek considered capital consumption as a real threat to the survival of modern society. Although they predate his later contributions to the so-called knowledge problem, price signals already play an important role in Hayek’s writings on money and the cycle. When the system is working correctly, it is the signal sent by changes in the interest rate that deters firms from committing to overinvestment and that prevents unsustainable traverses (see Hayek 2012a [1933a], 85–88). In contrast, the source of cycles when money is not neutral is just the possibility of being misled by false prices, as might happen when the money rate of interest falls, whatever the cause, without a corresponding increase in savings. Prices and Production also provided some clues about appropriate business cycle policies. First, it pointed to the immense difficulties of keeping money neutral in practice (Hayek 2012a [1931a], chap. 4). Thus, the economy we actually live in will typically have money that is nonneutral and therefore be exposed to the danger of cyclical movements. Second, Hayek concluded from the existence of structural maladjustments in the crisis that it would be easier to preserve equilibrium than to reestablish it once it had been left, confirming “the old truth that we may perhaps prevent a crisis by checking expansion in time, but that we can do nothing to get out of it before its natural end, once it has come” (261). Accordingly, in Hayek’s view there was a tight connection between the proper diagnosis of the cause of the crisis and the proper ways to combat it. This comes out clearly when he restated (in the preface to the German edition of Prices and Production [Hayek 2012a [1931b], 183]) the opposing views held by contemporary economists: The origin of the crisis is to be found either in “insufficient demand” due to deflation or in “a shortage of capital” due to past inflation. Of course, Hayek adhered to the latter view, which also shaped his position on how to deal with the ongoing crisis and depression. TheoreTiCAL foUndATions of Crisis PoLiCy Although Hayek occasionally expressed his views in public and engaged in intense discussions with friends and foes34 on this issue, his general stance on the policies required in crisis and depression did not change much throughout the decade of the 1930s from what he had indicated in Prices and Production. In addition, it appears that he was more interested in de34. See, e.g., Hayek’s correspondence with Machlup, Haberler, and Röpke, or his reactions to criticism and refinements in Hayek 1932a, 1933c, 1933f, and 1934a.

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fining his theoretical approach than in developing a fully coherent view on economic policies. Therefore, his position must mainly be reconstructed from a series of obiter dicta dispersed throughout his publications. To reiterate, in contrast to purely monetary or underconsumptionist explanations, Hayek’s did not rely on a lack of purchasing power but was “structural.” In the crisis and even a depression the restoration of the right structure of production should take precedence over compensation of effective demand failures. Accordingly, any shortage of capital that emerged in the crisis called for increases in saving rather than increases in private or public spending: stimulation of private consumption or expansion of public expenditure (by incurring budget deficits) was exactly the wrong response. Nominal wage cuts were part of the package that Hayek advocated. Their justification was twofold. First, wage cuts were necessary for restoring the profitability of production, as typically in the crisis wages react more slowly than prices, so that the real wages for those still employed rise. Second, as wages are mostly spent for consumption, a cut might curb consumption and thereby rebalance the structure of demand. As clear-cut as Hayek’s position on the causes of the crisis and the necessity to restore equilibrium appears to be, his prescriptions for how to react to the deflation (monetary contraction) that commonly accompanied the crisis and depression phases were less clear. Both contemporary observers and historians of thought have been puzzled by conflicting conclusions that might be drawn from Hayek’s approach. On the one hand, it follows from the notion of neutral money that decreases in the quantity of money should be prevented and counteracted no less than increases. On the other hand, the experience of falling prices and shrinking money during the crisis and depression of the 1930s did not stop Hayek from warning against excessively expansionist monetary policies. In retrospect, there may have been a whole set of reasons. First, owing to the lack of reliable statistics, Hayek may have focused on the movements discernible from central banks’ balance sheets and thereby missed the fact that money in a broader sense was in fact contracting. Next, Hayek did distinguish between “deflationary policies,” exogenously engineered by actions of the monetary authorities, and “automatic” or endogenous deflation, going on within the banking system owing for example to credit destruction. Possibly he regarded only the former as deviations from neutrality, while the latter were part of a natural process of recovery. In this sense, Hayek—like his friends Robbins and Machlup—might have voluntarily joined the group of those referred to as “sadistic deflationists” (Robbins 1932b, 448). Third, he considered reflationary policies dangerous because they might—when applied too early and too much—give rise to another

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upswing that could not be sustained. Here Hayek warned of the danger of engineering “a little inflation” (Hayek 2012a [1931a], 279), concurring with Robbins (1932, May 14, 1081; see also Hayek 2012b [1934a], 200), who had disparagingly termed such reflationary proposals “economic homeopathy.” Finally, even if deflation was harmful in itself, it could play a beneficial role in easing the wage and price rigidities prevalent in the system that Hayek regarded as responsible for the depth of the depression (see Hayek 2012a [1933a], 55).35 Notably, in his later writings Hayek recanted this position and came to recognize the dangers of deflation (see, e.g., Hayek 1978c, 210). Others who appreciated the Austrian explanation of the business cycle, such as Gottfried Haberler, Wilhelm Röpke, and Dennis Robertson, criticized some of Hayek’s views.36 They offered a different analysis by distinguishing between primary and secondary depression. The primary depression was caused by structural mismatches, for which the appropriate remedy would be to restore a balanced structure. However, a secondary depression may develop owing to hoarding and bank failures that may cause further monetary contraction and effective demand failures. In that case, decreases in production, income, and spending could mutually reinforce themselves. Moreover, the effect of price expectations (implicit in Irving Fisher’s interest theory) combined with the zero lower bound on the money rate of interest might interfere with the homeostatic properties characterizing the normal working of the economic system.37 In such exceptional circumstances, policies to stabilize (or stimulate) aggregate demand might be helpful, although in the end the correction of structural imbalances was still viewed as indispensable. Röpke had used an argument like this to justify expansionist proposals as a member of the Brauns commission in Germany in spring 1931—though also invoking the somewhat elusive idea of financing government expenditures by foreign credit (Röpke 1931). Hayek was so irritated by Röpke’s position that in summer 1931 he wrote a reply to it (Hayek 1931i). There he argued for the priority of restoring the proper structure of production, by cutting wages and restraining consumption, and against premature attempts at expansion. Hayek sent the paper, destined for publication in a German journal, to Röpke. As Hayek remembered, he added in the enclosed letter “that it should not be published, if he thought that the immediate 35. See also L. H. White 2008 and Magliulo 2016. 36. See Röpke 1933 and 1936, chap. 4, § 16, chap. 5, §§ 24, 25; Haberler 1934, in particular 17–18, and 1943, 58–61; and Robertson 1934. 37. See, e.g., Fisher’s (1933) debt-deflation theory of depressions.

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political danger of unemployment was so great that it must be alleviated” (handwritten remark on the typescript, in FAHP 103.25). Hayek’s paper remained unpublished. The crucial point of these views was to disconnect the diagnosis of the cause of the crisis from the proper therapies to combat crisis and depression: although the cause of the crisis may be structural, the slide into the depression can result from aggregate effects. Put another way, the mechanisms working in the primary and in the secondary depression may be different. From this perspective, people like Haberler (much to Hayek’s disdain) even discovered a “sound element” in underconsumptionist theories.38 Propagators of the theory of secondary depression might be viewed as trying to synthesize the theories of Hayek and Keynes. Hayek (at least in the 1930s) emphasized structural factors of depression and did not believe that expansionist policies would improve upon what could eventually be achieved through the working of market forces, while the Keynesian view was to neglect structural factors altogether and to put the blame for crisis and depression on aggregate demand failures. Hayek’s friendly critics accepted his approach for the explanation of primary depressions, but supplemented it with a more Keynesian view on secondary depressions. In the end, however, they regarded secondary depressions as the rare exceptions to the normal working of the economic system and—just like Hayek— warned against an indiscriminate application of the Keynesian remedy.39

38. Haberler 1934, 35; for Hayek’s response see his letter to Haberler, Sept 4, 1934. 39. In a letter to Haberler, Feb 25, 1936, Röpke likened the indiscriminate recommendation of Keynesian policies to “playing with dynamite” (see Röpke 1976, 26); see also the strong criticism of Röpke 1946, May 5; 1952, Sept 27; for an English version cf. Röpke 2008 [1963], 221–29.

Hayek’s Early Days

PLATe 1 Parents August and Felicitas (née von Juraschek) von Hayek, wedding photo

PLATe 2 Felicitas with baby Friedrich “Fritz” von Hayek

PLATe 3 Franz von Juraschek’s sixtieth birthday, family portrait, February 25, 1909. Left to right, standing: Hayek’s mother, Felicitas; Ida (née Pokorny) von Juraschek, second wife to Franz; and the honoree, Franz von Juraschek. Left to right, seated: Hayek’s father, August; his brother Erich; Fritz; his uncle Franz von Juraschek; his aunt Gertrud von Juraschek; his brother Heinz; and his aunt Margarete von Juraschek

PLATe 4 Hayek’s family. Left to right: brother Heinz, mother Felicitas, father August, and brother Erich. The leather case in which the photos appear could fold up to pocket size and was well-worn. Hayek may have taken this with him to the front in World War I.

War

PLATe 5 Hayek in uniform at the Italian front on the Piave River, 1918

PLATe 6 Walter Magg, Hayek’s closest friend, who died of dysentery in an army hospital on November 4, 1917

PLATe 7 Crashed biplane. This may have been one of the planes in which Hayek rode that crash-landed.

University and Early 1920s

PLATe 8 Fritz’s “Meldungsbuch,” or “Study Book,” with photo in full dress uniform. Subsequent pages listed courses attended, confirmed by professorial signatures, and exam results.

PLATe 9 Herbert Fürth as a young man. Fürth and Hayek started the Geistkreis, a discussion club.

PLATe 10 Helene “Lenerl” (née Bitterlich) Warhanek as a young woman. Hayek’s third cousin, she would become his second wife.

PLATe 11 Hayek on his way to New York, March 1923

Early Family Life

PLATe 12 Helena “Hella” (née von Fritsch) Hayek and Fritz in the Alps. Hella was Hayek’s first wife and the mother of his children.

PLATe 13 Fritz in lederhosen

PLATe 14 Hella with her newborn daughter, Christine Hayek

PLATe 15 Hayek with his daughter, Christine

Cambridge and Postwar

PLATe 16 Hayek playing chess with himself

PLATe 17 Hayek with students and faculty in Cambridge, where LSE evacuated during World War II. The three faculty members seated in the middle are Frederic Benham, Hayek, and Nicholas Kaldor.

PLATe 18 Hayek leading a discussion at the summer school in Alpbach

PLATe 19 Hayek’s mother, Felicitas, with Hayek’s children, Laurence and Christine, in London following the war

Mont Pèlerin 1947

PLATe 20 Brochure for L’Hôtel du Parc, the venue for the 1947 meeting at Mont Pèlerin

PLATe 21 Hayek at the 1947 meeting

PLATe 22 Left to right: William Rappard, Bertrand de Jouvenel (face partially obscured), Karl Popper, and Ludwig von Mises

PLATe 23 Left to right: John Jewkes, Leonard Read, Erich Eyck, Milton Friedman, Lionel Robbins, and Veronica Wedgwood (the men whose faces are obscured are unknown)

· Part IV · Hayek in 1930s England

Sometime in the late spring or early summer of 1930 Hayek received a letter of invitation to give a series of lectures at the London School of Economics. Though it was an honor to get the invitation, giving talks at other universities is not unusual for an academic. Though Hayek did not know it at the time, this particular invitation would end up changing his life. It would ultimately result in his moving to England, a country that since his trip to New York he had thought of as his spiritual home, and indeed, as soon as he arrived there he felt confirmed in that belief. It would lead to one of the greatest friendships of his lifetime, with the English economist Lionel Robbins. And he would become an integral part of the London School, a relatively new institution that would nonetheless become during those “years of high theory” one of the great centers for the development of formal economic theory (Shackle 1967). Much of the work took place at the Grand Seminar, which Robbins and Hayek co-directed, and through which passed nearly all of the most important contributors. London would be where Hayek did some of his most important work and fought some of his most important academic battles. The first of these was his famous contest with John Maynard Keynes over their respective theories of a monetary economy. The second came to be called the “socialist calculation debate.” The latter led Hayek to some of his deepest insights into how a free market economy helps to coordinate human action in a world of dispersed and subjectively held knowledge. Unpacking that laden phrase will be one of the tasks ahead. Though it was a period of great intellectual activity and productivity, Hayek had little success on the intellectual battlefield. His most faithful student, Ludwig Lachmann, would later reminisce, “When I came up to the LSE in the early 1930s, everybody was a Hayekian; at the end of the decade there were only two of us, Hayek and myself” (quoted in Boehm 1991, 366). Even worse, the project he had worked on for nearly seven years, de-

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veloping a theory of a capital-using monetary economy, he would ultimately judge to have been a failure. In what follows, we will treat each of his various research projects separately, but it should always be kept in mind that he was working on all of these things—as well as other smaller projects— simultaneously. There would be other changes. London was the place where, just as he was witnessing the birth of formal mathematical theory, he would begin slowly to distance himself from it. Despite the fact that England (he always identified with England, not with Great Britain) was where he felt most at home, where his children would grow up, and where he and his family would become naturalized citizens, he would make decisions in the 1930s and 1940s that eventually would make it impossible for him to continue to live there. Once he left it he would frequently visit but never have a residence there again. All of this took place, of course, against the backdrop of unprecedented political and economic turmoil: the onset of the Great Depression, the rise of Adolf Hitler, and by decade’s end a world turning ever more sharply toward war. These global events had local consequences, especially after the Anschluss in March 1938, when Germany annexed Austria. Hayek and Hella had family in Austria and in Germany, and sides were being taken. At one point his own mother warned him not to visit her. Hayek, the quintessential outsider, found himself even more outside again. As if this were not enough, his marriage to Hella was increasingly strained. In that particular instance, the war at least provided some respite from a final confrontation.

· 16 · Hayek Comes to LSE

Prelude: Lionel Robbins and the London School of Economics The London School of Economics and Political Science is not the first place one might think of as likely to tender a lecture invitation to Friedrich Hayek.1 The School had been founded in 1895 by Fabian socialists. The Fabian Society had formed in 1884, and Henry Hunt Hutchinson, who had joined in 1890, upon his death a few years later left a fairly sizable bequest, to be used “within ten years to the propaganda and other purposes of said Society and its Socialism, and to advancing its objects in any way [the executors] deem advisable” (Dahrendorf 1995, 3–4).2 Sidney Webb, one of the founders of the organization, was named as an executor. Though socialists, the Fabians rejected continental Marxism.3 They did so on both theoretical and democratic grounds, favoring the emerging marginalist analysis that they had learned from Philip Wicksteed and F. Y. Edgeworth over Marx’s labor theory of value, and an evolutionary rather than a revolutionary path to the transformation of society. Education would play a crucial role on their road to the socialist future. Webb soon convinced the other leaders of the Society (among them his wife, Beatrice, George Bernard Shaw, and Graham Wallas) that the bequest should be used to found a new center of learning. From the start they 1. This section draws in part on Caldwell 2004, chap. 8. 2. For various materials related to the founding of the School, see SR1101, LSE Archives, a bound volume titled “Reminiscences of former students, members of staff, and governors with other materials related to the history of the School” collected from 1922 to 1947. 3. The variety of socialist beliefs in England will be described in more detail in chapter 19. Though sympathy for social reform was widespread among intellectuals in Victorian England, few British economists embraced Marxist theory. As Ian Steedman (1990) notes, though the early readers of the Economic Journal saw many articles on Marxism, his “theories of value, price and profit were treated with persistent rejection, and even scorn.” (78). Cf. Durbin 1985, 20–22.

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envisaged a place dedicated to the discovery of factual knowledge, reflecting what a later historian and School director referred to as the “positivist bias” in its approach to the study of society (Dahrendorf 1995, 20). There would be no ideological litmus tests for faculty to pass, besides a dedication to the pursuit of truth. As Lionel Robbins would later put it: “Webb carried out his intention both in the letter and in the spirit. From its inception the School was a truly independent institution dedicated only to free enquiry and the advancement of knowledge . . . I myself, who later on could hardly be regarded as anything but opposed to a good many beliefs that the Webbs stood for, was appointed to my chair by a committee of which Sidney was a member” (Robbins 1971, 73). Just so, too, for Hayek. Hayek’s letter of invitation came from Sir William Beveridge, who had taken over as the fourth director of the School in 1919. Hayek already knew him from the 1928 Conference of Economic Services. Beveridge was a good choice for the director post, on a number of counts. He had been a longtime acquaintance of the Webbs and shared their values. He had honed his writing skills during a three-year stint as a leader writer for the Morning Post and had gained administrative experience as a member of the Board of Trade and by serving in various ministries during the First World War. Last but not least, Beveridge shared Webb’s vision of the primacy of empiricism over theory. This was evidenced by his 1909 book, Unemployment: A Problem of Industry, which was chock full of tables and charts. Beveridge wanted to keep up with his economic research, so in addition to his administrative post he was appointed a lecturer in descriptive economics, itself an apt description of his preferred approach (Dahrendorf 1995, 140). After becoming director he decided to update his book and in 1923–24 secured a research assistant to help with the revisions. It was Lionel Robbins, who had received his undergraduate degree from the School the year before. Robbins was only six months older than Hayek, and their life paths shared certain similarities. Like Hayek, he had been an artillery officer during the Great War, and though perhaps more than Hayek, he returned from the war a committed socialist, of the guild socialist variety. The view he endorsed, aphoristically put, was state ownership, but worker control, of the means of production (Robbins 1971, 38, 57–58, 60; Howson 2011, 29, 41, 54–55). After demobilizing, Lionel tried to put his beliefs into action, taking a job at the Labour Campaign for the Nationalization of the Drink Trade. Over time, his interactions there rather diminished his opinion of the intelligence of many of his colleagues as well as his hopes for the prospects of an imminent workers’ revolution. At one point he attended some lectures by Major C. H. Douglas, one of the more famous of the amateur economists

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of the day, who offered an underconsumptionist explanation of what was going wrong with the economy. Robbins wanted to decide whether Douglas was a prophet or a crank and found his own compatriots, who had opinions aplenty but little to back them up, unhelpful. After reading some basic economics, he decided to go to university where he could study the field more formally. He enrolled at LSE, registered for the BSc (Econ) degree, and began classes in October 1920 (Robbins 1971, 61–68, 71; Howson 2011, 59–64, 68–69). Of the many professors he came in contact with, the three who impressed him the most were Hugh Dalton (who taught the “Elements of Economics” course to first-year students), political scientist and early Fabian Society member Graham Wallas, and the venerable Edwin Cannan (who taught the upper-level course, “Principles of Economics,” which was spread over two years). Both Wallas and Dalton were easy men to admire: superb lecturers, undogmatic yet with definite points of view, intellectually honest and broad-minded in their approaches. Cannan, who had taught at the School since its inception, was different. Ancient, shabbily dressed, he mumbled into his beard as he lectured so that those who sat beyond the first three rows usually could not make out what he was saying. Even when audible he did not make class easy; he provided no reading lists, nor any introductory comments at the outset of a lecture to orient his listeners. Lionel came to view Cannan as a kind of negative role model with regard to classroom behavior: to be a good teacher, one should do the opposite of Cannan (Robbins 1971, 76–78, 83–88, 93; Howson 2011, 81–86, 93). But all of this was overcome in the students’ minds by the sheer erudition of the man: “his ascendancy was paramount. We revered him. We hung on his words. We conned over his every piece of writing. He represented for us archetypal mature wisdom in his subject” (Robbins 1971, 83). Lionel qualified to do an Honours subject and after some consideration decided on the history of political ideas. His supervisor was another oversized personality, this time housed in a slight, elfin body, the political scientist Harold Laski. The son of a wealthy cotton goods exporter from Manchester, Oxford-educated, immaculately dressed, conversationalist and fabulist extraordinaire, Laski arrived (as had Robbins) at LSE in 1920, aged twenty-seven and already somewhat (in)famous. He had spent the previous four years as an instructor at Harvard, where he had published three books but also provoked a minor scandal by speaking out in favor of the unionization of the Boston police force. In America he had made many acquaintances among the intelligentsia (and claimed to have made many more), among them Graham Wallas, whom he met when the latter was lecturing at the then newly established New School. The contact paved the way

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for Laski to be hired at LSE (Beveridge 1960, 53; Kramnick and Sheerman 1993, chaps. 5 and 6). Laski was a hugely popular lecturer, wide-ranging in his knowledge of the literature, a master of the Socratic method, generous to a fault with students he liked. Early on he provided Lionel with a reading list with about a hundred titles, which his pupil found invaluable. But within a year Lionel tired of him. He felt Laski knew little economics, and their personalities jarred: the younger (not much younger, only five years separated them) and in many ways more mature Lionel had little patience for his teacher’s selfcenteredness and exhibitionism (a “spoilt child of fortune and intellectual fashion” were the burning words he later used to describe his teacher). Laski was on his way up, though. When Wallas retired in 1926, Laski acceded to his chair (Robbins 1971, 80–83, 95; Howson 2001, 91–92). In the summer of 1922 Lionel went on a European tour with two of his friends from the School, Georg Tugendhat and Jacques Kahane, a trip that included Vienna and initiated for him a love affair with the city that lasted until the Anschluss in 1938 (Robbins 1971, 91).4 The next year he began reading Ludwig von Mises’s book on socialism, Gemeinwirtschaft. As was true for Hayek, reading Mises helped cure Robbins of his youthful enthusiasm for socialism, though by this point he was less concerned about the inefficiency of socialism than about the threats it posed to liberty (Robbins 1971, 106; Howson 2011, 131–32). After graduation and his stint working with Beveridge, Robbins accepted a one-year teaching appointment at New College, Oxford. He arrived for the 1924/25 Michaelmas term with his bride, Iris Gardiner Robbins. While there he and Iris began translating Mises’s book. He did not get very far, but he passed on the work that he did to Kahane, who used the material when he undertook his own translation in the 1930s (Howson 2011, 147; see Mises 1936).5 The next year Robbins was hired by LSE as an assistant lecturer (later lecturer) in the Economics Department. At midyear he received the offer of a fellowship at New College, Oxford, which he accepted, though he continued to do some teaching at LSE. Next came one of those serendipitous (and in this case, sad) twists of fate that so often determine a life’s path. Though continuing to teach, Edwin Cannan retired in 1926, and Director Beveridge was looking for a replacement. He upgraded Cannan’s part-time chair to a full-time position 4. Recall from chapter 3 that Georg Tugendhat had been a friend of Hayek’s from schooldays. 5. Robbins would later tell Hayek that he and Iris were responsible for translating most of the parts on economics in Mises’s book (Robbins to Hayek, July 20, 1978).

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and hired an American economist, Allyn Young, to fill it. Young began his work at LSE in the fall of 1927, but in 1929 he got the flu and then pneumonia, and in a matter of days was dead. Lionel was in most people’s minds (including his own) too junior to step into Young’s chair. But youth aside, he was still an attractive candidate. He was a successful graduate of the School, had taught courses there, and had earned a reputation as an effective lecturer and tutor. Both Beveridge and Dalton were strong supporters, though Laski was “hot in opposition” (Robbins 1971, 124). After some debate a compromise was reached. Young’s chair was left vacant (it was never actually filled), and a new chair was created and given to Robbins. He assumed his duties on August 1, 1929, still only thirty years old (Robbins 1971, 119–22; Thirlwall 1987, 20). Owing to some faculty absences the teaching burden that first year was onerous, shouldered by only Robbins and the young teaching assistant J. R. Hicks. Building the department would become a high priority in the coming decade. In part to differentiate it from the ancient, and more Anglophilic, universities, Robbins sought to make it a center for the study of the latest economic theory, whatever its source, in short, to make it a leader in the internationalization of British economics. It was a task at which he excelled.6 Sometime during the 1929/30 academic year, the decision was made to invite Hayek to give the University Advanced Lectures in Economics in the Lent term of the following year.7 Though decidedly an honor, this was not terribly surprising. Hayek was known personally to Beveridge, and others at LSE knew of his work (he had, for example, corresponded with the monetary economist Theodore Gregory). Robbins had included Hayek’s book Geldtheorie und Konjunkturtheorie on the reading list of his lecture class “The Theory of Capital and Interest,” and he knew and was impressed with Hayek’s 1929 article that criticized the ideas of the Americans Foster and Catchings. More generally, people there wanted to know more about the new Austrian theory of the trade cycle (Howson 2011, 176–78). This is perhaps an appropriate place to correct an error that has crept into the secondary literature: the claim that Hayek was invited by Robbins 6. Howson 2013, 7–8; for more on the rivalry with Cambridge, see Caldwell 2004, 169–71. 7. At English universities at the time there were typically three terms in the academic year, which began in early October. The terms were anywhere from eight to ten weeks in duration, and named Michaelmas, Lent, and Summer, except at Oxford and Dublin, where they are called Michaelmas, Hilary, and Trinity. There is typically a break of about four weeks between the Lent and Summer terms. The three-month break over the summer is often dubbed the long vac (vacation).

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to serve as a counterweight to Keynes, with whom he had just tangled on the Committee of Economists. It is wrong on two counts. First, because they were university lectures, the invitation came from LSE Director Beveridge, not Robbins. And second, as Susan Howson has pointed out, Hayek’s lectures were announced in the LSE calendar before the 1930/31 academic year had begun, and Hayek in a letter to Robbins in August 1930 makes reference to his upcoming trip. Robbins’s dispute with Keynes took place after all that, in the autumn of 1930. Though in retrospect it is evident that Hayek’s theory directly challenged the one then being developed by Keynes, the initial invitation was not prompted by the Robbins-Keynes battle, which had not happened yet, or by Keynes’s 1930 book, which had not yet been published (Howson 2001, 369–70; 2011, 178; 2013, 7).8

The 1931 Visit As noted above, Robbins and Hayek were in contact with one another the summer prior to the visit; their initial correspondence was prompted, ironically (given his skepticism about the uses of empirical methods in economics), by a letter Hayek had received from Irving Fisher about efforts to launch a new international society of economists. The initiative would lead to the foundation in 1931 of the Econometric Society, and in 1933 of its journal Econometrica.9 Joining Fisher in the effort were Ragnar Frisch and Joseph Schumpeter—the latter being, in contrast to Fisher and Frisch, an admirer but not a practitioner of econometrics. The society’s goal was the furthering of the application of statistical and mathematical methods. Hans Mayer had been among those contacted, and upon his recommendation Hayek and other Austrians like Haberler, Morgenstern, and Schams were on the invitation list for the founding meeting in Cleveland in December 1930. None of them attended, and though Hayek joined the society as a member in 1930, his subsequent interest in it was limited. He was elected a fellow only in 1947, becoming only the third Austrian, after Haberler and Tintner. Anyway, at a conference in Berlin earlier in 1930 Hayek had discussed 8. Joan Robinson, who once said that Hayek was brought from Austria “to provide a counter-attraction to Keynes” (Robinson 1978a [1972], 2), bears some responsibility for the myth. Hayek himself probably contributed to it when in reminiscences he said that Robbins, after reading his paper on Foster and Catchings, thought, “This is the thing we need at the moment, to fight Keynes. So I was called in for this purpose” (Hayek 1994, 77). Cf. Shehadi 1991, 381. 9. On the early history of the Econometric Society see Bjerkholt 2014, 2015, and 2017; see also the lists of members and fellows in the regular issues of Econometrica.

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with George Schwartz, the secretary of the London and Cambridge Economic Service, the idea of organizing a meeting of “younger economists,” and Hayek was unhappy that Fisher (who in Hayek’s estimation was “particularly unsuitable” to do so) was now attempting a similar endeavor (Hayek to Schwartz, July 31, 1930). The source of Hayek’s doubts regarding Fisher is unclear. They had met at the annual meeting of the American Economic Association in Washington in December 1923, and afterward Hayek—again somewhat ironically—provided him with information on how a number of price indices for the Austrian economy were computed (Hayek to Fisher, Feb 20, 1924). His animus toward Fisher in 1930 may simply have been based on the latter’s promotion of the idea that one could stabilize economic activity through stabilization of some general price level, an idea that Hayek had repeatedly criticized.10 Hayek asked Schwartz to let Robbins know that he and some others were already discussing forming an association, and to ask if Robbins might also let Fisher know of their plans, so that the two groups might cooperate (presumably with Robbins rather than Fisher organizing things). This curious exchange was what led to the initial correspondence between Robbins and Hayek. Robbins sensibly told Hayek that there was no need or reason to contact Fisher, that they should simply go ahead and pursue their own plans independently. Responding from his summer vacation cottage in Schladming, Hayek expressed agreement, then presented in a long Hayekian sentence a possible way forward: “I think it would be quite sufficient, if a few persons, perhaps you, Mises, and perhaps Gregory, Ohlin (for Scandinavia), Sraffa (for Italy), Roepke (for Germany), and perhaps also some younger Dutch economist (G. M. Verrijn-Stuart, son of C. A. Verrijn-Stuart?) would agree to form a provisional committee and to draw up a list of some twenty or thirty persons to be asked to meet, let us say in September 1931 in some centrally situated place (Switzerland or Holland?) to discuss on three consecutive days three subjects selected by the committee” (Hayek to Robbins, Aug 20, 1930). The conference never took place, but the proposal gives some idea of how Hayek then saw the world of economists dividing up, and also of his penchant for directing, behind the scenes, institutional initiatives. In his summertime letter Hayek told Robbins that he did not want to try to write up an English version of “Widersinn des Sparens” and wondered whether it might not be possible instead simply to have the German paper translated and published. We do not know exactly what steps Robbins took next, but that autumn his friend from his days as a student at LSE 10. See Fisher 1911, 1920. Fisher would be the first economist whom Hayek would criticize by name in his first University Lecture; see Hayek 2012a [1931a], 194–95.

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and Hayek’s from schooldays, Georg Tugendhat, and a recent LSE graduate, Nicholas Kaldor, undertook a translation.11 The completed article, under the title “The ‘Paradox’ of Saving,” would appear in the LSE house journal, Economica, in May 1931. Kaldor had come to LSE from Humboldt University in Berlin as a visiting student in the summer 1927 term but ended up enrolling as a fulltime undergraduate and soon fell into Robbins’s orbit. He finished his BSc (Econ) degree in 1930, earning one of the only two firsts on the degree; the other went to another Robbins protégé, Honor Scott. Kaldor would spend the summer term as a student at the University of Vienna, where he participated in Hayek’s joint seminar with Haberler and Morgenstern. At the time, all of his publications were thoroughly rooted in the specifically Austrian version of liberal thought. After “Paradox” was done, he was tapped to do a translation of Hayek’s Geldtheorie as well, a task he ultimately would undertake and complete with his by then married LSE classmate, Honor Croome (Thirlwall 1987, 18–33). Ironically given this fine start to their relationship, Nicky Kaldor would eventually become one of Hayek’s bêtes noires. The January trip to England was meticulously planned. Hayek would first go to Cambridge, where he would present an abbreviated version of his LSE talks before the Marshall Society. Next he would travel to London, present his four lectures, then carry on to Edinburgh for a book-buying expedition; at the time Scotland had a reputation as a cheap place to buy old books (Bartley interviews, Apr 16, 1987). He would next catch a boat from Newcastle to Rotterdam, then travel by train via Cologne to Vienna. Along the way he would try to see as many people as he could. The whole trip would take two weeks. Meanwhile, Hella would go on a skiing holiday with friends, Christine would be left with relatives, and in everyone’s absence the flat would be painted. Hayek made all of his connections and indeed saw a lot of people, but little else in the family plan worked. The trip itself almost did not come off: Hayek caught a bad cold the week before he was supposed to leave and was bedridden until the last moment. On his departure he left a bag somewhere in Vienna, presumably the train station. (Luckily someone found it and returned it to Hella.) Meanwhile Christine came down with a fever that lasted long enough that Hella never got to go skiing and the flat had to be painted while she was there, which she described as a “chaotic” experience (Hella to Fritz, various, Jan 1931). 11. After studying at LSE Tugendhat went on to become the London correspondent of the Vienna Neue Freie Presse.

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Hayek wrote Robbins on Friday, January 23, to tell him that he had arrived safely in Cambridge and to let him know when he would arrive in London. He was to speak at the Marshall Society that evening but had decided to stay over until Tuesday morning because he had been invited to attend the regular meeting of the “Keynes Club” (held weekly in Keynes’s rooms at King’s College) on Monday night. He explained why he was especially keen to do so: “I would like to have an opportunity to fight Keynes on the subject of his recent broadcast which, to say it frankly, horrified me. It has also put me in a somewhat delicate position here because I had prepared my lecture for the Marshall Society so as to denounce as an extremely dangerous popular delusion the very same doctrines which Keynes has now put forward” (Hayek to Robbins, Jan 23, 1931). Hayek had either heard Keynes’s broadcast when it happened on January 12 or read it, possibly in the Listener, where it was published two days later under the title “The Problem of Unemployment.” Keynes would include it in his Essays in Persuasion later that year as “Saving and Spending” (J. M. Keynes 1972a [1931b]). In it he noted that there were many remedies being offered to counteract the current downturn, some good, some bad, but that the worst of them urged people to save more. The correct policy is quite the opposite: households, municipalities, and “patriotic housewives” should instead “sally out tomorrow early in the streets” and spend, for “you cannot set men to work by holding back” (138–39). Keynes closed by urging his listeners: “we must not draw in our horns; we must push them out. Activity and boldness and enterprise, both individually and nationally, must be the cure” (141). It was a patented Keynes performance, but for Hayek, the policy proposals sounded like the same sort of underconsumptionist nostrums that Foster and Catchings had offered to the American public. We do not know whether Hayek attended the Keynes Club session; there is in any case no evidence of their meeting on this trip. The Marshall Society event did take place, and Keynes’s protégés Joan Robinson and Richard Kahn were among those in attendance. Hayek reported in a letter to Hella that he had had an interesting time at the lecture, and she replied that he would have to tell her what it was like to finally meet all of the “strange birds” in person and not just through reading (Hella to Fritz, Jan 26, 1931). In addition to the people he saw at the Marshall lecture, his datebook listed meetings with Mrs. Marshall, Richard Kahn, and Piero Sraffa. Dennis Robertson, who was then at Trinity, provided him with a room (Hayek to Robbins, Jan 23, 1931). The Marshall Society talk was doubtless interesting, but probably not altogether pleasant for Hayek. Some forty-odd years later, Joan Robinson in her Ely Lecture talked about how Hayek had “covered the blackboard

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with his triangles” and about the “pitiful state of confusion” within economics that his talk, in retrospect, represented. In her recounting, Kahn had “asked in a puzzled tone, ‘Is it your view that if I went out tomorrow and bought a new overcoat, that would increase unemployment?’ ‘Yes,’ said Hayek. ‘But,’ pointing to his triangles on the board, ‘it would take a very long mathematical argument to explain why’” (Robinson 1978a [1972], 2–3). In his own reminiscence, Kahn (1984) observed: “It is only fair to Hayek to mention that he had to condense four lectures into one, and that they were written when he had a high temperature” (182).12 On Tuesday morning, January 27, Hayek took the 9:05 train to London. After stopping at the Strand Palace Hotel to deposit his luggage, he went to Lionel’s office. The latter recalled the moment they first met: “I can still see the door of my room opening to admit the tall, powerful, reserved figure which announced itself quietly and firmly as ‘Hayek’” (Robbins 1971, 127). Thus would begin a great (though for a certain period, fraught) friendship. The lectures were delivered over the course of the next four days, during which Hayek also met a number of other academics. On Saturday he left for Edinburgh. The rest of the trip appears to have come off without mishap.

The LSE University Lectures From all accounts by eyewitnesses, Hayek’s University Lectures were a smashing success. Robbins (1971) himself dubbed them a “sensation” (127). Ronald Coase (1994b), then an undergraduate studying for the Commerce degree, recalled, “They were undoubtedly the most successful set of public lectures given at LSE during my time there, even surpassing the brilliant lectures Jacob Viner gave on international trade theory. The audience, notwithstanding the difficulties of understanding Hayek, was enthralled” (18). In the previous chapter we offered an account of the theoretical content of the lectures. We offer here a very brief summary, with the goal of explaining why the reception of his talk was so different in London as compared with Cambridge. In his opening lecture Hayek lamented the recent turn toward quantitative analysis that focused on the relation between money and general price levels, ignoring the importance of changes in relative prices, then recounted stages in the development of (mostly British) monetary theory that he felt were far more sophisticated but forgotten. He concluded his his12. Hayek’s (1931d) Marshall Lecture, titled “The Purchasing Power of the Consumer and the Depression,” has been published as Hayek 2012b, chap. 2. The original paper may be found in FAHP 188.1.

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torical survey with the contributions of Wicksell and Mises, whose ideas would provide the starting point for the new theory. The next two lectures expounded Hayek’s theory. In the second lecture, after introducing the elements of Austrian capital theory, he sketched—by means of his famous triangles—the economy’s reactions to voluntary or forced saving, giving rise to either successful or failed traverses. In the latter case, the boom generated by monetary expansion would sooner or later give way to crisis and depression. In the third lecture, Hayek elaborated the price-theoretic basis of these processes. In particular, he emphasized the signal function of the structure of relative prices of the goods produced in the various stages of production, for which he coined the term “price fan.” In the final lecture Hayek turned to policy issues. Though neutral money as a policy goal might be easy enough to state in an abstract model, knowing how to achieve it in practice was quite difficult. He went on to caution, though, that the popular notion of an “elastic currency,” that is, of adjusting money to the movements of output, seemed to him to be a deliberate and harmful deviation from neutrality. There are a number of reasons why Hayek’s reception was so different in London than it had been in Cambridge. In London in his first lecture he provided compelling evidence of his full command of the history of monetary theory. True, he was a foreigner with an impenetrable accent, but he clearly knew more about the history of monetary thinking (including British monetary thought) than virtually anyone else in the room. He followed this with an exotic and strange model of the time structure of production— all those triangles!—which he then linked to a theory of the cycle, one that seemed to make sense of at least some recent experience. The British economists were eager to see what was going on in continental theory, and he did not disappoint them. He then used the model to offer some policy conclusions. From history to analysis to policy, he covered all the bases. It was a tour de force. In Cambridge, on the other hand, he began his single lecture rather aggressively, lamenting the current state of thinking on monetary issues, then went directly from what would be viewed as a very strange model to policy conclusions, conclusions that anyone familiar with Keynes’s work would have viewed as wholly counterintuitive (recall Keynes’s advice to patriotic housewives to spend in his radio talk, and Kahn’s puzzled question). He would at best have been simply confusing, and hence unconvincing, in Cambridge. Later, of course, when his analysis was held up as a potential real competitor to that of Keynes, there would be other disagreements. But on his first foray into Cambridge society, Hayek would likely have been viewed as a mere continental curiosity, and certainly not as a threat.

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If the LSE lectures had been a hit, their written form left much to be desired. Robbins once characterized them (though not to Hayek) as a set of “very inchoate notes” (Howson 2011, 198), and graciously offered to help Hayek transform them into a manuscript suitable for publication in English. His efforts were substantial: at one point Hayek confessed to being “horrified” at how much work Robbins had done, noting, “If anybody had done for Wicksell what you are doing for me he would not have had to wait thirty years before he was (post-humously) appreciated according to his merits.”13 The book, Prices and Production, was published later that year, and Robbins added a laudatory foreword that included the following sentence: “I cannot think that it is altogether an accident that the Austrian Institut für Konjunkturforschung, of which Dr. Hayek is director, was one of the very few bodies of its kind which, in the spring of 1929, predicted a setback in America with injurious repercussions on European conditions” (Robbins 1931a, in Hayek 2012a, 172). This sentence is doubtless the source of the misconception that Hayek had predicted, on the basis of Austrian cycle theory, the 1929 economic downturn. That myth persisted through time, even to when Hayek received his Nobel Prize.14 Neither at the time nor in his later reminiscences did Hayek claim so much for himself. In the preface to the German edition of Prices and Production he simply referred to earlier work (Hayek 1925b) in which he had drawn “attention to the immense possibilities for credit expansion created by the Federal Reserve System, as well as the inherent dangers of a policy geared towards the stabilization of the price level” (Hayek 2012a [1931b], 184n8). In a letter to Robbins he cautioned that “it cannot be said that the record of my institute has since 1929 been a clear one of confirmed diagnosis” and that he would prefer that Robbins simply state that it had been more successful than most similar institutions (Hayek to Robbins, May 11, 1931). In later reminiscences Hayek characterized the prediction as at best an indirect one, saying that the revival of the European economies would depend on the collapse of the American stock market boom, for otherwise interest rates in Europe would stay so high as to make any investment unprofitable (Hayek 1977b, 17). The relevant passage from 1929 reads: “Up to now, the setback of the American economy, which has been expected for some time, has not occurred. As has been repeatedly pointed out [in 13. Hayek to Robbins, Feb 24, 1931; cf. Hayek 1994, 76. An edited version of the manuscript may be found in FAHP 138.6–9. 14. See, e.g., Lundberg (1975, 243) for a weak version and the New York Times, Oct 10, 1974, for a strong one.

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the Monatsberichte] it would facilitate the situation of the European economies” (Monatsberichte, Aug 1929, 142). Note that Hayek wrote as if the setback had been generally expected and also that were it to happen, the repercussions for Europe would not be “injurious” (as Robbins maintained), but beneficial. Therefore, as our discussion above of Hayek’s work as director of the Vienna Institute has shown, there is no textual evidence for Hayek’s ever having forecasted the depression as a concrete event in place and time, and indeed he had been skeptical in his writings about making such forecasts. Later in the spring of 1931 serendipity struck again. Hayek had not been the only visitor to LSE that academic year; Jacob Viner had given some lectures on international trade at the end of the Michaelmas term that rivaled if not exceeded Hayek’s in their reception. Robbins suggested to Director Beveridge that Viner would be a good candidate for a chair that had in November 1929 been transferred from King’s College, University of London, and was now tenable at LSE, the Tooke Chair of Economic Science and Statistics, and Beveridge made him an offer. Ultimately the University of Chicago made a counteroffer that kept Viner there, and an offer of the chair to the British economist Hubert Henderson followed. When this too was turned down, the decision was made to use the position for visiting appointments until a suitable permanent candidate was identified. Given the evident success of Hayek’s University Lectures, Beveridge floated the idea of offering him a visiting professorship for the 1931–32 academic year, and both Robbins and Gregory voiced their enthusiasm. Robbins let Hayek know that, absent any glitches, an offer letter would be coming. Hayek was initially concerned about whether he would be able to take a leave of absence from the Institute and about whether and how to manage moving his family to London. Once the offer came, however, Hayek immediately accepted it (Howson 2011, 196, 200; 2013, 7; Klausinger 2011, 137; Hayek to Robbins, Apr 9, May 5, 1931).15

Lionel and Fritz Hayek said that when he first met Robbins in London in January 1931, “we  at once understood each other” (Hayek 1994, 77). Over his long life 15. The letter from Beveridge, dated April 27, 1931, invited him for the full academic year, but if that were not possible, for the first two terms. Hayek’s acceptance letter was dated May 5, 1931. His salary would be £330 per term. This information comes from notes on Hayek’s LSE Personnel File, one that Caldwell consulted on March 26, 2001 but that appears now to have been lost.

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Hayek would have many acquaintances, but by his account only three real friends: Lionel Robbins became the third, after Walter Magg and Herbert Fürth (IB 28). Robbins was certainly an exemplary friend in the early days. He assisted Hayek with the task of turning the University Lectures into Prices and Production, and he was instrumental in arranging for the translations of “The ‘Paradox’ of Saving” and Monetary Theory and the Trade Cycle and in making sure that the translations were adequate.16 He offered Hayek advice on the move to England, and given that Hayek and his family ended up in a rental house just a couple of minutes’ walk from where Robbins lived in Hampstead Garden Suburb, he probably also helped out with that transition. For his part, Hayek seemed taken with Robbins from the very start. Hayek usually comes across as somewhat proper, even a little reserved, in his professional correspondence. With Robbins, it was different. In his first letter after returning to Vienna he bordered on the effusive: “The all-tooshort days in London have been some of the happiest I had for a long while and you have so thoroughly spoilt me that I shall feel it hard to accustom myself again to my modest position at home.” He shared gossip about Frank Knight,17 who had apparently had a nervous breakdown when he arrived back in America from a trip to the continent, joking that it was “obviously an effect of his too close contact with Spann and the German Naturphilosophie, poor man!,” and about Spiethoff, who had become a “convinced ‘nazi,’” lamenting, “What is it good for, then, to study economics for forty years?” He was keen to get Robbins to come to the Austrian Alps, his favorite place, where he could arrange a small meeting with a few people, but he also wanted Iris and the family to come: “my wife shall be glad to help in regard to problems as the possibility of getting suitable and not too un-

16. Robbins was very hands on in this regard. In a letter of April 3, 1931, Hayek thanks him for correcting Kaldor and Tugendhat’s translation of “The ‘Paradox’ of Saving,” and in another on August 14, 1932, he thanks him for his work on the Monetary Theory and the Trade Cycle manuscript. 17. As Emmett (1997) notes, “Shortly after moving to Chicago in 1928, Knight began to experience serious health problems. Health complaints are common in his letters to both family and friends during the late 1920s and early 1930s, and he apparently considered taking disability leave from the University in 1928. While the intensity of the pains he experienced eventually diminished, he never fully recovered his health; in letters to friends throughout the rest of his life he complained of tiredness and either being overworked or not being able to work for health reasons” (233).

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English food for your children, etc.” (Hayek to Robbins, Feb 14, 1931). This seems like a letter to someone he had known for years, not to someone he had first met only a month before. In subsequent correspondence Hayek displayed an openness and directness that again contrast with most of his other correspondence. He was always asking for Robbins’s advice, both general (what sorts of possibilities are there in London for housing?) and at times quite specific (should he bring his library? should he try to give a lecture at the British Association? should he anticipate a large tax bill?). He also asked about British university practices, for example, the “distinction between ‘classes’ and seminaries” (Hayek to Robbins, May 5, 1931). Hayek was clear-eyed about his own limitations, preferring to avoid formal lectures: “Not because I am lazy but because I am sure that, at least at the beginning it will be tiring for the students to listen without interruption for an hour to my bad English” (Hayek to Robbins, May 23, 1931). The friendship with Robbins would deepen over time. But Hayek was referring to more than their mutual personal attraction when he said that he and Robbins immediately understood each other. They also shared common beliefs about what constituted proper economics, and therefore an antipathy toward those who seemed willing to cast it aside. And there were many such voices in England (and elsewhere) in the 1920s and early 1930s, for it seemed that the old verities so dear to their hearts had ceased to work. If the world at the end of the Great War had become a very different place, it continued to change and in uncongenial ways in the years that followed.

Protectionism and “Monetary Hereticisms” The British economy was stagnant through much of the 1920s. Even before the war, foreign competition had begun to undermine England’s industrial, manufacturing, and commercial sectors, and this was aggravated by disruption of trade during the fighting. Worse, many export markets did not revive when the conflict was over. In the best of circumstances, the 1920s would have been a painful period of structural adjustment for Britain. There was a deep recession in 1920–21 (the unemployment rate peaked at over 22 percent in July 1920), but in contrast to the United States, it was not followed by a boom. Unemployment remained “stuck in a rut” (the colorful phrase is due to Keynes) in the 10 percent range for the following three years. Then in 1925, the government decided to return England to the gold standard at the overvalued prewar parity of £1 = $4.86. Maintaining it kept interest rates high, further battering export industries and ensuring that

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the unemployment rate would stay in the 10 percent range for the rest of the decade. The slump of 1930, as the beginning of the Great Depression was then called in England, only forced it higher.18 There were plenty of diagnoses on offer of what had gone wrong. There were a host of amateur economists of the Major Douglas or Foster and Catchings ilk. But others had to be taken more seriously. The most eloquent and authoritative voice was that of John Maynard Keynes, who made his fame by warning against a return to the gold standard at the prewar parity.19 At a famous dinner party in 1925 he tried to convince the then chancellor of the exchequer, Winston Churchill, of the inadvisability of the move. Unsuccessful, he got some revenge by skewering the decision in a series of articles that were later brought together under the wickedly clever title The Economic Consequences of Mr. Churchill (J. M. Keynes 1925a; Moggridge 1992, chap. 17). Why didn’t the economy return to something approaching normal? The structural problems have already been noted, which the return to gold only exacerbated. But even with an overvalued exchange rate there was still supposed to be an equilibrating mechanism, effective albeit painful, that would restore the economy to something like full employment: falling wages and prices, which would make British exports more competitive. But there seemed now to be new problems that precluded the usual mechanism from working. Owing to the growing strength of labor in the 1920s (a clarifying moment came in May 1926, when there was a general strike), there was powerful opposition to the requisite cuts in the money wage. As Keynes saw it, the deflation necessary to bring the economy back into equilibrium would take a very long time to work, during which the high level of unemployment would persist, possibly leading to labor unrest, if not outright revolt. It was in considering this dismal situation that Keynes began endorsing another solution, one that went beyond the “nostrums of laissez faire,” one that he himself characterized as a “drastic remedy.” The state should undertake an extensive program of public works that would put men back to work. There was a further benefit: once these projects were underway, it would be discovered that “prosperity is cumulative” (J. M. Keynes 1981 18. For a fuller discussion of the economic background, see Caldwell 1995, 3–9. 19. Interestingly, Hayek also objected to the return to the prewar parity; see, e.g., Hayek 2012b [1933f]: “The evil effects of this delusion [of the return to a “normal price level”] were experienced in this country after the war-time inflation, when an attempt was made to use deflation in order to restore prices to the pre-war level, which was then considered normal” (181).

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[1924b], 220; emphasis in the original). Keynes was coming up with these very “Keynesian” remedies complete with a rudimentary idea of the multiplier as early as 1924; as his first biographer, Roy Harrod, put it, the article in which these words appeared contained “the outline of the public policy which has since been specifically associated with his name” (Harrod [1951] 1982, 350). He continued to promote them in the later 1920s, in popular writings, in a series of Liberal Summer Schools held in Cambridge and Oxford, and in evidence he offered before the Macmillan Committee on Finance and Industry. Often, though, it seemed that “his initiatives in policy dragged along a justifying body of theory in their wake—sometimes improvised on the spot” (Clarke 1988, 73). In October 1930 he had another opportunity to voice his views, this time on a committee of economists formed as a part of the Economic Advisory Council and charged with finding remedies for the slump. He was joined on the committee by A. C. Pigou, Hubert Henderson, Josiah Stamp, and Lionel Robbins.20 The meetings of the committee did not produce unanimity, as the chair of the committee, Keynes, had hoped. Robbins ended up dissenting from the rest, writing a minority report in which he opposed two proposals, both being pushed by the chair. One of these, a call for increased public spending, was unsurprising, but the other constituted a new wrinkle: a tariff on imports and bounty on exports that, if set at the right levels, would just correct the degree of overvaluation of sterling. The two policies were to work in tandem, as a response to an economy stuck in disequilibrium at an overvalued exchange rate. The argument was novel, drawing on an analysis concerning divergences between savings and investment that Keynes had developed in his soon to be published book, A Treatise on Money. Keynes’s willingness to abandon free trade went completely against all that Robbins believed. In his notes, Robbins wrote that Keynes, “[h]aving broken with Free Trade, [was] determined to vilify it. One could not dislike him. One could only wish that Providence had combined such a noble brain with a temperament less mercurial” (Robbins, quoted in Howson 2011, 192). Things got a bit nasty for a while: Keynes tried to prevent Robbins from attaching the minority report but eventually backed down.21 20. Arthur Cecil Pigou was the successor to Marshall’s chair at the University of Cambridge; the economist Hubert Henderson was lecturer at Cambridge and editor of the Nation and Athenaeum, 1923–30; Josiah Stamp was a director of the Bank of England. 21. For more on the conflict on the Committee of Economists, see Robbins 1971, 150– 56; Moggridge 1992, 497–507; Howson 2011, 180–95. The text of the report, including Robbins’s dissent, is reproduced in Howson and Winch 1977, 180–243.

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A few weeks later, on November 11, 1930, Robbins presented a paper before the London Economic Club titled “The New Arguments for Protection” and published a slightly revised version in Economica in February 1931, which contained a separate section addressing some of Keynes’ arguments. Robbins acknowledged how difficult he found Keynes’s book: “it is a perilous undertaking to expound the high mysteries of any part of the Treatise on Money.” But he also was careful not to accuse him of being a protectionist: “An Economist is not to be described as a Protectionist because he believes in the possible validity of one theoretical argument for Protection, and there is nothing in the whole Treatise on Money which would render the suggestion that Mr. Keynes wished to group himself with the current advocates of Protection anything but grossly improper” (Robbins 1931b, 57). Robbins was leaving Keynes an out, and indeed was profoundly hoping he would take it. He would again be disappointed. Up until this point this was a dispute among economists. All that changed in March 1931, when Keynes came out publicly in favor of a revenue tariff in the New Statesman and Nation (J. M. Keynes 1931c). At the invitation of the editor, Kingsley Martin, Robbins responded the next week, repeating his earlier arguments but also noting the “tragedy that he who shattered the moral foundation of the Treaty of Versailles should now turn his magnificent gifts to the service of the mean and petty devices of economic nationalism” (Robbins, quoted in Howson 2011, 198). The exchange was sufficiently prominent that Hayek read it in a German magazine a few days later (Howson 2011, 199). A flurry of exchanges with other economists followed.22 Hayek would soon join the battle as well, addressing not protectionism but rather what he termed Keynes’s “monetary hereticisms” (Hayek to Robbins, Apr 9, 1931). For during his January visit to London Hayek had agreed to review Keynes’s Treatise for Economica. Keynes of course had been an early hero of his, but Hayek had also had a taste of what it was like to be on the receiving end of his criticisms when they clashed at the 1928 Conference of Economic Services. That took place at a small private gathering. Their next and far more consequential exchange occurred in the pages of an academic journal and was read by economists around the world.

22. Moggridge 1992, 508–9. Moggridge provides a balanced discussion of Keynes’s difficult decision to abandon free trade on 511–14.

· 17 · The Encounter with Keynes

Here are collected the croakings of twelve years—the croakings of a Cassandra who could never influence the course of events in time. (J. M. Keynes 1972a [1931a], xvii) I feel like a Kassandra who alone knows that all these political troubles have only quickened a process which would have gone on in any case and that, by our own fault, i.e., because of lack of understanding of economics, we seem to be doomed to destruction. (Hayek to Robbins, July 21, 1931) Two men more different in personality, two books more different in atmosphere, two theories more mutually alien in structure than Keynes and his Treatise on one hand and Hayek and Prices and Production on the other would be difficult to conceive of. (Shackle 1992, 506)

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Maynard and Fritz The academic exchange in the early 1930s between John Maynard Keynes and Friedrich Hayek over their respective monetary theories and over the implications that such theories might carry for matters of policy has become folkloric. This makes it easy to overlook the fact that for all their apparent differences, and notwithstanding the remarks by George Shackle, Keynes and Hayek in fact shared many similarities. Part of this was because they were of roughly the same social class, of course. Still, some of their personal commonalities are striking. Each was the eldest of three children born into economically comfortable middle-class families. Each stood out intellectually from his siblings and was recognized as such by his parents. Keynes’s brother Geoffrey recalled that Maynard was “ready from an early age to join in learned discussions” and did not interact much with him or with other children

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(G. Keynes 1975, 29). As was noted earlier, Fritz also preferred the company of adults and his seniors to that of his younger brothers (IB 6). The one difference between Fritz and Maynard in this regard was that the latter “had the reputation in the family of having always been able to get the better of them in an argument,” not least due to his skill at improvising arguments extemporaneously, an attribute that others who knew him as an adult also frequently mentioned (G. Keynes 1975, 27; M. Keynes 1975, 2–3; Moggridge 1992, 24; Skidelsky 1983, 68). Both families were connected to the intelligentsia of their time and place, and congregation of this select set of peers in family homes was commonplace. Keynes’s father, Neville, was a Cambridge don, and Maynard spoke of the ubiquity of such gatherings, and of theirs being “a cultured society of great simplicity and distinction. The circle was at its full strength in my boyhood, and, when I was first old enough to be asked out to luncheon or dinner, it was to these houses that I went. I remember a homely, intellectual atmosphere” (J. M. Keynes 1972b [1924a], 213). As we saw, many of Fritz’s relatives, either directly or through marriage, were also part of the intellectual elite of Vienna. He encountered others at the dancing parties hosted by Felicitas’s father, and later at the biweekly meetings of botanists that took place in the Hayek home. That said, Fritz’s father would have envied Neville his established position in the academic community, the one thing that he himself longed for his whole life but never achieved. Though both families were financially well enough off prior to the Great War, the Keynes household was the more secure. Neville owned the house where Maynard grew up at 6 Harvey Road and was able to buy the house next door when Maynard was born. Later, Neville purchased another Cambridge property, this one on Bateman Street next to the house of his mother (Skidelsky 1983, 51–52). Because of the nature of August’s medical practice, the Hayeks rented flats throughout his childhood, though as we saw, after August’s death the family was able to purchase some land in Grinzing. We recall that by Fritz’s own account his parents tried to keep up a standard of living that they really could not afford, because his father was more intent on pursuing his scientific interests. It was a trade-off, but they still were able to live comfortably enough (IB 7). Again typical of their class, each family would spend an extended period in the countryside during August and September. These were not extravagant outings; the farmhouse that Neville Keynes rented cost £5 a week, and the Hayeks typically would either visit with friends or relatives, or rent rooms from a family. The Keynes family would try new places: Cornwall (Tintagel), Devon, Yorkshire, Norfolk. The Hayeks would too, though Schladming was evidently the sentimental favorite. When either family

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was together, activities might include reading books aloud, but music was not an emphasis in either household. When they went out, theater was preferred to opera or concert performances. Opportunities for such activities were greater in Vienna, of course, but Maynard would make up for this later, marrying a ballerina and providing funding to create the Arts Theatre of Cambridge (Skidelsky 1983, 52–53, 56; IB 9; Moggridge 1992, 586–90). In school both boys were quick learners and as a result frequently bored and prone to make careless mistakes. As an adult Hayek suggested that both of them had the same “type” of mind—that is, they were muddlers, rather than masters of their subjects (Hayek 1983a, 120). Like Fritz, Maynard “was totally unable to draw” (G. Keynes 1975, 31). As children both occasionally underperformed academically relative to the standards expected, though in this regard Fritz was far more of a problem for his parents than Maynard. This may have been because Neville was a bit more “proactive” than August in monitoring his son’s progress, especially after it was decided that Maynard would enter into a scholarship competition to attend Eton, an effort that ended in success (Skidelsky 1983, 72). Both boys joined in their fathers’ hobbies or avocations: stamp collecting and golf for Maynard; nature walks with the family and collecting, pressing, and later photographing flowers for Fritz. At various points both kept meticulous, even obsessive records of their activities. Maynard retained golf scorecards in which he recorded not only the score on each hole (in his first game, aged thirteen, he shot a 256), but also weather conditions and other minutiae; later he would keep similarly detailed accounts of his winnings and losses at the bridge table (JMKP PP.13; Moggridge 1992, 248). For Fritz, as we saw, record-keeping revolved around his trips to the theater and, later, the books he read. Both began collecting books at an early age, a pastime they would enjoy through adulthood. By their teenage years, both were confirmed agnostics. And both happened to be tall for their age: by age fourteen Keynes exceeded his father in height (Skidelsky 1983, 54, 67, 86, 114). Outside of their families, neither had much contact with members of the opposite sex. For Fritz the chief exception was, of course, his dancing lessons with cousins Lenerl and Lieserl. Both shared the male perception of their day that girls were not to be taken too seriously when it came to intellectual matters. Institutional practices of course reinforced this: there were limits on the educational opportunities afforded to girls, though matters were slightly better in the more cosmopolitan Vienna than in the ancient university town of Cambridge. The educational reforms that permitted women to take university degrees put in place in Vienna after the Great War did not reach Cambridge until 1948. Indeed, one Keynes biographer states flatly—albeit in the context of a discussion of Keynes’s youthful

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homosexuality—that Maynard “had been brought up to believe that women were inferior—in mind and body” (Skidelsky 1983, 129). Though Vienna was less insular than Cambridge, Hayek would have been raised under the same set of lived, if unstated, assumptions. There were, of course, some differences. Fritz was far more athletic: playing tennis, skiing, hiking, and climbing took up much time on holidays. Maynard disliked hiking and took little interest in sport outside of golfing with his father. Hayek enjoyed dancing, which Keynes detested. Fritz was an enthusiastic participant in his family’s nature walks and enjoyed collecting specimens. In contrast, Maynard “was never attracted to any kind of nature study” (G. Keynes 1975, 30; cf. Skidelsky 1983, 54). He did, though, seem to enjoy weeding. We end by noting two final commonalities. The first, less evident perhaps today, is that they were both in the end committed liberals. They defined liberalism differently, to be sure, Keynes even asking in the mid-1920s “Am I a Liberal?” (J. M. Keynes 1925b). But in the end his answer was yes— though of course he also wanted to change liberalism. And so did Hayek. But they started from similar bases. Second, as the epigraphs show, both thought of themselves as Cassandras, offering dire but unheeded warnings to society. It takes supreme confidence, which neither lacked, to so identify oneself. Crucially, their warnings were diametrically opposed. Who would be the more convincing? As the debate took place in English, and Keynes was Keynes, the playing field was definitely tilted in his favor. Still, in the beginning at least, the match was too close to call.

Keynes’s Treatise and Hayek’s Review Keynes’s A Treatise on Money appeared in print in October 1930.1 He had begun the book in 1924 and labored on it throughout the 1920s, finally completing the work in the summer of 1929. Toward the end of the process he decided to split it into two volumes, and a lengthy process of revision and rewriting was undertaken, which is why it took more than a year to come out. One can see from his preface that Keynes was still not wholly pleased with the result: “As I read through the page proofs of this book I am acutely conscious of its defects. It has occupied me for several years . . . during which my ideas have been developing and changing . . . The ideas with which I have finished up are widely different from those with which I began. The result is, I am afraid, that there is a good deal in this book which represents the 1. This section and the next draw on Caldwell 1995, 21–31.

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process of getting rid of the ideas which I used to have and of finding my way to those which I now have” (J. M. Keynes 1971c [1930], xvii).2 Keynes hoped that the Treatise would be the work to bring him recognition as an economic theorist equal to that he already enjoyed as an essayist and public intellectual. He also hoped to construct a theoretical edifice that would support his policy views. The model that he developed in book 3 of the Treatise incorporated certain ideas about the natural rate–market rate of interest distinction that he had borrowed from Knut Wicksell, the same theorist whose ideas Hayek had used in his own work. Keynes grafted these concepts onto a Marshallian framework, in which all adjustments came through prices. His model consisted of a series of rather nonstandard definitions of variables that interacted in two “Fundamental Equations” that he used to derive his result, namely, that a failure of adjustment between savings and investment was a perennial cause of problems for modern monetary economies. But the model itself was exceedingly opaque. Indeed, Keynes himself admitted in his preface that he felt “like someone who has been forcing his way through a confused jungle.” In the spring of 1931 Hayek knew little of Keynes’s long struggle and may well have initially assumed that Keynes’s arguments in the Treatise would be similar to those he had encountered in Foster and Catchings’s works, and thus easily disposed of. He doesn’t seem to have made much progress in the early months: though he told Robbins in February 1931 that he had begun working on the review, in his next three letters he was mostly concerned with his tone, being worried about appearing impolite.3 But by early May he seemed to have found his central argument: that Keynes had gone wrong by introducing the Wicksellian notions of the natural and market rates of interest without the accompanying capital-theoretic foundations (Hayek to Robbins, May 5, 1931). Then, all at once, local events with global consequences intervened. Hayek’s next letter was dated May 11, 1931, the day that the biggest Austrian bank, the Credit-Anstalt, declared bankruptcy. As the person in charge of the Austrian Business Cycle Institute, Hayek was of course distracted: “Times are here since the beginning of May so exciting and at the same time 2. To his parents he wrote, “Artistically it is a failure—I have changed my mind too much during the course of writing for it to be a proper unity” (quoted in Skidelsky 1992, 314). 3. E.g., Hayek to Robbins, Mar 2, 1931, “If it were not too impolite I would almost like to call my review ‘A Treatise on Secondary Complications,’” or Hayek to Robbins, Apr 3, 1931, “It is so difficult to find the right ‘ton’ if one does so completely disagree with a man whom one does at the same time esteem very highly.”

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the general situation so depressing that one is hardly able to concentrate for theoretical work” (Hayek to Robbins, May 11, 1931). The problem would continue. After six weeks, distraught, he wrote again: “I am now near getting mad about Keynes’s ‘confused jungle’ . . . the constant work on that most confused book have made that I feel now completely exhausted and near giving up in despair . . . the task is getting more difficult as I proceed and I do sometimes feel that I do not understand anything at all of the whole ‘Treatise’” (Hayek to Robbins, June 21, 1931). For the first time, he asked Robbins whether he might consider publishing the review in two installments. His self-assessment at the end of June was dismal and unfortunately not altogether inaccurate: “I am a little afraid that the readers will find my review still more obscure than the Treatise itself” (Hayek to Robbins, June 30, 1931). When at last he sent the completed first part, he offered to let Robbins off the hook with respect to publication: “I have done my best and worked harder on it than on anything before, but I am greatly dissatisfied . . . it still remains with you whether you think you can publish it as it stands . . . I have sometimes the feeling that I am to [sic] stupid to understand the Treatise. But so far as I have seen no reviewer has yet succeeded better” (Hayek to Robbins, July 12, 1931). And indeed the review became as dense as the book reviewed. Hayek promised to work on the next installment after his relocation to England. He arrived in London in mid-September 1931, with the plan of securing a place to live before Hella and Christine arrived. On his way he stopped in Paris and, as he had done before on such trips, had breakfast at the Café de l’Opera. It was Monday, September 21. Hayek bought a paper at the kiosk that sits in front of the restaurant. When he sat down to read it, he learned that Britain had gone off the gold standard: “and thirty percent was off the magnificent annual salary of one thousand pounds to which I had been looking forward. A year and a half later, I learnt in exactly the same circumstances and manner that the United States had also left the gold standard” (IB 80).

Keynes Responds If Keynes was not pleased with the Treatise, he was even less happy with the first half of Hayek’s (1931f) review. As Donald Moggridge (in J. M. Keynes 1973b, 243) tells us, Keynes’s “copy of that issue of Economica is among the most heavily annotated of the surviving copies of his journals, with no less than 34 penciled marks or comments on the 26-page review.” At the end of the review Keynes scribbled a final assessment: “Hayek has not read my book with that measure of ‘good will’ which an author is entitled to expect

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of a reader. Until he can do so, he will not see what I mean or know whether I am right. He evidently has a passion which leads him to pick on me, but I am left wondering what this passion is” (J. M. Keynes 1973b, 243). Keynes’s reply appeared in the November issue of Economica. That Keynes felt that a reply was necessary before the second half of Hayek’s review was even published suggests the depth of his anger, as does the fact that he chose not only to defend his own book but to attack Hayek’s Prices and Production. And what an attack it was! The book, as it stands, seems to me to be one of the most frightful muddles I have ever read, with scarcely a sound proposition in it beginning with page 45, and yet it remains a book of some interest, which is likely to leave its mark on the mind of the reader. It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam. (J. M. Keynes 1931d, reprinted in Hayek 1995a, 154)

This is Keynes at his witty wicked best. The reply produced a minor sensation, not least for its tone. Keynes’s colleague A. C. Pigou, ever the proper Cambridge scholar, disparaged Keynes’s tactic of turning his reply into an assault as the academic equivalent of “the method of the duello” (Pigou 1935, 23–24).4 Unfortunately the obscurity of both the original work and the review made it difficult to determine who, if anyone, had the upper hand. As J. R. Hicks, then teaching at LSE, would later recall, the question of the day was “Which was right, Keynes or Hayek?” (Hicks 1967, 203). We will not attempt here a detailed statement or assessment of the arguments.5 While part of the dispute involved definitional issues, the main area of disagreement concerned Keynes’s use of the Wicksellian framework. Both agreed that when the market rate of interest falls below the nat4. Subsequent assessments predictably differ in assigning blame. Whereas Denis O’Brien (2014, 14) thought Keynes’s response “abusive,” and Ludwig Lachmann (Bartley interview, 1984, in Shehadi Oral History, 3) that it showed “bad form,” Roger Backhouse (2014) suggested that by invoking Wicksell in his review of A Treatise on Money, Hayek had “effectively invited Keynes to consider his own theory” (105). 5. See Skidelsky (1992, chap. 10) or Moggridge (1992, 484–90) for summaries of the main themes of the Treatise. Hayek 1995a, volume 9 of the Collected Works, contains both installments of Hayek’s review (1931f, 1932d), Keynes’s (1931d) reply to the first installment, and Hayek’s rejoinder (1931g), as well as their correspondence and Piero Sraffa’s review of Prices and Production. There have been many attempts at assessment of the debate in the secondary literature; Goodspeed (2012) provides one from a contemporary standpoint while offering an exemplary entrée into the literature.

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ural rate of interest, entrepreneurs will increase their spending on capital goods, so that investment spending will exceed savings. But beyond that point they disagreed. Hayek criticized Keynes for not following Wicksell by deriving the natural rate from the structure of the economy (see Wicksell 1913, 1922), but instead treating it as a given. Consequently, the Treatise concentrated on (secondary) monetary complications and neglected the effects of money on the structure of the economy. In contrast, Hayek’s model included a detailed account of a specific sequence of changes in the prices of capital goods and consumer goods, and how these interacted with the structure of production. By retaining its capital-theoretic foundations, Hayek’s theory could be used to trace out the ultimate effect of the malinvestment, the downturn of the cycle. Hayek was too polite to say so, but part of the problem was that Wicksell wrote in German.6 In the Treatise Keynes had mentioned in passing his awareness of a “neo-Wicksell” school whose writings on savings, investment, and the credit cycle (he identifies works by Mises and Neisser, as well as Hayek’s Geldtheorie und Konjunkturtheorie) were similar to his own. But he went on to add, fatefully, in a footnote, “In German I can only clearly understand what I know already!” (J. M. Keynes 1971c [1930], 178). This led the Swedish economist Gunnar Myrdal (1939 [1933]) to offer his well-known observation about “the attractive Anglo-Saxon kind of unnecessary originality, which has its roots in certain systematic gaps in the knowledge of the German language on the part of the majority of English economists” (8–9). The rest of the story may quickly be told.7 Soon after their initial exchange, Hayek and Keynes began a not altogether useful correspondence on the merits of their respective frameworks. By February Keynes wrote to Piero Sraffa and R. F. Kahn, “What is the next move? I feel that the abyss yawns—and so do I” (quoted in Hayek 1995a, 172). The next month, after the second installment of Hayek’s review as well as Sraffa’s review of Prices and Production had appeared, Keynes wrote a final letter to Hayek: “Having been much occupied in other directions, I have not yet studied your Economica article as closely as I shall. But, unless it be on one or two points which can perhaps be dealt with in isolation from the main issue, I doubt if I shall return to the charge in Economica. I am trying to reshape and improve my central position, and that is probably a better way to spend one’s time than in controversy” (Keynes to Hayek, Mar 29, 1932, quoted in Hayek 1995a, 173). Keynes never did return to the charge, so Hayek probably felt 6. Note that Wicksell’s main works became available in English only in the 1930s (e.g., Wicksell 1934, 1935, 1936). 7. For a more detailed account, see Caldwell 1995.

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that he had won the day, at least in his exchange with Keynes. The letter is the source, too, for Hayek’s later comment that since Keynes had changed his mind about the Treatise and would probably do so again regarding the content of the General Theory, there was little sense in writing a review of the latter. He doubtless did not feel that he had won the day with respect to Sraffa’s review, however. It appeared in the Economic Journal in March 1932, and though equally difficult for the general reader to understand, was in the end perceived as fairly devastating.8 It focused on three crucial points: the idea of neutral money, the alleged futility of forced saving, and most important, the nature of the natural rate of interest.9 On the first point, Sraffa asked how to conceive of an economy that offers money (as we know it, in its manifold roles) a function to fulfill and yet, in the case of neutral money, renders the same results as a nonmonetary economy. Even though Hayek conceived of the nonmonetary economy as the fictitious frictionless economy of static theory, he would have had to admit that he (and in fact future monetary economists) failed in deriving a realistic model where money could both serve a function and remain neutral. On the second point, Sraffa emphasized that the capital created by forced saving would not vanish when monetary expansion stopped, so that the necessity of a return to the old equilibrium, and thus the destruction of the capital accumulated in the meantime, could not be taken for granted. In modern terminology, Sraffa pointed to the effects of “path dependence,” or in contemporary parlance the “indeterminacy” of equilibrium (cf. Kaldor 1934a). In Hayek’s view, although such effects could be granted in principle, the deficiency of Sraffa’s argument lay in its treatment of capital as if it were a homogeneous mass that could be arbitrarily used or redirected. This was just the simplification Hayek had tried to overcome in Prices and Production by emphasizing the specificity and complementarity of capital goods. The core of the debate, though, concerned the proper definition of the “natural rate” and how its equality with the money rate could be regarded as a criterion for neutrality. Sraffa raised crucial questions in this respect: If the natural rate was a commodity (or own) rate of interest, how then could it equal a money rate denominated in units of money? If it were possible for a multiplicity of such natural rates to coexist (as in long-period disequilibrium), how could they be made equal to a uniform money rate of interest? Hayek’s response to Sraffa’s challenges was less than crystal clear, but in the end turned on the fact that they employed different concepts of equi8. See Sraffa 1932a, b; Hayek 1932b, reprinted in Hayek 1995a, chaps. 7–9. 9. The following draws on Klausinger 2012a, 39–45.

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librium: While Sraffa derived the natural (that is, equilibrium) rate from the long-period equilibrium of a nonmonetary economy, Hayek referred to the intertemporal equilibrium of a monetary economy. These vital distinctions between the two approaches could not have been easily ascertained by the debate’s British audience. In particular, the notion of intertemporal equilibrium remained alien to it, as neither Hayek’s 1928 article, where it was introduced, nor his 1929 thesis, implicitly based on it, was available in English then.10 Thus, as Lachmann put it, “the ordinary economist of 1932” wavered between the feeling of “utter bewilderment” and the belief that Hayek’s ideas, so difficult to grasp, had apparently been refuted. In the end, the SraffaHayek duel “did the reputation of Austrian economics a good deal of harm. Hayek’s authority as an economic thinker of the first rank had been challenged with some vehemence in the august pages of the Economic Journal. Nobody knew what to make of it. Some of Hayek’s recently gained supporters began to hesitate” (Lachmann 1986a, 240).11 In any case, Hayek concluded that the definitive solution to all these questions called for deeper investigations into capital theory—so that possibly this exchange marked the birth of his capital project, on which more below.

Battles over Policy All this discussion in the recondite realm of theory may have delighted those with a taste for the abstruse, but much more was at stake than their respective models, for each side was drawing policy recommendations from them. And the drama was playing out against the background of profound changes in domestic political and economic conditions. In response to the spreading financial crisis in August 1931 the Labour government led by Ramsay MacDonald dissolved, and a new “National Coalition” government with MacDonald at its head was formed. A change in government and the modest palliatives that were offered did little to alter the underlying 10. For an elaboration of Sraffa’s side in the debate, see, e.g., Kurz 2000. 11. Though his disputes with Keynes and Sraffa drew the most attention, there were other reviews, respectful but critical, of Prices and Production, and sometimes Hayek responded to them (see Hawtrey 1932, Marget 1932, Hansen 1933, and Åkerman 1934). A noteworthy exchange was Hansen and Tout’s (1933) comparison of Keynes’s Treatise and Hayek’s Prices and Production in a survey for Econometrica, and Hayek’s (1934a) detailed reply. In the German debate, Hayek (1933c) contributed to the festschrift for Arthur Spiethoff (Clausing, ed. 1933)—given Spiethoff’s closeness to the historical school, the number of Austrian theorists (Haberler, Mayer, Mises, Schumpeter) one could count among the contributors is rather amazing.

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economic realities, and as gold continued to flow out, the decision was finally made in September to take Britain off the standard, as Hayek learned over his breakfast in Paris. Keynes’s “special case” argument in support of an import tariff had been predicated on maintaining the standard, so once it was given up, he acknowledged that it was no longer necessary. The political damage had been done, however. One of the first moves of the new government after the general election in October was to institute two temporary duties; more protectionism followed in subsequent months (Howson 2011, 208–9). Keynes’s reputation suffered, at least for a while. He had been a vocal advocate of free trade during the 1923 election (Moggridge 1992, 511) and reportedly as late as 1929 argued that protection would break down when one tried to apply it (Plumptre 1975, 248). So when he publicly reversed himself by calling for protectionism in March 1931, one newspaper dubbed him the “boneless man,” complete with cartoon (E. S. Johnson 1978, 17). To reverse himself yet again was too much. It was doubtless the flip-flop over trade that prompted a new version of the old joke about economists: “When five economists are gathered together there will be six conflicting opinions, and two of them will be held by Keynes” (T. Jones 1954, 19). The judgment of Lionel Robbins on the episode remains instructive: Keynes showed extraordinary naïveté. “How can you say that the public will show such reluctance?” he once said in the course of our disputes—or words to that effect. “I have never yet spoken on the problem.” One could only answer that it was not a priori reasoning but the lesson of all past experience that, once imposed, a duty tends to stick. Moreover, and this was the matter which weighed most heavily with me, once the taboo of abstention from the obstruction of imports had been broken, there was small hope that the process would stop there. And that of course was what happened. (Robbins 1971, 155–56)

Robbins was right, except perhaps about one small detail—it was as much that supreme self-confidence that was so integral to “the presuppositions of Harvey Road” as it was naïveté that had led Keynes astray.12 * * *

12. Harrod 1951, 192–93: “We have seen that he was strongly imbued with what I have called the presuppositions of Harvey Road. One of these presuppositions may perhaps be summarized in the idea that the government of Britain was and would

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But what of monetary matters? What had been the causes of, and what the right response to, the depression? What about Britain leaving the gold standard and the ensuing mess in international monetary relations? Hayek and Robbins had strong opinions on both issues, the problem of an international monetary standard on the one hand and the national policies to be pursued in the face of crises on the other. These were linked, of course: the choice of a standard would determine how much room for maneuver was left for national policies. Indeed, in Hayek’s own phrase, the overarching dilemma was the conflict between Monetary Nationalism and International Stability (Hayek 1937a). The coincidence of Hayek’s arrival with Britain’s going off gold soon led him to challenge the conventional arguments in defense of that decision.13 Hayek expressed his views rather provocatively in Cambridge’s Political Economy Club while commenting on a paper by his LSE colleague T.  E. Gregory: while Gregory had spoken very rightly but much too cautiously, the other people, in particular Hawtrey, Stamp and Blackett from the Bank and also Beveridge, uttered so much nonsense that in the end, after having twice declined to say anything, I stood up and told them all those unpleasant truths right to their faces: that England was the only country that had not kept its gold currency “according to the rules”; that America had not pursued a policy of too little but of too much credit expansion, which had been made possible by the “easy money policy” of the Bank of England; that England had been the only country that had indeed experienced a scarcity of gold, and that for the same reasons that a private household sometimes lacks money, that is because of spending more than its income; that the really noteworthy event of the period, which contradicted all prior tradition, had been that England left the gold standard at a discount rate of 4½ %; that thereby it had made it easier, and not more difficult, for the rest of the world to keep the gold standard; that the big countries have little interest in furthering England’s return to gold; and that England is in no way able to fix the conditions for such a return, and that the various conditions mentioned in the debate would imply nothing less than that England was ready to return to gold if the other countries support it and allow it not “to play the game continue to be in the hands of an intellectual aristocracy using the method of persuasion.” 13. For an almost immediate reaction, see the article by Hayek in Neues Wiener Tagblatt, Oct 7, 1931.

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according to the rules.” This left them with their mouths open. (Hayek to Morgenstern, Nov 14, 1931)

This was, in a nutshell, the story of the “fate of the gold standard” as Hayek would recount it time and again; indeed, he used literally the same formulations in an unpublished letter he submitted to The Times.14 Hayek provided a more comprehensive account in a two-part article for the German weekly Deutscher Volkswirt (Hayek 1932e). There he traced the imminent breakdown of the gold standard back to the priority that the central banks attached to the ideas of domestic stabilization over the discipline of an international standard, the triumph, as it were, of monetary nationalism over international stability. Throughout the decade Hayek remained an unreconstructed proponent of an international standard: “Under actual world conditions . . . gold may well be the most reliable and acceptable monetary standard” (Hayek 1999g [1937c], 189). He recapitulated the arguments in an article for the Economist (“A Regulated Gold Standard,” May 11, 1935). He began by noting that the case against gold rested on two accounts: first, the failure of an international standard to protect the domestic economy against disturbances from abroad, and second, the disturbances produced by fluctuations in the demand and supply of gold. Hayek rejected the first argument because with flexible exchange rates adaptations were inevitable, too, and possibly even more complicated. Furthermore, “the latitude which such a system allows to the decisions of national currency authorities would undoubtedly be abused,” as it had been, e.g., for competitive devaluations. For dealing with the second objection Hayek proposed a regulated gold exchange standard in which fluctuations in the gold base of the global money supply could be counteracted by allowing a varying share of the exchange component of the base. Later he turned for the same reason to the alternative solution of a “commodity reserve currency” (Hayek 1943a), whereby gold would be replaced by a broader basket of commodities with accordingly smaller fluctuations in its value. By that time, however, only a minority within the profession shared Hayek’s view. Rather, his proposal was rejected because, in Keynes’s succinct summary, “it attempts to confine the natural [sic] tendency of wages to rise beyond the limits set by the volume of money, but can only do so by the weapon of deliberately creating unemployment” (J. M. Keynes 1980a [1943], 31–32; see also Graham 1944).15 14. See the reprint of the letter in Hayek 1965a. 15. See also Keynes’s warning of imposing “external pressure on national standards and therefore on wage levels. I do not want to see money wages forever soaring up-

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With regard to national policies, Hayek’s view on the international monetary system as well as on the origins of cycles and crises led him to the same conclusion, a plea for caution and a warning of the perils of monetary and fiscal expansion. However, although he was active in defending and elaborating his positions in scientific discourse, Hayek’s interventions into the public debates on the issue of crisis policy were infrequent. The first appearance of Hayek’s name in this regard was in the pages of The Times on the question of spending versus saving, and of whether government should spend on projects that would not earn a rate of return sufficient to cover capital costs.16 A letter (“Private Spending: Money for Productive Investment. A Comment by Economists,” Oct 16, 1932) signed by D. H. Macgregor, A. C. Pigou, J. M. Keynes, W. Layton, A. Salter, and J. Stamp opened the debate.17 Echoing Keynes’s essay of 1931, they argued that “in present conditions” saving, whether private or public, would go against the public interest; “to spend less money than we should like to do is not patriotic.” Hayek was among the four economists from LSE (besides T. E. Gregory, A. Plant, and L. Robbins) who reacted swiftly (“Spending and Saving: Public Works from Rates,” Oct 19). In their view, expectedly, owing to the structural cause of the crisis, it was crucial to increase spending on investment (through saving), but not on consumption. Furthermore they advised governments “not to revert to their old habits of lavish expenditure, but to abolish those restrictions on trade and free movement of capital . . . which at present are impeding even the beginning of recovery.” This drew a reply by the first group of economists (“Spending and Saving: What Are National Resources? The Economists’ Reply,” Oct 22), which distinguished between an economy at full employment and one experiencing a failure of effective demand: “while in normal conditions money economy of individuals and groups of individuals means that labour and capital are set to producing capital goods instead of consumption goods, in present conditions it often means that they are reduced to idleness.” Significantly,

wards . . . It is one of the chief tasks ahead of our statesmanship to find a way to prevent this. But we must solve it in our own domestic way, feeling that we are free men, free to be wise or foolish. The suggestion of external pressure will make the difficult psychological and political problem of making good sense prevail still more difficult” (J. M. Keynes 1980a [1944], 39–40). 16. Apart from a letter to the Economist, June 4, 1932, “Foreign exchange restrictions in Danubia,” a contribution to a debate initiated by a series of articles by Nicholas Kaldor, “The Danubian Problem” (May 14, 21, and 28, June 4, 1932). 17. Macgregor was a professor at Oxford, Layton the editor of the Economist, and Salter a well-known policy expert.

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on this occasion Pigou joined with Keynes and the “expansionists.” In letters to the editor of The Times he had argued even before (June 7, 1932) the case for spending instead of saving as a matter on which “economic opinion is almost unanimous”; and on a later occasion (Feb 21, 1933) he summed up, “When in doubt, expand.” In 1933 Hayek opposed the idea of reflation in an unpublished pamphlet on the grounds that it is “the changing, not the changed price level [that] is harmful” (Hayek 2012b [1933f], 181). Hayek also warned against expansionist monetary policies in an anonymous article placed in the Economist (“The Outlook for Interest Rates,” Mar 17, 1934). According to a letter to Machlup of the same day: “Here I once more disputed Keynes’s latest form of inflationist propaganda in an anonymous article in the Economist. More and more, this man becomes a public threat. The British would be still quite reasonable, if there were not those know-it-alls who from time to time come forward with new tricks.” Whatever one might think today about the merits of Hayek’s arguments, their success in convincing his audience at the time was not great. For someone unacquainted with Austrian business cycle theory it was hardly possible to follow Hayek’s logic through all its tacit assumptions. Furthermore, Hayek lacked the rhetorical skills with which the author of Essays in Persuasion (J. M. Keynes 1931a) was able to impress his views upon the readers. Yet it should be recalled that Hayek was ready to concede that in extraordinary circumstances good economics need not be good politics. If the political system was on the brink of collapse, as was the case of Germany’s Weimar Republic, drastic remedies might be called for. He spelled this out clearly in “Profits” (Hayek 2012b [1939b], 250n.), identifying “the situation in which Dr. Brüning found himself in Germany in 1932” as one “in which desperate means would have been justified . . . the policy of the desperado who has nothing to lose and everything to gain from a short breathing space.” Lionel Robbins was also active in these discussions. He had openly opposed reflation in the Economist (see his 1932 letters to the editor), and he had been the impetus behind the LSE letter to The Times. In a paper he wrote a year later for a Royal Institute of International Affairs study group on international monetary problems, Robbins made the case for a return to the “old-fashioned” gold standard as the least bad of the choices of allowing freely floating exchange rates or fixed but adjustable ones. But his most important contribution to the cause was his book The Great Depression, published in 1934 and based on four lectures given the year before. In it he promised to provide “at once an explanation of the chief events of recent

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economic history and a sort of running commentary on current policy” (Robbins to Machlup, Jan 14, 1934). His explanation leaned heavily on the Austrian theory of the cycle, and in his commentary on policy he criticized his reflationist rivals (Robbins 1934).

Conclusion Both Keynes and Hayek would begin rethinking their respective theoretical frameworks. Keynes, with assistance from the Cambridge Circus, younger scholars who would offer comments on his work, and from Dennis Robertson, whom he hoped but was never able to convince, finished first. In the preface to the General Theory he could tell his readers that he had finally succeeded in his “long struggle of escape . . . from habitual modes of thought and expression” (J. M. Keynes 1973a [1936], x). Keynes was confident that his book would change economics. His oft-quoted New Year’s Day letter to Bernard Shaw was prescient: “I believe myself to be writing a book on economic theory which will largely revolutionize—not, I suppose, at once but over the course of the next ten years—the way the world thinks about economic problems . . . I don’t merely hope what I say, in my own mind I’m quite sure” (Jan 1, 1935, quoted in J. M. Keynes 1973b, 492–93). And aside from timing (it would take longer than ten years), he was precisely right. He was aided in this by followers at Cambridge. But we will see in a later chapter that some of the students and staff of the LSE would also participate. In the end, even Hayek’s great friend Lionel Robbins would defect, at least to the extent of disavowing the policy recommendation of increased savings and reduced consumption so that capital markets could revive. “I shall always regard this aspect of my dispute with Keynes as the greatest mistake of my professional career, and the book, The Great Depression, which I subsequently wrote, partly in justification of this attitude, as something I would willingly see forgotten” (Robbins 1971, 154). For his part, Hayek would continue to work on his own model. It would be a long slog, with not much to show at the end of it. But he would also branch out into new areas. As for his relationship with Keynes, they would encounter each other regularly at the quarterly London and Cambridge Economic Services meetings, and then get to know each other much better, once the world turned to war again and LSE relocated to Cambridge.

· 18 · Defending Economic Theory and Interpreting Hitler

I shall certainly look for an opportunity to warn British economists from the fate of Austria and Germany. I am afraid, England too, is already at the beginning of this pernicious road which, once one has progressed far on it, seems to make a return impossible. (Hayek to Robbins, July 21, 1931)

•

Hayek Finds a Chair In his first two terms of teaching at LSE, Hayek took over T. E. Gregory’s course on the principles of currency, offered some lectures to undergraduates on problems of applied economics, a course he shared with Lionel Robbins and Arnold Plant, and then with Lionel shared responsibility for convening the advanced seminar on economic theory (later referred to as the Grand Seminar).1 He decided to exercise his option to stay on in the summer term, during which he gave eight lectures on monetary policy. Despite his worries about his command of English, he apparently made a good impression right from the start. In a letter to Josiah Stamp seeking advice on whether to extend Hayek an offer of a more permanent position, Director Beveridge wrote: “The view of Robbins, Gregory and Plant is that we cannot possibly do better than to ask Hayek to stay on regularly; he is doing very well with the students and staff and adds to the effective teaching strength of the place in a way which we cannot expect of any ordinary visitor; I am bound to say that this is my view also” (Beveridge to Stamp, Jan 18, 1932, Hayek LSE Personnel File). On August 1, 1932, Hayek became the Tooke Professor of Economic Science and Statistics in the University of London. It was a five-year ap1. We will discuss Hayek’s teaching at LSE in more depth in chapter 20.

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pointment, paying £1,000 a year. If renewed after five years, it was tenable without time limit until the age of retirement. Over the summer of 1932 the Hayek family moved to a new rental home at 15 Turner Close. The debate with Keynes during his first months at the School took on added resonance as the slump of 1930 turned into the Great Depression. But other battles loomed. Keynes was not the only person raising questions about the right way to think about, and do, economics. In addition, politics on the continent were turning ever uglier, and voices pinning the blame on a failed liberal order, always there, were growing louder. Now together at LSE, Robbins and Hayek were in a better position to offer a concerted counterattack against these new foes. Robbins struck first.

Robbins’s Essay on the Nature and Significance of Economic Science As we recall from chapter 11, Hayek had come away from his trip to America surprised to find that the institutionalism of men like Wesley Clair Mitchell was considered cutting-edge research. Mitchell’s critique of marginalism, and his insistence that economics establish itself on firm scientific foundations—which for him meant behavioral psychology (which began from observable behavior, not unobservable subjective states), the study of institutions that shape that behavior, and the use whenever possible of quantitative economic studies of the sort exemplified in his own pioneering work on business cycles—could not but remind the young Austrian of the discredited ideas of the German historical school. To his dismay he found that the ideas of other institutionalists were also being trumpeted in England. Keynes, for example, had employed John R. Commons’s stage theory of economic development in his 1925 essays “Am I a Liberal?” and “The Economic Transition in England” to argue that the Western world had moved from the age of scarcity, to abundance, to a third, new stage of “stabilization” (that word again!) in which government but also other large associations (corporations, unions, and other large collectives) aim at controlling economic forces. This fit in perfectly with Keynes’s vision that the world had changed dramatically and irreversibly since the end of the Great War. This new stage held dangers—it could lead to abuses like fascism and Bolshevism—but he hoped that it could also provide the impetus for a new variety of liberalism. Even before Hayek arrived at LSE, Robbins decided to fight against the antitheoretical bias that he found in writings of the institutionalists and that was shared by the School’s founders, people like Director Beveridge and, in an odd way, even his revered teacher Cannan (cf. Coats [1982] 1993,

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377–78). One way to do so was to build up the theoretical side of the economics being taught at the School—which was one reason for him to delight in the Hayek appointment. But he would also advocate. Robbins first laid out his views on these matters in his inaugural address, “The Present Position of Economic Science” (Robbins 1930), which can be read as a fairly direct challenge to Mitchell, but also to fellow travelers at the School. If his inaugural was an opening salvo, Robbins made the case for economic theory more fully and lastingly in his 1932 book, An Essay on the Nature and Significance of Economic Science.2 Drawing on his study of the writings of Philip Wicksteed and the Austrians, Robbins offered a definition of economics there that is still widely used in textbooks today: “the science which studies human behavior as a relationship between ends and scarce means which have alternative uses” (Robbins [1932a] 1935, 16; 1971, 146; Howson 2011, 160–61). Appearing when it did, the book was a full-throated description and defense of economic theory, as well as an attack on a diffuse set of opposing ideas. And as he would later admit, at least one section of the book was “a reaction—doubtless overdone—against the ridiculous claims of the institutionalists and the cruder econometricians and an attempt to persuade Beveridge and his like that their simplistic belief in ‘letting facts speak for themselves’ was all wrong” (Robbins 1971, 149). According to Robbins, the chief role of economics is to elucidate the choices that must be made in a world of scarcity. To do so, economics studies means-ends relationships that are built up, step by step, from a series of postulates. The postulates include that ends are multiple and can be ordered, that alternative means for achieving ends exist, that means and time are limited, and that one must therefore choose among ends and means to satisfy them. From these elementary assumptions, which Robbins asserted are based on everyday experience, one can derive the full panoply of economic concepts that the theories of economics utilize: notions of substitutability among goods, of an equilibrium distribution of goods among various uses, of equilibrium in exchange across individuals, and of the formation of relative prices in a market system. One can then add subsidiary assumptions about numbers of buyers or sellers, about the knowledge of market participants, about the legal framework in which the market operates, and

2. For more on the significance of the book, see Witztum and Cowell, eds. 2009, a special issue of Economica marking the 75th anniversary of its publication, as well as Caldwell 2004, 186–96, and Howson 2011, 160–61, 213–16.

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so on, to more fully describe the workings of typical market phenomena in their various manifestations (Robbins [1932a] 1935, 75–76). Robbins argued that critics of economics make a number of mistakes in interpreting what economics is all about. Economic analysis is “value-free” when it comes to ends, which undercuts the views of critics like Ruskin and Carlyle, for whom economics studies the pursuit of base or ignoble ends. The role of the economist, rather, is to show what means are best, given some end that is pursued, be that end base or noble. The definition also implies that there is a difference between economic and technical problems. Those who insist that all problems of production are merely technical ignore that, when resources are scarce, choices must always be made: producing more of one thing necessarily implies producing less of another (Robbins [1932a] 1935, chap. 2). In his critique of the institutionalists, Robbins noted in passing how their ideas derive from those of the German historical school, wickedly adding that “the only difference between Institutionalism and Historismus is that Historismus is much more interesting” (Robbins [1932a] 1935, 83). Their charge that economics relies on an outdated hedonistic psychology ignores that economics as he described it rests on no particular psychological doctrine, but merely elucidates the implications of choice: he could as easily have said that it is a logic of choice. He repeated the Austrian position that empirical studies have many uses, such as forecasting, checking the applicability of theory, or suggesting auxiliary hypotheses, but that they cannot be used to establish or test the basic postulates (79, 116–19).3 As for behaviorism, he noted that if one is trying to explain conduct, one must make reference to unobservable subjective states like desires, motives, and expectations (89–90). In the first edition of the book, Robbins did not answer a perennial charge of critics, that economics relies on unrealistic assumptions like rational economic man and perfect foresight, a lacuna that was pointed out by Joan Robinson in her pamphlet Economics Is a Serious Subject (Robinson 1934). In the second, 1935 edition, Robbins acknowledged that economics uses such “analytical constructions” in its models but insisted that they are merely “expository devices.” The key idea that they are intended to capture is that people act purposively. If this were more generally realized 3. Howson (2004) notes that though Robbins was familiar with the Austrian positions, “the Austrian references in the first edition were late additions, made partly under the influence of Hayek and mainly in order to mention the most recent literature” (414).

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about “Economic Man . . . it is improbable that he would be such a universal bogey” (Robbins [1932a] 1935, 97). He also pointed out why critics were so eager to castigate economists for making such an assumption: “it is generally thought that he has a wider significance, that he lurks behind all those generalizations of the ‘Laws of Supply and Demand’ . . . whose elucidation so often is inimical to the desire to believe it to be possible both to have your cake and to eat it. And it is for this reason that he is so furiously attacked” (97). Robbins’s Essay was, in short, a robust methodological defense of basic economic reasoning. Hayek would soon join the fray.

Hayek’s Inaugural Lecture In August of 1932 Hayek wrote Robbins from Vienna, where he planned to work for about six weeks before coming back to LSE to start the Michaelmas term as the new Tooke Professor. He had just returned from four weeks in the mountains and was gradually but painfully getting back to work: “I miss the physical exercise and at the same time I feel not very much disposed to mental exertion.” He was reading Robbins’s Essay to get himself back in the mood and remarked that “certain passages” in it fit in very well with ideas he was just then formulating for his inaugural lecture (Hayek to Robbins, Aug 14, 1932). Hayek delivered the lecture, titled “The Trend of Economic Thinking,” on March 1, 1933.4 He began by noting that the economist of his day “appears to be hopelessly out of tune with his time, giving unpractical advice to which his public is not disposed to listen” (Hayek 1991a [1933d], 17). The reason why, he asserted (and doubtless to the surprise of his audience), was that public opinion itself was under the sway of ideas enunciated by German economists a generation ago. His lecture would show how things got that way. It was the great contribution of the classical economists—men like Smith, Ricardo, and others—to recognize that a mechanism exists that coordinates economic activity. The mechanism did not have to be invented but arose spontaneously as the unintended consequence of the actions of many individuals; it was what Adam Smith was referring to when he talked about the invisible hand. The classicals only fully understood its existence and 4. The title may allude to Rexford Tugwell’s 1924 book The Trend of Economics. Tugwell was a colleague of Wesley Clair Mitchell’s at Columbia, and the popular book (it had been reprinted in 1930) contained a paper by Mitchell laying out the main tenets of institutionalism.

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significance when they witnessed the adverse effects of well-intentioned attempts to improve on social outcomes by interfering with its working: “Indeed, it is probably no exaggeration to say that economics developed mainly as the outcome of the investigation and refutation of successive Utopian proposals—if by ‘Utopian’ we mean proposals for the improvement of undesirable effects of the existing system, based upon a complete disregard of those forces which actually enabled it to work” (Hayek 1991a [1933d], 19). It was in pointing out the obstacles to achieving these utopian dreams that the findings of economists first met with widespread popular resentment. Enter the German historical school economists, who did not accept the existence of any “economic laws” lying outside specific historical, cultural, and institutional contexts. Though the historical school’s influence on economics faded after the Great War, its influence on popular opinion remained strong, because its ideas gave succor to those who wanted to ignore the laws of economics in constructing their own proposals for reform. If the German historical school undermined faith in general economic reasoning, the specific policy proposals being touted in the 1930s under the catchall phrase of “planning” found their origins in earlier socialist thought. The ubiquity and widespread endorsement of the idea that only through planning will conditions improve meant that there are “very few people left today who are not socialists” (Hayek 1991a [1933d], 32). Hayek concluded by noting that “recent additions to knowledge” had raised serious questions about the viability of socialism, and similar questions needed to be raised about the viability of planning (33). Toward the end of his address Hayek lightly chastised the classical economists. To their credit, they slowly came to recognize the marketplace as a complicated mechanism for coordinating the independent actions of individuals. But this led them too often to view proposals for interference negatively, so that the impression spread that “laissez-faire was their ultimate and only conclusion.” They failed to articulate the areas “within which collective action is not only unobjectionable but actually a useful means of obtaining the desired ends . . . To remedy this deficiency must be one of the main tasks of the future” (Hayek 1991a [1933d], 31). In making his point, Hayek referred to Jeremy Bentham’s distinction between the “agenda” and “nonagenda” of government. Any listener would have immediately realized he was here in conversation with Keynes, who in “The End of Laissez Faire” had also drawn on Bentham’s distinction. Originally published in the mid-1920s, Keynes’s (1926) essay had been reprinted in his popular 1931 collection Essays in Persuasion (J. M. Keynes 1931a). Hayek was signaling that though he and Keynes

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might disagree on many issues, including details of where to draw the line regarding the agenda and nonagenda of the government, both rejected the common complaint that economists were simplistic parrots of the doctrine of laissez-faire. And they were in fact on the same side when compared with the opponents of theory, be they institutionalists or more popular writers advocating economic planning. Hayek defended his position in a contemporaneous letter to Mises, a letter that surely must have rankled his mentor: “The only difference in our views refers to the question to what extent the acceptance of the principle of private property solves in itself all the problems of economic policy and, respectively, to what extent interferences into the property of one person are necessitated by the protection of the property of another person. In order to make the idea of liberalism comprehensible, it appears to me that a rather casuistic elaboration is very important—just to make clear that the position of the new liberalism is not that of laissez faire” (Mar 10, 1933). Hayek’s address complemented Robbins’s book perfectly. Robbins had argued that the foundations of economic theory were secure, and Hayek had shown why so many people had found that difficult to believe. Both contributions made clear that most critics of economics were trying not to improve the science but to overthrow it in order to pursue their own projects. But what were the “recent additions to knowledge” that would thwart these attempts? This would be none other than the German-language, socialistcalculation-debate contributions of men like Ludwig von Mises, contributions that Hayek soon enough would bring to the attention of his English readers. By asserting the relevance of the ideas of both the German historical school and earlier socialists for understanding contemporary problems, Hayek broadened the scope of the attack. Of course, both socialism and historicism had been criticized by earlier members of the Austrian school, but in Britain, most intellectuals considered themselves socialists, as Hayek acknowledged. To suggest both that socialism was flawed and that enthusiasm for it was due to the influence of German thinkers was quite provocative in the spring of 1933. Just two days before he addressed his colleagues at LSE, the German Reichstag had been set on fire. A few weeks afterward the so-called Enabling Act that ceded all power over legislation and much else to Chancellor Adolf Hitler’s cabinet for a period of four years was passed. Hitler’s remarkable and unlikely rise to power would change the course of human history and, in the small corner of the world that Hayek occupied, have enormous consequences both for the development of his thought and for his relationships with his family.

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The Rise of Adolf Hitler The National Socialist German Workers’ Party (NSDAP) was founded on April 20, 1920.5 It was one of a number of tiny political parties that formed in reaction to the “November traitors” who, in their telling, had systematically betrayed the German people in a series of acts: declaring the Weimar Republic on November 9, 1918, acquiescing to an armistice on November 11, and signing the Versailles Peace Treaty the following June. The terms of the treaty, which when announced came as a shock to a majority of Germans, were indeed harsh, involving loss of territory, an initial bout of reparations (with future additional amounts to be determined later), and the disarmament of Germany. A number of powerful interests in the new republic, among them the military caste, the Junker landlords, and those who controlled the giant industrial cartels, had little interest in supporting the new regime. They welcomed parties, no matter how unsavory, that sought to reverse their shared humiliation. A watershed year was 1923, when the Weimar government began paying its reparations by printing money. Hyperinflation was the inevitable result: by late 1923, it took four billion marks to buy a dollar. The savings of the middle class were wiped out; the concept of law and order vanished as armed bands clashed in the streets and undertook political assassinations; societal bonds disintegrated. The time was right for revolt, or so thought Adolf Hitler, a rising leader of the new party. The so-called Munich Beer Hall putsch that he organized quickly failed, but he nonetheless was able to use the subsequent trial as a platform to gain national attention for himself and his party. In the less than nine months he spent imprisoned he worked on the first volume of Mein Kampf, a book that would outline in chilling detail plans that he would put into action in the coming decades as he sought to build the Thousand Year Reich. Hitler took several strategic lessons away from his failure to launch a successful putsch. One was that he would henceforth use constitutional means to get to the point where he could seize total control; another was the importance of placating powerful interests in society, up until the moment that complete control was assured; a third was the necessity of constructing early on a loyal party apparatus, one sufficiently well organized to carry out acts of terror against opponents, political or otherwise. The Nazi political organization had since 1920 included the brown-shirted Sturmabteilung, or SA, thugs who were putatively in place to protect their rallies but who as 5. This section draws on Shirer 1960, Burleigh 2000, and Kershaw 1998/2000.

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frequently terrorized meetings of, and fought street battles against, opponents. In 1925 this was supplemented by the Schutzstaffel, or SS, who swore an oath of loyalty to the person of the party leader, the Führer. The onset of the Great Depression, which brought renewed misery to millions of Germans, assisted Hitler in his efforts. In the September 1930 elections the Nazis received almost six and a half million votes, moving from the ninth and smallest to the second-largest party, just behind the Social Democrats. This initial success at the polls did not immediately translate into power. Over the next two years a series of elections followed, but no party was able to form a workable coalition. The only political constant was the Reichspräsident, the aged Field Marshal Hindenburg. After months of backdoor political intrigue, Hindenburg finally took the fateful step and appointed Hitler chancellor of the Weimar Republic in a coalition government with the conservative German National People’s Party (DNVP). Hitler took office on January 30, 1933. The conservatives shared the Nazi goals of dismantling the republic, repressing democracy and the trade unions, and escaping the shackles of Versailles to rebuild a strong German military, and hoped to use Hitler to execute their vision. Things moved at breakneck speed after that. New elections were called for March 5, and with Hitler as chancellor the Nazis finally had government power to supplement the rogue activities of the SA. Nazi propaganda about the dangers of communist revolution filled the state-run airwaves. When, on February 27, the Reichstag was set on fire, the Nazis blamed the Communists, and the next day Hitler got Hindenburg to sign a decree suspending many individual and civil liberties. Homes and offices were broken into as over four thousand Communist officials and many Social Democrat and liberal leaders were arrested and hauled off to jail or SA headquarters. Only the Nazi party and their conservative National Party allies were allowed to campaign. The election still gave the Nazis only 44 percent of the vote, but the next step would make such details irrelevant. On March 23 the Reichstag, with brown-shirted SA members standing in the aisles to ensure the right outcome, voted in favor of the Enabling Act. Hitler now had all but complete dictatorial power, and quickly used it. State governments and popular assemblies were dissolved and the representatives replaced by Nazi loyalists. One by one rival parties were banned, so that by July the NSDAP was the sole legal party in Germany, and the formation of new parties was made illegal. By summer the Nazi takeover was complete.

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The Beveridge Memo How did it happen that the cultured German people put such a horror in power and tolerated such excesses? Some appear never to have taken him seriously, or thought that they could control Hitler. Those who had the most to lose, the Communists and Social Democrats, never united to oppose him. Indeed, it was conscious Communist strategy, dictated from Moscow, to encourage the breakdown of all democratic forces in the Weimar Republic (the Social Democratic party, the unions, and whatever other middle-class groups sympathetic to the republic that existed) to hasten the repression by the Nazi regime that followed. This was based on the dubious theory that the next step would be a Communist takeover: “Fascism, in the Bolshevik Marxist view, represented the last stage of a dying capitalism; after that, the Communist deluge!” (Shirer 1960, 185). A variant of this view was popular too in Britain, but it changed the locus of decision-making from the communists to the capitalists. In Britain, the argument Hayek kept hearing was that fascism represented the last gasps of a failed capitalist system, with the Great Depression standing as stark evidence of that system’s failure. When the director of the School, Sir William Beveridge, repeated it, Hayek responded by drafting a memo to him. It was dated simply “spring 1933” and carried the provocative title “NaziSocialism” (Hayek 2007a [1933e]). Hayek made three points in the memo. First, recent events in Germany were the culmination of tendencies that preceded the Great War and dated to the antiliberalism of the Bismarck era—leaving unsaid the obvious, that German historical school economists were Bismarck’s chief advisers. Next, the persecution by the Nazis of the Communists and Social Democrats obscured the fact that National Socialism was a genuine socialist movement, and that their opposition to other socialist groups had more to do with the liberal cultural values and internationalism of the latter groups than with their economic policies. Hayek presented as evidence the avowedly socialist elements in the economic proposals of the Nazis, their antagonism toward capitalism and liberalism, the fact that many of their leaders began as socialists, and the irrationalism that was part and parcel of the rejection of liberalism. Hayek did not know which of the various factions within the Nazi camp would prevail. But he closed the memo with his third point, a dire warning about where the enthusiasm for socialism that was so widespread in England would lead: “the anti-liberalism which, when confined to the economic field, today has the sympathy of almost all the rest of the world, leads inevitably to a reign of universal compulsion, to intolerance and the suppression of intellectual freedom. The inherent logic of col-

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lectivism makes it impossible to confine it to a limited sphere. Beyond certain limits collective action in the interest of all can only be made possible if all can be coerced into accepting as their common interest what those in power take it to be” (Hayek 2007a [1933e], 247). In a note responding to the memo, dated May 17, 1933, Beveridge thanked Hayek for his thoughts, saying he was not surprised that Nazi economic policy ended up being “not easily distinguishable from that of Russia” (Hayek LSE Personnel File). Thus Beveridge apparently agreed with the less controversial part of Hayek’s 1933 memo: that both the Soviet Union and the Nazi regime regarded liberalism as an enemy, and that as such, their respective economic policies shared similarities. And indeed, the point is uncontroversial. As one chronicler of the evolution of antiliberal thought put it, “In Europe during the 1920s and 1930s implacable hostility to liberalism was the one attitude on which extreme rightists and extreme leftists could agree” (Holmes 1993, xi). What Beveridge did not comment upon was Hayek’s more controversial claim that the collectivism that was so popular in countries like England would inevitably lead to the same sort of repressive regimes that they were witnessing in Germany. Here, in thumbnail form, was the warning that Hayek had promised in his letter to Robbins with which we began this chapter, that he must warn his English colleagues to avoid “the pernicious road” that Austria and Germany had gone down. It was an argument that he would develop in more detail in later papers and that ultimately would be a leading theme of The Road to Serfdom. We may note in passing that even in this first formulation Hayek employed the notion of inevitability, which he tied to the logic of collectivism. Both are important in trying to understand the argument he would develop in Road. What Beveridge could not have known was Hayek’s personal stake in trying to figure out how intelligent people could allow someone like Hitler to gain control of their country. Nor perhaps could anyone have predicted the enthusiasm with which the German people, and others, would receive der Führer as the decade progressed. Among those others were Hayek’s own mother and brother. Personal stake indeed.

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The opinions expressed in Hayek’s 1933 memo were for Beveridge’s eyes only. But when he hinted in his inaugural address that “recent research” had raised questions about the viability of socialism, he publicly showed his cards. Soon after the talk a student “had the cheek” to come by his office to inform him that he had discredited himself among the student body by raising doubts about socialism (IB 78). Hayek was exaggerating when he said that all the world now embraced socialism, but it was an apt description of the views of much of the intelligentsia of his new country.

The Many Faces of British Socialism The history of socialism in England predated the 1930s, of course, but by that decade Fabian socialism had become perhaps the dominant strand.1 Marxist doctrine had found only tepid support in England, and almost none among the Fabian socialists who established the London School. One reason for their antipathy to Marxism was their firm commitment to parliamentary democracy: Fabians preferred gradualism to revolution. Indeed, this belief provided both the Society’s name (Fabius Maximus, “Cunctator,” was a Roman general famous for his holding tactics) and its most famous motto: “the inevitability of gradualness.” Once people had been educated about their evident benefits, socialist programs would gradually but inevitably be enacted through the electoral process. Firm believers in parliamentary democracy, they were for a “socialism of the ballot box.” They also firmly rejected Marx’s theoretical analysis, resting as it did on a labor theory of value, preferring instead the newer, and hence more “scientific,” 1. For histories of the development of British socialism during this period, and its links to the Labour Party, see Durbin 1985, N. Thompson 2006, and L. H. White 2012, chap. 7.

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marginalist analysis of William Stanley Jevons, as they learned it from Phillip Wicksteed and F. Y. Edgeworth. For many Fabians, the greatest indictment of capitalism was its sheer wastefulness. In many industries, the host of small firms that naturally give rise to the free play of competition and to the animal spirits of entrepreneurs had become a distant memory, as large-scale industrial producers, cartels, and monopolies took their place. In the new, postcompetitive environment, monopolists and cartels restrict output in order to raise prices and gain monopoly profits. The resulting skewed distribution of wealth leads to further waste, as the market produces goods demanded by the rich while leaving social needs unmet. Finally, capitalist production is in its nature anarchic. Firms blindly and single-mindedly pursue profits, with no knowledge of what other firms might be producing, which leads to wasteful duplication. The larger the firms, the larger the mistakes made. Generalizing the findings of Ricardian rent theory to capital goods and even inborn talents, Fabians saw monopoly surpluses being generated everywhere and seized by those who, in their estimation, made no productive contribution.2 In place of the anarchy of the marketplace, Fabian socialists favored a rational and scientific reorganization of production that would be accomplished through the gradual nationalization of the production process. Capitalism itself had done much of the work by creating huge firms run by bureaucratic managers. The next step was to replace them with carefully trained administrators whose goal would be to maximize production to meet social needs, generating surpluses rather than profits that could then be redistributed to the community. The Fabians thus favored nationalization as much on efficiency as on equity grounds. Theirs was a technocratic vision of the efficient administration of nationalized production and distribution by an elite team of experts. These experts, of course, were people like them; they would not be drawn from the working classes. Indeed, as one historian put it, “within the Fabian ‘perspective,’ the working class was a social problem not even distinctly an agent of political change” (Whalen, quoted in Thompson 2006, 27). Theirs was not the only vision of the socialist future, of course. Guild socialism arose during the Great War and had its heyday over a ten-year period from 1915 to 1925. Guild socialists distrusted top-down collectivist solutions and sought to overcome the enforced servility of workers by overthrowing a wage system that used men as instruments of production. They 2. As L. H. White (2012, 190) notes, this extension of Ricardian theory was criticized by such diverse figures as the Chicago School economist George Stigler and the Cambridge Marxist Maurice Dobb.

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sought worker autonomy and self-government, first by extending trade unionism, but ultimately by taking over the management function. Though the writings of men like S. G. Hobson and A. R. Orage attracted the young Lionel Robbins, it was G. D. H. Cole who in works like Self-Government in Industry (1917) and Guild Socialism Re-stated (1920) became the most eloquent theoretician and popularizer of the doctrine. Guild socialism faded in influence during the 1920s owing to the weakened power of the labor union movement during the prolonged period of high unemployment. Though there were moments when revolutionary ardor seemed ready to explode, in the 1920s British trade unions by and large focused on trying to maintain wages and improve working conditions rather than on fomenting any radical transformation of society (Durbin 1985, 20–22). Finally, many who were drawn to socialism had no clearly articulated program, but were driven by the conviction that capitalism was at its root an evil system, one that materially impoverished and demeaned the great mass of people in order to reward the powerful few. Such views dated back to the nineteenth century and were given fresh and powerful restatement by Christian socialists like R. H. Tawney, who saw capitalism as destroying communities and debasing men’s souls. In Religion and the Rise of Capitalism (1926), Tawney traced the economic, social, and cultural consequences of the rise of capitalism in Britain in the Tudor and early Stuart period. In his telling, many of the mercantilist interventions that had been so derided by Adam Smith were simply attempts to slow the onward march of the market mentality, to restrain the normalization of avarice and maintain some concept of fairness in market relations. Tawney’s book was historical, but there were also more popular interventions. George Bernard Shaw’s brilliantly titled The Intelligent Woman’s Guide to Socialism and Capitalism (1928) was so well-written and widely read that it spawned successor titles like Cole’s The Intelligent Man’s Guide through World Chaos (1933). In the twentieth century socialist ideas began to find expression in the political system. The political equivalent in Britain of the various continental Social Democratic parties was the Labour Party. At its first party congress in 1918 it endorsed socialism, there defined as the nationalization of the means of production, in its party platform. In the early years Sidney Webb and other Fabians played important roles in generating position papers, pamphlets, and the like (L. H. White 2012, 178–82). In the interwar period there were some electoral successes, as minority Labour governments formed under Ramsay MacDonald in 1923 and again in 1929. A major question facing the party in the 1920s was how to bring together a coherent program that would reflect the views of the various constituencies but also provide a blueprint for concrete change.

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Its failure to do so spelled trouble for the Labour Party’s second government, for soon after they had taken the reins the Great Depression was upon them. The government found itself in the awkward position of having to try to save capitalism in the short run, only in order to replace it with a more rational and just system in the long run. The lesson taken away from the 1931 crisis by the next generation of socialists was the need for a well-worked-out program and strategy for introducing socialism. Accordingly throughout the 1930s a bevy of research and policy committees were formed, some under the aegis of the party, others—for example the New Fabian Research Bureau (NFRB)—to varying degrees independent of it (Durbin 1985, chap. 4). There were other initiatives, too. In 1933 a national peace congress was held in Oxford that brought together leaders from all walks of life, from conservatives to socialists to trade union leaders, and that ultimately led to the formation of the Next Five Years group in 1934. In the introduction to their plan of action, The Next Five Years: An Essay in Political Agreement, its authors asserted that “the community can and must deliberately plan, and control—not in detail but in broad outline—the economic development to which innumerable individual activities contribute” (Liberty and Democratic Leadership 1935, 2). The sort of “broad outline” planning recommended included nationalization of the mining, transportation, and electricity industries. In 1938 future prime minister (but then the conservative MP from Stockton-on-Tees) Harold Macmillan published The Middle Way, in which extensive control of the economy was advocated. As one historian put it, “middle opinion” in Britain in the 1930s lined up behind the ideas of “Planning, Progress and Political ‘Agreement’” (Marwick 1964). But there was a problem. As Lionel Robbins (1937) remarked: “‘Planning’ is the grand panacea of our age. But unfortunately its meaning is highly ambiguous” (3). As if to illustrate his complaint, a big book (over 1,000 pages, from foreword to index) entitled Planned Society: Yesterday, Today, Tomorrow (MacKenzie, ed. 1937) was published in the same year as his.3 In it thirty-five economists, sociologists, and “statesmen” (among the latter, Mussolini and Stalin) spoke about various aspects of planning. Though there were some voices that one could associate with liberalism (Henry Simons, Gustav Cassel, and Harry Gideonse contributed pieces), the general tenor was well captured in the foreword by Lewis Mumford, who spoke of the discredited “theology” of an unplanned society, one that had led to waste, pauperization, duplication, destruction of natural resources, recurring cycles, and (perhaps worst, one imagines, for Mumford) the “misbuilding of cities” (Mumford, in MacKenzie, ed. 1937, v). 3. See Hayek 1997 [1938a], 242–44 for a review of Planned Society.

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The Great Depression of course only bolstered the socialist case against capitalism. The market system had always been thought to be unjust and wasteful; now it appeared inefficient and unstable as well. Barbara Wootton would observe in her 1934 book “a shift of contemporary interest from the wickedness to the stupidity of our economic organization” (104–5). Her book contrasted an unplanned economy with a planned one, taking the Soviet Union as the exemplar of the latter. And indeed, in the depths of the Great Depression many saw the Soviet experiment as worthy of emulation. Trips there by investigative bodies composed of all sorts of right-minded citizens resulted in books like Twelve Studies in Soviet Russia (M. Cole, ed. 1933), sponsored by the NFRB, which rejoiced in the collective purpose that allowed the Russians to accomplish so much. * * * This then was the state of the public discussion in Britain in the 1930s. Meanwhile, members of Hayek’s own profession, the tribe of academic economists, began to make their own (usually more technical) contributions to the debate. In the late 1920s and early 1930s articles began to appear in English-language economics journals arguing that rational organization of production under socialism was, contra the claims of people like Ludwig von Mises, wholly possible. In December 1928 Fred M. Taylor argued in his presidential address before the American Economic Association that firms in a socialist state could use a trial and error process to determine prices (Taylor [1929] 1938). Three months after Hayek’s inaugural address, H. D. Dickinson directly confronted Mises’s argument by showing how a central planning authority might go about setting the prices for factors of production that would mimic those established under a competitive regime. He also pointed out differences between capitalism as it actually existed, in which one found income inequality, wasteful competition, and monopoly, and the ideal that was portrayed in theory. Dickinson (1933) drew the provocative conclusion that “the beautiful systems of economic equilibrium described by Böhm-Bawerk, Wieser, Marshall, and Cassel are not descriptions of society but prophetic visions of a socialist economy of the future” (247). Hayek did not try to engage the more popular arguments in favor of socialism, not at first anyway, but he did feel that Mises’s economist critics needed to be answered. But there was a problem: many British economists did not read German, so the first step would have to be to show them what Mises and other critics of socialism had actually said. Part of this would be accomplished by the translation of Mises’s big book, Socialism (Mises

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1936). But before that came Hayek’s own contribution, an edited volume whose subtitle said it all: Critical Studies on the Possibilities of Socialism.4 The book would launch the English-language socialist calculation debate. It would also play an important role in leading Hayek to make one of his greatest discoveries: the articulation of how a well-functioning market system can coordinate human action in a world of dispersed knowledge, thereby solving “the knowledge problem.”

Collectivist Economic Planning Collectivist Economic Planning contained translations of three articles: a 1907 article by Dutch economist N. G. Pierson, “The Problem of Value in the Socialist Society” (which Hayek had translated from Dutch into German the decade before), Mises’s 1920 piece on economic calculation, and German economist Georg Halm’s (1935) summary of the continental literature since Mises’s article appeared, as well as an appendix translating a piece by the Italian economist Enrico Barone written in 1908. Hayek provided opening and concluding essays. In his introductory essay, “The Nature and History of the Problem,” Hayek (1935a) noted that most discussions of socialism had addressed either ethical or psychological issues. The first involve questions like does justice require a reorganization of society on socialist lines, and if so, what principles should be used to distribute income? The second ask, do humans have the psychological characteristics necessary for a socialist society to work? (Economists would later dub the latter the question of “incentives.”) Though Hayek stated that economists have no special expertise for answering such questions, they can contribute to the discussion of another one: Exactly how is such a society supposed to work? How will it allocate resources to their highest valued uses in a world of scarcity? A competitive market system offers its own solution, without any conscious decision being made by anyone. But under socialism markets do not exist. So how will it all work? Most of the chapter is then devoted to reviewing for his English-language readers some of the earlier continental debates, placing the writings of proponents of various socialization schemes (among those mentioned are Kautsky, Neurath, Bauer, Lederer, and Rathenau) and those of their opponents (that is, the people whose articles had been translated for the book) 4. Hayek, ed. 1935. Hayek’s (1935a, b) contributions to the book are reprinted in Hayek 1997, chaps. 1 and 2. For more on the socialist calculation debate, see Vaughn 1980, Lavoie 1985, and Caldwell 1997.

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in context. Most of this literature was responding to Ludwig von Mises’s 1920 critique, “the most complete and successful exposition of what from then onwards became the central problem” (Hayek 1935a, 74). Recall that in his 1920 essay Mises had claimed that the essential condition for the possibility of rational calculation is the existence of money prices, prices that are formed in competitive markets and therefore reflect relative scarcities. Such prices do not exist in a centrally planned economy, and without them, socialist managers would have no idea which resources were scarce and which plentiful. Much of the socialist literature reviewed tried to imagine ways to overcome the central problem, none of them (in the assessment of the writers whose work is translated in the book) successfully. In his concluding essay, Hayek (1935b) moved to more recent discussions, “the present state of the debate.” He dealt rather quickly with “the Russian experiment,” citing the detailed investigations of the Russian economist Boris Brutzkus in his book Economic Planning in Soviet Russia (1935), which had just appeared, carrying a foreword by Hayek (1935f). He also dispensed with the Cambridge Marxist Maurice Dobbs’s suggestion that by abrogating consumer sovereignty, a centrally planned economy could solve the problem of the rational allocation of resources. Hayek pointed out that, absent prices for factors of production, ignoring consumer preferences in deciding what to produce would not help in making efficient production decisions—though of course it would greatly affect the welfare of consumers! He spent more time on Dickinson’s proposal, enumerating the manifold difficulties associated with “the mathematical solution,” or any regime that relied on collecting a massive amount of data, assembling it in a single place, then deciding how to allocate resources based on that information, and all of this in a world of change. The rest of the essay dealt with “pseudo-competitive” regimes, what would later become known as market socialism, in which competitive markets would be retained in certain areas of the economy, but the state would still own the means of production. Discussions of this type of setup were still “embryonic”—nothing had been published yet in English—but enough had been said (probably in the Senior Common Room at LSE; his colleague Evan Durbin was both teaching and writing articles then about how to run a socialist state) for Hayek to offer some observations. The crucial idea was that managers would be directed to mimic the results of the perfectly competitive model, for example, to set prices equal to marginal cost. But where would they get the required information, which only “real competition” is able to reveal? Even in a world of “competing” socialist firms, central authorities would still have to make certain decisions (for example, the allocation of capital to each industry, and to each firm within it) that

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would require detailed information about each firm’s and each industry’s prospects. The question of “psychology” also comes up when the competing socialist managers are asked to make difficult investment decisions when the motivating carrot of profits is absent; risk aversion would become the norm, and innovation would suffer.

Oskar Lange and Market Socialism Hayek would not have to wait long to get a response to his initial critique of “pseudo-competition.” Oskar Lange, a Polish economist who had come to America on a Rockefeller Fellowship and stayed, would in 1936 and 1937 publish in the pages of the Review of Economic Studies a two-part study titled “On the Economic Theory of Socialism.” Though they are critics of capitalism, it should be evident from what was said above that market socialists begin from the position that perfectly competitive markets have certain desirable efficiency characteristics. Standard economic analysis demonstrates that under certain wellspecified conditions, profit maximization induces perfectly competitive firms to use the least cost combination of inputs. Furthermore, by producing up to the point where price just covers marginal costs, such firms produce the optimal amount of output. Finally, freedom of entry and exit ensures that in long-run competitive equilibrium (when all entry and exit ceases), firms are of the optimal size. These are “the beautiful systems of economic equilibrium” that Dickinson praised in his 1933 article. But as Dickinson went on to intimate, market socialists denied that those beautiful systems had anything in common with capitalism as it actually exists. The promise of market socialism is that it can replicate the efficiency characteristics of perfectly competitive markets and also correct for remaining market imperfections (e.g., monopolies, externalities, and cyclical instability), as well as for any unjust inequalities in the distribution of income. In Lange’s model of how to organize a market socialist state, there would be free markets in both consumer goods and labor, but firms would continue to be owned by the state. Labor incomes would differ over professions, but redistribution of the social dividend (“profits” made by state-owned firms) would help to mitigate this, as would the absence of private capital ownership, which is an important additional source of income inequality. A central planning board would provide “prices” for all goods and for factors of production. Managers would be given rules to follow that would allow them to replicate a perfectly competitive system. They would be instructed to select, on the basis of given prices, the combination of inputs that would

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minimize costs and to choose the level of output that just covered their marginal costs of production. Planners in charge of industries would apply similar rules at the industry level, expanding or contracting them so as to reach the point of long-run competitive equilibrium where firms are of the optimal size. What happens if the “prices” chosen by the Central Planning Board are not the “correct” ones and do not reflect underlying relative scarcities? Here Lange invoked the “trial and error” solution, a device also mentioned by Dickinson. Just as in competitive markets, prices would be adjusted up or down whenever shortages or gluts appeared until equilibrium was reached. As for investment decisions that had previously been made by the entrepreneur, Lange pointed out that a central planning board, because it could survey the entire economic system, would have more and better information than was available to any single entrepreneur. Therefore, they would be able “to reach the right equilibrium prices by a much shorter series of successive trials than a competitive market actually does” (Lange 1936–37, 89; emphasis in the original). As for the question of incentives, for Lange that was simply a psychological problem, but additionally it was not one that was unique to socialism. The separation of ownership from management control (here he cited research done by Adolf Berle and Gardiner Means), after all, also characterizes firm governance conditions in the cartelized world of late capitalism, leading to similar problems. The culprit is bureaucracy, which is ubiquitous in large-scale enterprises. Lange’s impressive defense of market socialism was quickly reprinted in book form, together with Fred M. Taylor’s presidential address. Hayek would review it together with another book by Dickinson in 1940. In the course of his discussion Hayek referenced a piece he published in 1937 titled “Economics and Knowledge.” Though socialism was nowhere mentioned in it, it contained the seeds of his answer to Lange.

Answering Lange: The Role of “Economics and Knowledge” Hayek’s presidential address before the London Economic Club on November 10, 1936, has been much studied and commented upon, not least by Hayek himself,5 who on numerous occasions remarked that it was a sem5. Thus in 1965 he wrote, Though at one time a very pure and narrow economic theorist, I was led from technical economics into all kinds of questions usually regarded as philosoph-

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inal piece.6 Ludwig Lachmann, who was in the audience, recounted later that “I had been to many meetings of the London Economic Club, and at the monthly meeting that night I think that everybody had the feeling that something really important had been said” (Shehadi interviews, 9). A standard interpretation of the role of the piece in the development of Hayek’s thought is that, via his critique of what he called “static equilibrium theory,” he introduced the knowledge problem, a problem that he would solve in his later and more famous paper, “The Use of Knowledge in Society.”7 “Economics and Knowledge” (Hayek 1937b) concerns the assumptions that economists make about the knowledge that agents in their models are presumed to possess, and the implications that this has for equilibrium analysis. Hayek asserted that the notion of equilibrium has a clear meaning when applied to an individual: the agent is assumed to have a plan, and to know her own (subjective) tastes and preferences and (objective) constraints, so that the choice made is simply a matter of logic. When one discusses equilibrium for a society, however, one enters into a wholly different sphere. For society to be in equilibrium, the plans of all the agents must be compatible with one another. The usual assumption made about knowledge in the equilibrium theory of the day—that agents have access to all relevant information—would seem to bring about such compatibility automatically. But if agents have access to different bits of knowledge—if knowledge is “divided” or “dispersed”—then how does such a compatibility, how can equilibrium, ever come about? ical. When I look back, it seems to have all begun, nearly thirty years ago, with an essay on “Economics and Knowledge” in which I examined what seemed to me some of the central difficulties of pure economic theory. (Hayek 2014a [1965b], 49–50) Hayek also mentioned “Economics and Knowledge” in interviews he sat for in the late 1970s. 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 lecture to the Economics Club in London, my Presidential Address, which is “Economics and Knowledge,” I started my own way of thinking. And it was with a feeling of sudden illumination, sudden enlightenment, that I . . . 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. (Hayek 1983a, 425–26) 6. This section draws on Caldwell 1997, 2004, and 2016. 7. See, e.g., Caldwell 1988 and 2004, chap. 10, and citations therein.

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Two key ideas are the subjectivity of the data that agents possess and its dispersal across agents. Subjectivity implies that the subjective impressions that an agent has may differ from any “objective” state of affairs, that is, the agent can be wrong. The dispersal of knowledge implies that different agents have access to different bits of knowledge. If data were simply subjective, one could still imagine telling an equilibrium story. For example, a movement to equilibrium might summarize how, as learning occurred, subjective data came to match up with the objective state of the world until ultimately, through a process of error elimination, a final state of equilibrium was reached. When the dispersion of knowledge is taken into account, however, it is no longer the movement to equilibrium that matters but the coordination of knowledge. The dispersion of knowledge is not some temporary condition that gets eliminated by a movement to equilibrium. It is a permanent condition. If everyone always has privileged access to different bits of information, in a world of constantly changing data, the question becomes: How can the fragments of knowledge that exist in different minds ever get coordinated? One might metaphorically talk about a “tendency toward equilibrium,”8 but such talk is meaningless unless we can shed some light on how the coordination of plans takes place. This is the essence of “the knowledge problem.” Hayek states that its solution will require further analysis of the kinds of knowledge that are relevant for agents to possess, the conditions under which people are likely to acquire such knowledge, and the process by which they do so. Why did Hayek come up with this idea when he did? In retrospective accounts he mentioned a host of sources of inspiration: the planning book, the use of prices as guides to production in his trade cycle theory, Swedish discussions on expectations that he participated in, certain ideas in Frank Knight’s book Risk, Uncertainty and Profit, Menger’s emphasis on subjectivism, even his colleague Freddie Benham’s joke that economists were fond of the phrase “given data” because it reassured them that in fact data existed (Hayek 1983a, 241, 274, 423–26).9 But typically, Hayek emphasized the socialist calculation debate. This may in part be because it was only a month before Hayek delivered his address in London that the first install8. As Hayek had done, when he contrasted the equilibrium of the idealized barter economy with that of a monetary economy. The former showed such a tendency, while the latter did not. In his view, such a “tendency” was a property to be assumed for the realm of “static theory.” 9. For a more detailed account of the origins of some key ideas, and the importance of the paper for Hayek’s later work, see Caldwell 2004, chap. 10.

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ment of Lange’s paper defending market socialism appeared. So though socialism is nowhere mentioned in “Economics and Knowledge,” its relevance for the socialist calculation debate would be apparent to Hayek when he finally reviewed Lange’s book three years later. In that review Hayek identified the ways in which an “excessive preoccupation with problems of the pure theory of stationary equilibrium” had led Lange astray (Hayek 1997 [1940a], 123). First, equilibrium theory concentrates on end-points, on the final resting points of a system. In solving for the equilibrium values of the system, we assume certain data to be given, or constant. But the notion of a system moving toward some final endpoint as determined by given data is radically at odds with the situation in the real world, “where constant change is the rule” (123). Parameters assumed to be given are in fact constantly changing; final equilibrium values are not final at all, but ever shifting. In the real world, innumerable prices are changing every day, and every time a price changes, part of the “given” data on which all other prices are set is also altered. This generates innumerable further changes, which causes other parameters to alter, and on and on. It is difficult to imagine any trial and error mechanism being able to duplicate such a process. How often would prices have to be changed? Neither Lange nor Dickinson had provided an answer to the key question, which for Hayek established that they had not given appropriate consideration to the difficulty of the real problem. Hayek pointed out other problems associated with an overemphasis on the static theory of competitive equilibrium. The theory of pure competition assumes homogeneous standardized products. But many goods, particularly capital goods, are built to order. Furthermore, static theory ignores that production takes place over time. Many decisions by managers are of necessity forward-looking, and, as a result, existing prices are much less important to them than are anticipated future prices. Perhaps most important, market socialists failed to realize that the results of the market process cannot be separated from the actual process of competition (123–24). Hayek provided an example of how difficult it would be to put into effect Lange’s simple cost minimization rule. In the discussion of this sort of problem . . . the question is frequently treated as if the cost curves were objectively given facts. What is forgotten here is that the method which under given conditions is the cheapest is a thing which has to be discovered, and to be discovered anew sometimes almost from day to day, by the entrepreneur, and that, in spite of the strong inducement, it is by no means regularly the es-

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tablished entrepreneur, the man in charge of the existing plant, who will discover what is the best method. The force which in a competitive society brings about the reduction of price to the lowest cost at which the quantity salable at that cost can be produced is the opportunity for anybody who knows a cheaper method to come in at his own risk and to attract customers by underbidding the other producers. (130)

In standard equilibrium theory equilibrium is derived simultaneously with the cost-minimizing input combinations associated with it. This obscures (or neglects) the process by which they come to be known and may lead to the ultimate error: the belief that one can dispense with the very process (rivalrous market competition) that generates knowledge.

“Economics and Knowledge”: The Logic of Choice versus Causal Processes Another key distinction made in “Economics and Knowledge” is that between the “pure logic of choice” or “formal analysis” and the investigation of “causal processes.” The former is described as a set of tautologies, a “series of propositions which are necessarily true because they are merely transformations of the assumptions from which we start and which constitute the main content of equilibrium analysis” (Hayek 2014a [1937b], 58–59). The latter refers to questions of the kind of knowledge that is important and the process by which it is acquired and shared. Hayek notes that much recent formalization in economics consists simply in extending the pure logic of choice. But, he insists, it is important to keep these efforts separate from the study of causal processes: In distilling from our reasoning about the facts of economic life those parts which are truly a priori, we not only isolate one element of our reasoning as a sort of Pure Logic of Choice in all its purity but we also isolate, and emphasize the importance of, another element which has been too much neglected. My criticism of the recent tendencies to make economic theory more and more formal is not that they have gone too far but that they have not yet been carried far enough to complete the isolation of this branch of logic and to restore to its rightful place the investigation of causal processes, using formal economic theory as a tool in the same way as mathematics. (59)

Hayek’s use of the term “a priori” in describing the pure logic of choice raises some questions. Hayek would later claim that the paper was meant in

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part as a “gentle” rebuke of Mises’s views.10 Mises had in his Privatseminar and in a collection of early essays (Mises 1933, trans. 1960) made the claim that the fundamental axioms of the science of human action are a priori true, and further that the theorems of economics (and thereby statements about the world) could be derived from the fundamental axioms and carried the same apodictic certainty.11 This turned out to be a controversial view. In the early 1930s many scholars were trying to figure out the logical status of the statements made in economics and other sciences. Mises’s claim seemed at odds with the strict division of scientific statements between those that were analytic (e.g., tautologies or definitions) and those that were synthetic (empirical statements about the world that are potentially testable). Around the same time the philosopher Felix Kaufmann, a member of both the Mises circle and the Vienna Circle of logical positivists, published an article in Economica, the LSE house journal, that 10. Hayek 1983a, 57–58: “it was in that same article on economics and knowledge where I made the point that while the analysis of individual planning is in a way an a priori system of logic, the empirical element enters in people learning about what the other people do . . . That was a gentle attempt to persuade Mises to give up the a priori claim, but I failed in persuading him.” Cf. similar statements in the Bartley interview, Feb 10, 1983. 11. Two representative passages are as follows: The theorems of economics are derived not from the observation of facts, but through deduction from the fundamental category of action, which has been expressed sometimes as the economic principle (i.e., the necessity to economize), sometimes as the value principle or as the cost principle. They are of aprioristic derivation and therefore lay claim to the apodictic certainty that belongs to basic principles so derived. (Mises [1960] 2013, 16) the elementary laws of value are valid without exception for all human action. When an isolated person acts, his action occurs in accordance with the laws of value. Where, in addition, goods of higher order are introduced into action, all the laws of the theory of imputation are valid. Where indirect exchange takes place, all the laws of monetary theory are valid. Where fiduciary media are created, all the laws of the theory of fiduciary media (the theory of credit) are valid. (Mises [1960] 2013, 23–24) The secondary literature discussing Mises, Hayek, and a priorism is large. See Caldwell [1982] 1994, 117–24; 2004 119–26, 191–96; 2009 and citations therein. It should be noted that certain prominent Austrians, among them Peter Boettke (2015) and Richard Ebeling (2014), argue that Mises’s claims have been misrepresented by both his critics and some supporters, and in particular that Hayek’s and Mises’s views on methodology are complementary.

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directly opposed Mises’s position (Kaufmann 1933). Lionel Robbins had praised Mises’s work in the first (1932) edition of An Essay on the Nature and Significance of Economic Science, but in the second edition he seemed to distance himself from Mises’s views (Robbins 1935). And in December 1935 the mathematician Karl Menger (son of the Austrian school founder Carl Menger) presented a paper at the NOeG that directly criticized Mises’s views by attacking the claim that the law of diminishing returns could be deductively proven.12 Hayek heard about the dispute from his friend Alfred Schütz and wrote to Oskar Morgenstern that he thought that there was  confusion on both sides.13 One possible way to read Hayek’s proposed bifurcation of economics is that it provides a means to adjudicate the argument about the status of the axioms of economics: it would allow Mises’s claims about the a priori nature of the basic axioms to be retained for the sphere of the individual, but would drop the idea that they carried over with the same necessity beyond that sphere—for that one needed to make additional empirical assumptions regarding knowledge and its acquisition. There is a “logic” of individual action, but not a “logic” of market interaction and outcomes. Interestingly, when Hayek with a certain trepidation sent his paper to Mises, the latter, who was known not to take well to criticism, apparently did not take it as critical. At a workshop at NYU Israel Kirzner once suggested a reason: when Mises read Hayek’s paper, he recognized that the “empirical element” that Hayek was trying to describe by the term “causal processes” was nothing more than his own alert Misesian entrepreneur; that is, the Misesian entrepreneur is the driving force behind the Hayekian market process. There is at least a certain amount of textual support for Kirzner’s hypothesis. In “Economics and Knowledge” Hayek had said that a tendency 12. The paper was later translated and published; see K. Menger 1979 [1936]. For an account of the episode see Leonard 2010, 161–68. See Howson (2011, 271–74) for more on the roles of Kaufmann and Haberler in getting Robbins to distance himself from Mises’s a priorism. 13. As noted by Morgenstern in a diary entry on October 4, 1936, Hayek delivered a first version of his address at the NOeG, a few months before his speech at the London Economic Club, under the title “Wissen und Wirtschaftswissenschaft” (“Knowledge and Economics”). Alfred Schütz wrote an extensive commentary on it that he sent Hayek (and others); both it and the accompanying letter of Oct 15, 1936, are preserved in ASP 26.590. The commentary is also reprinted in his Collected Papers (Schutz 1962). The editor’s introduction to Schütz’s paper says it was presented at the “Gesellschaft fur Wirtswissenschaft,” which is just one of the many corrupted names used for the NOeG in English-language sources.

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toward equilibrium exists when “the expectations of the people and particularly of the entrepreneurs will become more and more correct” (Hayek 2014a [1937b], 68). And we just saw that in his 1940 review of Lange Hayek discussed the key role of the “entrepreneur” in the market process. On this reading, Hayek may not have known it when he wrote and published the article, but Mises knew when he read it, that Hayek was simply describing the actions of the entrepreneur when he talked about “the empirical element” in economics. In any event, the distinction between the logic of choice, what Hayek would soon be calling “the economic calculus,” and the study of “market processes” would become a fundamental one for the development of his thought.

Conclusion Hayek’s review of Lange appeared in Economica in May 1940, just as Germany was invading Belgium, the Netherlands, and France. Only few took notice of it. Despite this fact, it was a key step toward his fuller articulation of the knowledge problem. The debates over the merits of socialist planning noted above all took place within the economic academic community, principally in scientific journals or books aimed at specialists. As the decade progressed the discussion began to extend well beyond the halls of academe and into the public arena. Hayek would participate in that larger debate as well.14 But we get ahead.

14. One can see hints of this in his review of Lange, where he notes that Lange’s proposals to reintroduce competition would doubtless “bitterly disappoint” current advocates of planning, referencing a paper by the English physicist and public intellectual P. M. S. Blackett (Hayek 1997 [1940a], 122).

· 20 · Academic Life at LSE

When I settled in Britain in 1931, I shared with most of the older and rather few of my own generation a 19th century moral and political tradition which was essentially British though widely influential in other parts of the world to which “Liberalism”—in the 19th century sense of the word—had spread. I felt very much at home in that environment although I soon became aware that the most powerful current intellectual influence, the Bertrand Russell, H. G. Wells, G. B. Shaw, J. M. Keynes, and practically the whole literary world were against it. I felt a radical British liberal but was soon regarded by most intellectual colleagues and students as a reactionary, yet feeling more British than they from whom I mainly heard views I had battled on the continent. (IB 78)

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So far in the chapters of this part we have concentrated on Hayek’s ideas. In this one we will look more closely at his time at the London School in the 1930s, detailing his duties and how he executed them, and exploring his relationships with a disparate set of colleagues. As he admitted above and as we will see, Hayek always felt the most comfortable in England, while at the same time knowing that he did not quite fit in.

Lectures, Classes, and Seminars Though the London School of Economics fairly quickly was able to draw some prominent scholars to its faculty, and clearly had a mission that embraced graduate education, it differed from the ancient universities of Oxbridge in that many of the undergraduates were there to get a practical education. In 1919 a bachelor of commerce (denoted BCom) degree was added to the BSc (Econ) degree to further enhance enrollments. Because many

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students already held jobs, they could not take daytime classes, and some could attend only part time. One unique innovation was to allow full-time students to attend either in the day or at night. This meant that courses that met during the day were typically repeated in the evening, which put facilities in a space-constrained metropolis to maximum usage. Lectures were open to occasional students, who signed up for them one course at a time. When Hayek arrived to teach in October 1931 there were 2,935 students, 1,208 of whom were occasional. A substantial minority (546) were foreign students, and about 200 were higher-degree students. Finally, from its founding a characteristic of LSE was the enrollment of a significant number of female matriculants: there was about a 1:3 female-male ratio overall, with women a higher percentage among the daytime enrollees. In October 1931 they numbered 632 (Beveridge 1960, 30–33, 118; Dahrendorf 1995, 21, 58–59, 173). We recall that before he arrived as a visiting professor Hayek had questioned Robbins about the various types of courses that were offered at British universities. At LSE there were three categories—lectures, classes, and seminars—and each denoted a different classroom experience. Lectures followed the standard format in which the instructor declaimed to the assembled pupils. Classes involved smaller groups and some sort of substantive interaction between the instructor and students, often the reading of papers by students on topics set by the instructor or tutor, with discussion by the whole group following (Howson 2011, 73). Seminars were gatherings to discuss current research. These last were attended by research students who might be working on either their masters or doctoral degrees, as well as staff, which ran the gamut from assistants, whose positions were not permanent, to the more senior positions of lecturer, reader, and professor. One can trace out Hayek’s teaching schedule in the 1930s by consulting the annual LSE Calendar.1 For his first three years as the Tooke Professor (1932–35) Hayek continued the shared lecture that he had taught in the first year with Robbins and Plant for BSc (Econ) Final students, “Problems of Applied Economics,” a course that was offered once in the daytime and then repeated at night. Throughout most of the 1930s during the Michaelmas 1. The Calendar is available on the shelves in the Robbins Library at LSE. Susan Howson kindly provided Caldwell with copies of the relevant pages and a tutorial by email on the workings of the LSE system. McCormick (1992) reproduces a number of LSE course syllabi from the 1930s, including Hayek’s courses “Theory of Value” and “Problems of a Collectivist Economy,” as well as Durbin’s “Economic Planning in Theory and Practice.”

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and Lent terms he also taught a series of lecture courses for BSc (Econ) Final students and postgraduates on capital, interest, and fluctuations, his major area of research. Beginning in 1933–34 and continuing through the 1930s the same subset of students could take his “The Problems of a Collectivist Economy.” Significantly, the next year a course titled “Economic Planning in Theory and Practice,” first taught by Hugh Dalton using Barbara Wootton’s Plan or No Plan as the principal text, and later by Evan Durbin with a far heavier reading list, was also offered. Imagine the lucky student who in the summer term of 1936–37 could watch Hayek lecture on why a collectivist economy could not work from 5 to 6 on Thursday evenings, and then hear Durbin explain how to run a collectivist economy from 6 to 7! He also twice (in 1933–34 and again the next year) taught a course on the theory of value. There were a number of German-language sources listed in his syllabus, but the only two marked with an asterisk for special emphasis that were in English were Frank Knight’s Risk, Uncertainty and Profit and Philip Wicksteed’s Common Sense of Political Economy. Hayek had not been familiar with either text before coming to LSE, but they formed the foundation of microeconomic teaching there (Hayek, Shehadi interviews, 2).2 Marshall’s Principles, the Bible of Cambridge, was not on Hayek’s list, though Robbins did include it as background reading for his “Principles of Economic Analysis” lecture course (Robbins 2018, xvii). Beginning in 1935–36 Hayek began offering lectures on the history of economic thought, first on English classical economics, and later on the development of economics until 1870. He occasionally also taught a course on monetary policy, sometimes sharing responsibility with T. E. Gregory. In 1933–34 he offered a postgraduate class in economic theory; the next year this became his Wednesday evening seminar. He occasionally also ran a course for graduate students together with Robbins and Plant that carried the intriguing title “Economic Aspects of Certain Social Institutions” (“the course will deal with the economic aspects of such social institutions as the family, property, contract, class, authoritarian associations,” read the Calendar of 1935–36). Finally, he frequently held classes for either undergraduates or graduate students on economic theory. Counting his seminar, classes, and the repeating of lectures, in most terms Hayek taught three, and occasionally four, evenings a week. None of the courses had examinations or tests during or at the end. 2. In 1933 a new edition of Wicksteed in two volumes and edited by Lionel Robbins appeared (Wicksteed 1933), the first of which was designed to be used as a textbook. See Robbins’s “Introduction,” xxii–xxiii.

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Rather, intermediate examinations were given at the end of the first year, and final examinations were given at the end of the third year. Examinations involved writing papers, and each area examined had detailed syllabi for students to consult (Howson 2011, 69). Students prepared for examinations in three ways: by going to lectures (which were not compulsory; one need not attend unless one thought they were interesting in themselves or useful for passing exams); by writing essays for one’s tutor, usually set in classes (again, the essays were ungraded; the questions set were intended to cover materials that would be on the examinations); and by reading recommended materials on one’s own. Each year the final examination questions were set by a committee, who then shared the marking among themselves: setting questions and marking them were thus among Hayek’s academic responsibilities. The composition of the examining committee would influence the questions set, a fact that will come into play later in a conflict between Hayek and Nicholas Kaldor. Lectures offered in any given year would be decided by the department, and the totality of lectures and classes offered would among them presumably cover the syllabus prescribed for the final examinations. Still, the process allowed considerable scope for different subjects or theoretical viewpoints to be covered and, in a department that had a lot of graduate students, for faculty to lecture on their current research, as is clear Hayek and his colleagues did. By far the most productive of the gatherings were the weekly seminars, one convened by Robbins during the day, and the one led by Hayek (from 1934 onward) on Wednesday evenings at six. For his seminar, Robbins typically chose a general subject that would be discussed over the course of the year, assigning specific topics to graduate students to present.3 Their presentations would sometimes lead the group to an extended discussion, perhaps prompting new lines of investigation. Sometimes faculty members would present their own research, and sometimes visitors to the department would as well. When Hayek arrived for the 1931–32 year as a visiting professor, the seminar was held on Friday afternoon. Robbins was keen to introduce LSE staff and students to the latest continental research, so he invited Hayek to join him in organizing the seminar and to choose the subject. He did the same the next year when Hayek joined the staff as the Tooke Professor. Hayek’s two choices will come as no surprise: “Theory of Production, with special reference to Capital and Interest” in the first year, and “Collective 3. Howson (2011, 250–56) provides a detailed account of Robbins’s seminar; cf. Robbins 1971, 131–32.

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Economics” in the second. This was the forum in which the ideas that led from Prices and Production to The Pure Theory of Capital, and those in his essays in Collectivist Economic Planning, first found form. Arnold Plant, since 1931 the professor of commerce, was also listed along with Robbins and Hayek as leading the seminar in the second year. From 1933 through 1938 the seminar met at 2:15 on Mondays and all three men were listed as conveners.4 The seminar typically drew some thirty to forty participants, arranged in an informal pecking order, with the most active taking up the front row. It was during this period that it came to be dubbed the Grand Seminar. And grand it was, for these were, as LSE graduate G. L. S. Shackle later put it, the years of high theory, a period of a little over a decade in which economic theory was transformed.5 A not inconsequential number of those who contributed to the transformation developed their ideas in the lively and sometimes heated debates in the seminar room on Houghton Street. The annual topics trace the development: the theory of value in 1933–34, imperfect competition in 1934–35, and in 1935–36 international trade (Howson 2011, 251). Robbins was instrumental in bringing extraordinary people together and inducing them to perform their best. Three of the junior members—J. R. Hicks, Abba Lerner, and Nicholas Kaldor—stood out. Hicks had trained at Oxford but was an assistant teaching applied courses to undergraduates when Robbins arrived in 1929. In short order Robbins arranged for him to be made an assistant lecturer and gave him responsibility for a lecture course on economic theory (Howson 2011, 166– 4. The time is taken from the LSE Calendar. Interestingly, Nicholas Kaldor (Shehadi interviews, 8) said the Robbins seminar took place on Tuesday and Wednesday afternoons, and McCormick (1992, 29) claimed that it was held on Tuesday and sometimes Thursday afternoons. Kaldor was reporting from memory, which appears to have been faulty on at least some matters—for example, he also incorrectly stated that Hayek did not attend Robbins’s seminar. McCormick, who frequently misspells names of people at LSE and provides little documentation for claims made, appears to have gotten at least some of his information from (mis?)reading the Shehadi interviews. 5. The changes that Shackle (1967) identifies were in the areas of value theory, imperfect competition, the theory of demand, Myrdal’s analysis of monetary equilibrium, Keynes’s General Theory, growth theory, and input-output analysis. Kaldor ([1986] 1988) 14, recalled an “atmosphere of creative tension and excitement” at LSE in the early 1930s, “a time of endless discussions which went on at all hours of the day and night—during meals, during walks and during weekends” (14). Hayek (1983a, 110) credited Robbins with (“in a sense”) creating modern economics, by bringing together the English, Swedish, and Austrian traditions.

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67). Hicks blossomed in his new role, and by 1932 had published The Theory of Wages. Soon thereafter he and Roy Allen, a statistician whom Robbins had gotten to lecture on mathematical economics for the department, published in Economica their seminal two-part article “A Reconsideration of the Theory of Value” (Hicks and Allen 1934) that married indifference curve analysis to ordinal utility theory. Ideas for the article, as well as later contributions that he summed up in Value and Capital, were all (as he put it in the book’s preface) “conceived at the London School of Economics in 1930– 35 . . . by a sort of social process which went on among the people working there, at the time, under the leadership of Professor Robbins”; Hicks specifically named seminar members Allen, Lerner, Kaldor, and Hayek, among others (Hicks [1939] 1946, vi). Unfortunately for the vitality of the seminar, Hicks decamped to Cambridge in 1935, which devastated Robbins (Howson 2011, 281).6 He never felt comfortable in Cambridge owing to the incessant quarreling there (“the Cambridge faculty was divided into parties which wouldn’t talk to each other. I didn’t enjoy that at all”), moving to Manchester in 1938 and then back to Oxford in 1946 (Hicks, Shehadi interviews, 5; Klamer 1989, 170). In his correspondence with his Viennese friends, Hayek often referred to Hicks: “Hicks more and more becomes the best economist among us [at LSE]” (to Haberler, Nov 30, 1933), and “Unfortunately, Hicks will leave in fall for Cambridge, where he had been offered a better position. A big blow for us, but we could not keep him” (to Machlup, Feb 27, 1935). Russian-born Abba Lerner grew up in the East End. He came to LSE in 1929 and soon fell into Robbins’s orbit, finishing up his BSc (Econ) in 1932 and entering the graduate program. In 1933 he together with fellow student Ursula Webb (who would in 1935 marry John Hicks) and the American Paul Sweezy would launch and become the managing editors of a new journal, the Review of Economic Studies, which aimed at publishing shorter, more technical papers, especially from younger scholars. Harry Johnson (1972) tells us that Joan Robinson dubbed it “not altogether inaptly . . . the children’s newspaper” (16). Lerner is remembered as the most active of the junior members at the seminar; while still a student he wrote, presented, and published a number of papers on themes as diverse as international trade, monopoly theory, and socialist calculation. His paper on the mea6. In his autobiography Robbins (1971, 129) blamed Beveridge’s “insensate hostility to pure theory” for driving Hicks away, but as Howson (2011, 280–81) shows, this is misleading. Beveridge had been persuaded by Hicks’s supporters to recommend to the governors that he be promoted to Reader. But as Hayek’s letter to Machlup suggests, Hicks was offered a university lectureship at Cambridge as well as a fellowship at Gonville and Caius College that proved more alluring.

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surement of monopoly power (Lerner 1934a) contained a statement of the welfare implications of the price = marginal cost rule that would figure so prominently in Hayek’s debates with the market socialists; indeed, Lerner is typically linked with Lange as the other of his two major antagonists in those debates (cf. Lerner 1934b, 1937, 1938, 1996). A brilliant eccentric who disdained the pretensions of academia (a trademark was his preference for sandals over shoes), he would end up leading a peripatetic professional existence. As we will see, he played an instrumental role in turning his fellow LSE students toward Keynes as the decade progressed. We already met Nicholas Kaldor as the co-translator of two Hayek pieces. Another of Robbins’s favored students, with his mentor’s help he secured a research studentship that allowed him to remain at LSE after finishing his BSc (Econ) in 1930. In October 1932 Kaldor gained a permanent appointment of assistant lecturer, one that carried the expectation of promotion to lecturer in 1936. In the early 1930s, his writings very much reflected the LSE/Austrian training that he had received—Hayek in correspondence with Haberler (Nov 30, 1933) noted that he “was surprised by Kaldor’s talents.” In 1934 alone he contributed three papers, on the equilibrium of the firm, on Joan Robinson’s theory of imperfect competition, and on the determinateness of equilibrium (Kaldor 1934a, 1934b, 1934c; cf. Thirlwall 1987, 23–29). He also was one of the most outspoken of the seminar front-benchers. Frank Paish once said that in a typical seminar, the speaker would speak for fifteen minutes, the rest of the people for fifteen, and Nicky for forty (Kaldor, Shehadi interviews, 25–26). One could go on at considerable length enumerating the names and contributions of other seminar participants; suffice it to say that an incomplete list would include, at various points in time and in addition to those named above, Frederic Benham, Marion Bowley, Ronald Coase, Amiya Kumar Dasgupta, Aaron Director, Evan Durbin, Victor Edelberg, John Kenneth Galbraith, Michal Kalecki, Ludwig Lachmann, Frank Paish, David Rockefeller, George Schwartz, Tibor Scitovsky, G. L. S. Shackle, and Brinley Thomas, a miscellaneous menagerie indeed.7 This does not, of course, include people who might be at LSE to give special university lectures or present papers at one of the seminars, or those just passing through.8 7. Rockefeller was a graduate student at LSE in the 1937–38 academic year when public finance was the topic of the Robbins seminar, and Scitovsky later recounted that everyone laughed when Robbins asked him to do a paper on tax avoidance (Howson 2011, 316). 8. Robbins (1971, 132) offered a short list of more prominent guests that included “Haberler and Machlup from Vienna, Bresciani-Turroni from Rome, Lindahl, Ohlin

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Robbins ran the seminar with a deceptively light touch. He would sit silently while the discussion raged about him, slouching in his seat, smoking cigarette after cigarette as he concentrated on the debate, “then suddenly he would sit up straight, toss his mane back from his face, and in a few trenchant sentences summarize the essence of the discussion and state his views on the truths to be derived from it” (Benjamin Higgins, a master’s student, quoted in Howson 2011, 256). Those reporting on their experiences in the seminar uniformly praised it as an intellectually stimulating, if sometimes daunting and intimidating, affair. Hayek referred to the seminar as the “center of the economic teaching” at LSE (Hayek, Shehadi interviews, 2). Hayek stated in reminiscences that he learned a lot of economics in the seminar, and indeed during that first decade at LSE. He appreciated the Cannan tradition, having reviewed both An Economist’s Protest and A Review of Economic Theory, but on arrival at LSE he was unfamiliar with the works of Knight and Wicksteed.9 He had learned his marginalism from Austrian sources: his theory of value lectures had works by Menger, BöhmBawerk, Wieser, and Mayer as syllabus entries. That was a verbal tradition, whereas the Grand Seminar was where the mathematical expression of all manner of marginalist concepts was being developed and refined. It is ironic given his later criticisms of what he saw as the limitations and misuse of economic theory that Hayek had been a witness to the formalization of so many parts of it. But he also appreciated the insights that formalization could bring. In recalling his experiences at the Grand Seminar Hayek picked out the generalizations of utility theory developed by Hicks and Allen as particularly enlightening. He also praised Allen for constructing a three-dimensional cardboard model to explain the mathematics of production that “remained through a few years the constantly resorted to help on which the more intricate implications were demonstrated” (IB 80). Hayek presented chapters from what would become The Pure Theory

and Frisch from Scandinavia, Marget, Knight, and Viner from the United States.” He might also have mentioned Gustav Cassel, Eli Heckscher, Felix Kaufmann, Wilhelm Röpke, Joseph Schumpeter, and Frank Taussig, as well as many important British economists. Being centrally located in a major metropolis made it considerably easier for those traveling to or within England to “drop in” at LSE. 9. See Hayek 1995c [1929g] for a translation of Hayek’s first review of Cannan, and Hayek 1930d. Hayek is named as one of the “friends” who offered corrections that appeared in the second (1930) printing of A Review of Economic Theory, vi. Hayek would publish an obituary of Cannan, now also translated, in the Viennese Zeitschrift; see Hayek 1995c [1935c].

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of Capital in the seminar, and in that book employed drawings meant to represent three-dimensional figures that doubtless owed much to Allen’s ingenious contraption (see Hayek 2007b [1941a], 196, 204, 206). Hayek also spoke of how he learned from Robbins. Invoking the contrast he once drew between Böhm-Bawerk and Wieser, he referred to his friend as “the perfect master of his subject,” the sort of person “who has at his ready command the whole theory and all the important facts of his discipline and is prepared to answer at a moment’s notice all important questions relating to his field” (Hayek, Shehadi interviews, 2–3, 30; Hayek 1991a [1975], 49). As noted earlier, Hayek viewed himself as a “puzzler” or “muddler” who had to work through problems anew on each encounter, but who as a result could sometimes come up with new insights. From all accounts the two men also differed, and rather dramatically, in their classroom personae. Robbins was a commanding classroom presence. Kaldor ([1986] 1988) remembered a “flamboyant and enthusiastic” lecturer whose devotion to economic theory was expressed “with the fervency of a convert . . . and the zeal of a missionary” (12). One who attended his lectures for first-year students recalled “the young and very handsome Lionel Robbins, tossing back his flowing mane of hair (to the delight of the ladies), lecturing to packed classes” (quoted in Howson 2011, 174). Keen to avoid the mistakes of his beloved Cannan, Robbins took pains to plan out his lectures and deliver them in an organized and accessible way. His technique was to write out the lectures in full, then bring brief summaries to class: the result was a free and masterful delivery. He intended to write a textbook based on the notes for his “Principles of Economic Analysis” class, but in the end was distracted by other responsibilities.10 As Hayek himself simply put it, his friend was “much the better teacher, he was a brilliant lecturer, strong and clear” (Hayek, Shehadi interviews, 2–3). Robbins (1971) was complimentary too about Hayek, but conveyed a very different set of characteristics: “Contrary to popular belief, Hayek was no proselytizer. He had strong convictions himself. But in discussion his focus was always directed not to persuade but to pursue implications” (128). According to Robbins, it was this objectivity and evenhandedness that allowed those of very different political or ideological commitments to still be attracted to Hayek as a scholar. Such praise came from someone whom Hayek counted as one of his closest friends, but it is confirmed by the uniformity of the comments of others who engaged with him in seminars. 10. Robbins 1971, 145, 150. Robbins frequently updated his notes. Susan Howson edited three sets from his “Principles” course in the 1930s; they are now available, together with an introduction, in Robbins 2018.

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Ronald Coase (1994a [1982]) said that Hayek’s most valued contribution was to encourage rigor in one’s thinking, and though “unassertive, Hayek nonetheless exerted considerable influence through his profound knowledge of economic theory, the example of his own high standards of scholarship, and the power of his ideas” (209–10). In a later reminiscence Coase characterized Hayek as “non-dogmatic and sincere . . . Robbins gave drive, Hayek solidity to LSE.”11 John Kenneth Galbraith, who spent the 1937– 38 academic year in Cambridge, frequently came down to attend the LSE seminars. He recounted the contentiousness of the meetings and said that Hayek, “A gentle man of comprehensively archaic views . . . was only rarely able to speak” (Galbraith 1981, 78). Drawing on her own set of interviews of participants, mostly men of the left, Elizabeth Durbin (Evan Durbin’s daughter) described Hayek as “the very model of the patient, courteous man of learning in pursuit of truth” (Durbin 1985, 102). This is echoed by Aubrey Jones (1977), who said of Hayek that “he wore a perpetually benevolent smile, a trait which did not belie his nature” (35). Recalling Hayek’s response to the decision to change his thesis topic, George Shackle ([1983] 1988) remembered Hayek as a supervisor “of extreme enlightened generosity” (65). The one drawback, and this is not surprising, is that undergraduates often found him for various reasons difficult to follow: “his accent in English was thick and his thought appeared tangled” was how one put it (A. Jones 1977, 36; cf. Nehru 1977, 25). Stanley Godfrey attended the banking and currency lectures that Hayek, filling in for Gregory, gave in his first year as a visiting professor, and recounted that “after the first lecture argument broke out among my contemporaries as to whether he was lecturing in English with a strong German accent or in German with an English accent” (Godfrey, LSEA History Project Box 45iv). Writing to his future wife, Ralph Arakie also complained of Hayek’s “bad English” and provided an account of an unfortunate incident in which his polite nature went unappreciated: “The other day Hayek gave a talk to the Socialist Society of University College. He came back that evening at 5 from Vienna, having traveled some 30  hours, gave a lecture at the School and then rushed to keep his appointment with these people. He gave a brilliant and very sincere talk. Unfortunately there were a number of hooligans in the audience and they were very insulting. All the LSE people there were disgusted and I was terribly upset that this should be Hayek’s first experience of a student 11. This statement appeared in an email on April 12, 2002, sent by Larry White to the now defunct Hayek listserv and reporting on a session in which Coase responded to questions about his memory of Hayek and LSE.

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society. He talked of socialism in Austria” (Arakie, LSEA History Project Box 45iv). Such occasional trials and tribulations aside, Hayek’s overall demeanor makes it easier to understand why he was invited to join the faculty after his year as a visitor and the widely held view, in the first few years anyway, of the magnitude of his impact on those who were there. He was dealing with the most pressing and controversial economic issues of the day—the business cycle, the prospects for socialism—and though strong in his own convictions always trying to approach them scientifically. As Ludwig Lachmann recounted, when he arrived in the early 1930s Hayek was “the towering figure” in Economics and everyone, even the socialists, was “infected by Hayekian ideas” (Shehadi interviews, 4). The honeymoon would not last. We have spoken less about Hayek’s seminar because we know less about it. Like the Grand Seminar, it was attended by students, staff, and visitors. Students interested in areas in which he had expertise—money, capital, and industrial fluctuations—presented their work, and of course he presented his own work. Three students who studied with Hayek should be mentioned: Vera Smith (later Vera Lutz), Ludwig Lachmann, and George Shackle. Born in Faversham, Kent, in 1912, Smith enrolled at LSE as an undergraduate in 1930. She studied with Robbins, Hicks, Gregory, and Hayek, and after finishing her undergraduate studies undertook doctoral work. Two years later, on July 12, 1935, at 6:30 p.m. (or so it is recorded in Hayek’s appointment book), she had her viva, or oral examination, on her thesis “The Rationale of Central Banking.” Published as a book the next year, it compared the merits of a central bank monopoly with a system of competitive banks, a topic whose interest would dramatically revive, again under Hayek’s influence, some forty years later (Smith 1936). In April 1937 Smith married Friedrich Lutz, an assistant to Walter Eucken in Freiburg, and they then traveled to the US on a Rockefeller Fellowship that he had secured.12 They returned to the US in 1939, settling in Princeton where Friedrich had been offered a teaching position, then moving in 1953 to the University 12. See Hayek’s letter to Haberler (on both Friedrich Lutz and Vera Smith), dated Mar  11, 1937: “In about fourteen days Dr. Lutz, a particularly nice German from Freiburg, will depart for America as a Rockefeller Fellow, after he will marry my disciple V. C. Smith (‘The Rationale of Central Banking’). Both are really nice and clever people, unfortunately he has now utterly no possibility for an academic career in Germany, because he is anti-Nazi as is the whole Eucken circle. He was proposed for the chair in Hamburg, but did not get it, and confidentially he was told that he would have no chance ever to get a chair under the regime, because the political report on him had been unfavorable.”

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of Zurich, where he taught until retirement in 1972. Though Vera would never hold a teaching position, she wrote two more books and co-authored two more with her husband, as well as many research papers, and translated into English works by Wilhelm Röpke, Oskar Morgenstern, and Fritz Machlup (Yeager 1990, 1–7). Both she and her husband would become members of the Mont Pèlerin Society, with Friedrich serving as president of the society from 1964 to 1967. Ludwig Lachmann already had a doctorate from the University of Berlin when he arrived in London in April 1933. A Jew, Lachmann left Germany when Hitler came to power. Prior to arriving he was familiar with Hayek’s work, having read many of his papers in German as well as Prices and Production. Unable to find a job, he enrolled at LSE as a research student under Hayek. He was awarded an MSc (Econ) in 1935 for his work on the concept of “secondary depression,” evidently a theoretical topic of considerable interest in the mid-1930s. Lachmann’s later fascination with the role of expectations in economics found its origins in discussions he had with Paul Rosenstein-Rodan, whose lectures on the history of economic thought at University College London he attended. But he also greatly benefited from conversations with John Hicks and especially George Shackle, whose ideas he continued to integrate into his own thought for decades to come (e.g., Lachmann 1976, 1977, 1978, 1986b; Lachmann, Shehadi interviews, 2, 13, 16; Grinder 1977, 9–13, 19–22). Lachmann was awarded a Leon Fellowship from University College in 1938, and after a period of fellowship travel, taught there while it was evacuated to Aberystwyth. In 1943 he moved to Hull to teach. During the war he kept in close contact with Hayek, and they would remain friends and correspondents after Lachmann moved to South Africa in 1949 (Lachmann, Shehadi interviews, 6; Grinder 1977, 13). Lachmann would play an important role in the American “Austrian Revival” in the 1970s, attending the famous South Royalton conference in 1974 and from 1975 holding a visiting professor position at New York University to interact with faculty, postdocs and graduate students affiliated with the Austrian economics program that was then being established there (Vaughn 1994, chap. 5).13 From age seventeen Cambridge-born George Shackle worked, first at a bank, then at a tobacco firm, and finally as a schoolteacher, also finding 13. Caldwell held a postdoctoral fellowship at NYU in 1981–82, and during the spring semester had a weekly meeting with Lachmann. For a reminiscence, see Caldwell 1991a. Lachmann 1977, with an informative introduction by Walter Grinder, collects many of Lachmann’s articles and contains a list of his economics writings to that date.

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time to take an external degree at the University of London. Intrigued by the question of the causes of the depression, in 1931 he read both Keynes’s Treatise on Money and Hayek’s Prices and Production. The effect was profound: the former provided a “vision of a world of scholarly discourse and debate, relaxed, Olympian, intoxicating” and the latter “extra, astonishing excitement” (Shackle [1983] 1988, 58; cf. 1992, 505). Wrestling with the two disparate views of how a monetary economy works (or fails to work), Shackle wrote a short paper trying to reconcile them, which he then submitted to the Review of Economic Studies. To his delight it was accepted and appeared in the journal’s first issue (Shackle 1933). The editors urged their newfound autodidact to apply for a Leverhulme Research Scholarship to LSE, which he did, successfully. He entered LSE as a research student on New Year’s Day, 1935 (Shackle 1992, 507). Or at least that is Shackle’s account of what happened. Hayek’s memory was somewhat different: that Shackle had sent him an essay he had written, and Hayek encouraged him to elaborate it for Economica. When Shackle came to see him, Hayek was sufficiently impressed that he got him a fellowship to come to LSE (Hayek 1983a, 243). Of course, both stories may be true: Shackle would not have been privy to what Hayek might have been doing behind the scenes to obtain the fellowship. Anyway, Shackle worked for much of that first year on a dissertation under Hayek, but progress was slow. Meanwhile he had been hearing rumors about Keynes’s revolutionary new work from Abba Lerner and others, and in October 1935 he attended a meeting of the Joint Seminar that had been set up among research students from Cambridge and LSE to discuss the new ideas. The result was a conversion experience: “no other discourse has ever released upon my mind so staggering and thrilling a flood of light. At last I understood. I was released from the torments of my thesis, which struggled to explain unemployment in terms of a model of inflation. I tore it up. I began again. I joined the elect, for I understood Keynes” (Shackle [1961] 1966, 53). The dissertation that Shackle completed under Hayek in 1937, published the next year as Expectations, Investment, and Income (Shackle 1938), explored a number of problems and questions that were raised in and by Keynes’s new book. Indeed, his introduction contains the sentence: “My debt to Mr. Keynes is so comprehensive, and will be so evident to any reader, that I have not thought it necessary to make footnote references to his book” (2). Hayek is mentioned too, only once, and only in a footnote. Hayek was gracious about the defection, but we will see it was not to be an isolated case. We can mention one other visitor to Hayek’s seminar, a small, curious philosopher from Vienna whose work Hayek had heard about from

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Gottfried Haberler but never met, Karl Popper.14 Hayek had been complaining to Haberler about the pernicious effects of positivist doctrine, and Haberler recommended Popper’s book on scientific method, Logik der Forschung (Popper 1935), as a counterexample. Though Popper later portrayed himself as the person who had killed positivism, at the time he was seen as a member of the camp, one who advocated falsifiability (as opposed to verifiability) as the criterion for distinguishing scientific from metaphysical statements.15 An assimilated Jew, Popper was despite the success of his book unable to get his habilitation. By the mid-1930s he was ready to get out of Austria and saw England as a promising sanctuary. In September 1935 he met A. J. Ayer at a Paris philosophical congress, and the Englishman took him under his wing. Soon thereafter Popper received an invitation from Susan Stebbing to give some lectures at Bedford College, University of London, which Hayek apparently attended (Bartley interviews, Mar 28, 1983). Other invitations followed; he spent the rest of 1935 and much of the first six months of 1936 lecturing and interacting with people of influence and trying, unsuccessfully, to get an offer of employment. At one significant outing to Hunstanton he met several left-wing scientists, among them J. D. Bernal, J. B. S. Haldane, Hyman Levy, Joseph Needham, and C. H. Waddington, some of the same people whose ideas Hayek would react against as the decade progressed. Though not a liberal (he was in fact a social democrat), Popper had similar misgivings about their descriptions of the scientific endeavor that drew on Marx and the sociology of knowledge. He decided to develop some criticisms in a paper that ultimately would grow into the book The Poverty of Historicism (Hacohen 2000, 310–16, 360–61). It was an early version of this paper that he delivered at Hayek’s seminar on June 10, 1936. Among those attending were Robbins, Shackle, Lerner, Ernst Gombrich, who was Popper’s friend from the Warburg Institute (originally founded in Hamburg and dedicated to the study of the 14. Though they had not met, they apparently were both present when a communistinspired crowd of workers had a shootout with the police in the streets of Vienna in April 1919; see Caldwell 2006, 113. 15. Otto Neurath once characterized Popper as the Vienna Circle’s “official opposition” (Popper 1965, 269n4). In response to the question “Who Killed Logical Positivism?” which Popper posed in his intellectual autobiography, he answered, “I fear that I must admit responsibility” (Popper [1976] 2002, 99). Hacohen 2000 is a masterful account of Popper’s life through 1945 that fully addresses Popper’s later self-reconstructions. Caldwell 1991b explicates Popper’s writings and shows their relationship to methodological writings in economics.

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interaction of culture and images through space and time, the Institute had gone into exile in 1933, settling in London), and possibly Karl Mannheim. Hayek could report back to Haberler that Popper’s talk was impressive, and that he thought that Robbins was also impressed, but unfortunately that there were few prospects then for a job for him at LSE (Hacohen 2000, 316; Howson 2011, 290). Even if they differed politically (something that would come to light only later), Popper had all the right enemies, men like Mannheim and Neurath (Hacohen 2000, 313, 360–62, 372–74). Hayek tried to help his new acquaintance by trying to get Logik translated into English, but various delays and then the start of the war sank that project. In the end Popper got an offer of employment from Canterbury College, New Zealand, departing for his new position in February 1937. He would never be happy in New Zealand, but for all of his complaints things evidently could have been much worse: sixteen of his relatives—aunts, uncles, and cousins—who remained in Central Europe would die in the Holocaust (Hacohen 2000, 324–25, 336–47; Hayek to Popper, Dec 27, 1936, through late 1938). * * * Unfortunately there is more to being a professor than teaching and research. In particular there is administrative work: setting up teaching schedules, assigning committee work, negotiating with those higher up in the administration on behalf of fellow faculty members, resolving conflicts among personnel or among staff and students, and dealing with the dozens of other problems that might and do arise every term in a university setting. Though such tasks are vital for the functioning of an academic department, the tedium that is often associated with them means that anyone who is willing to take them on is seen as a sort of godsend by other faculty members. Among economists at LSE in the 1930s, that role was played by Lionel Robbins. In many universities the person who performs such duties carries the title of department head. That nomenclature would not work at LSE owing to its rather unusual governance structure. Though there were chairs dedicated to specific fields (Economics, Commerce, Politics, Sociology, History, and the like), there were no formal departments. Robbins’s solution was to act as a convener of the meetings of economists. His office was just around the corner from the refectory, so he would host a weekly gathering in his office at teatime, and any economist who happened to be in the building could come (Robbins 1971, 125; Hayek, Shehadi interviews, 20). If any matters required discussion, that would be the time to have it. But as

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Hayek recalled: “There wasn’t much discussion. Lionel would say, ‘I think there is this and that problem’ and ‘I think the best way to solve it . . .’ and we’d say, ‘Yes, go ahead.’ There was never a formal vote or anything like this. Lionel would readily consider any objection, but in most instances most of us were glad he took the trouble to look after these things” (Shehadi interviews, 20). Hayek straightforwardly admitted that he hated administrative work—in this he is not unique—and that he shamelessly even used the fact that he was from another country as an excuse to avoid it. Unfortunately for him, when LSE evacuated to Cambridge during the war and many of his colleagues left to serve the government in various capacities, he was forced to perform some administrative tasks. Once they saw he was not a miserable failure at it, he was sunk; even after the war he “could never quite get out of it” (Shehadi interviews, 19). Though Robbins handled a lot of the administrative duties, Hayek pulled his weight when it came to committee work. As the holder of the Tooke chair he was of course a member of the Professorial Council, which met as needs demanded. He also was invited early on to become a member of the Editorial Committee of the London and Cambridge Economic Service, which met once a month in London. The typical meeting was an informal affair in which forecasts from the previous months would be compared with the latest economic conditions. Conversation would ensue, and a new forecast would be made. This was a regular occasion for economists from Cambridge and LSE to meet, apparently cordially.16 A more significant obligation was Hayek’s work as a member of the editorial board of Economica, the LSE house journal (in the 1930s almost twothirds of the articles published there were by former or current members of staff and students).17 The board met four or five times a year to assign new manuscripts accepted for review, to discuss which of many books submitted would be granted a book review, to check the status of previously submitted articles that were in various stages of the process of acceptance, revision, or rejection, to decide on the order of appearance of articles accepted and waiting for publication, plus any other of the myriad details that come up in running such an endeavor. Members of the board would also in the course of the year be among those reviewing manuscripts and writing book reviews. 16. Robbins offered a description of the typical meeting in a paper given in France in  1934, which Denis O’Brien later translated and included as an appendix in O’Brien 1988. 17. A breakdown of articles published by School staff, students, and others may be found in the Economica files at LSE, 122/25/D.

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Hayek also served on the library committee, on which (or so he recalls) he was “probably the most active member” (Shehadi interviews, 10). Given his reputation as an avid book collector, he was a natural candidate for the position. At most universities a committee that overlooks the activities of the library would not be considered a major assignment, but LSE, again, was different. From the earliest days the British Library of Political and Economic Science was considered the heart of the School. As Beveridge once put it, “the School at one time in its history was little more than an annexe” to the library (quoted in Dahrendorf 1995, 171). The committee was sufficiently important that Sidney Webb, rarely seen at the School at this stage in his career, served as its chair. Hayek learned from Webb the fine art of controlling an agenda, a skill Webb doubtless honed during thousands of committee meetings of the Fabian Society and other organizations. Webb would leave any controversial items until the end of the session, drag out the meeting, then, reminding people it was past time for tea, finally introduce the last item to be decided. It is a timeworn but surprisingly effective trick (Hayek, Shehadi interviews, 10). Hayek also assisted his friend Robbins with another of his many projects. Robbins edited the LSE series Reprints of Scarce Tracts in Economics and Political Science, and he used it to bring back into print various books, a task that Hayek was happy to join in given that he had made similar efforts before coming to LSE. Among the tracts reprinted were works by Philip Wicksteed, Knut Wicksell, and Mountiford Longfield, as well as Knight’s Risk, Uncertainty and Profit ([1921] 1933). Hayek provided an introductory essay for the reprinting (in German, it was not a translation) of the original edition of Carl Menger’s Grundsätze der Volkswirtschaftslehre, an essay that was substantially reprinted in Economica in 1934 (Hayek 1934b). Moreover, at LSE Hayek was able to realize one of his long-held ambitions, namely, bringing out an edition of Henry Thornton’s An Enquiry into the Nature and Effects of the Paper Credit of Great Britain (1802). He had become thoroughly familiar with Thornton’s contribution, which he judged “one of the outstanding achievements in the development of monetary theory,” through his work for the planned book on monetary history (Hayek 1991b [1930–31], 191; see also 2012a [1931a], 200–206). Hayek’s Thornton edition (Thornton 1939) appeared in Allen and Unwin’s Library of Economics series, under the general editorship of Rosenstein-Rodan. Hayek also became involved in the 1930s with the editing of the works of Jeremy Bentham (see Schofield 2009). We remember that his first introduction to Bentham was through Mitchell’s lectures. Since then, he had come to appreciate Bentham’s economic writings. He referred to

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Bentham in a paragraph in Prices and Production (2012a [1931a], 206– 7) and much more extensively in his history of the doctrine of forced saving (Hayek 2012b [1932c], 156–60) where he credited him with the earliest and clearest statement of this idea. He also noted there that in view of the shortcomings of the existing Bowring edition “a critical edition of all the economic writings of Bentham is urgently needed” (157). So when, on the occasion of the Bentham centenary of 1932, University College London (UCL), the depository of the Bentham papers, initiated an edition of Bentham’s works, Hayek—jointly with Piero Sraffa—was an obvious choice to join the manuscripts committee and the editorial subcommittee, which were constituted in 1933. Hayek had already done some work in organizing the papers at UCL (see Bartley interview, not dated).18 On the committee Hayek was pivotal in shaping the format of the edition, emphasizing the necessity of reediting what had been already published and partitioning it into separate sections. The outbreak of war halted these activities. Later, at Keynes’s initiative another attempt was started, funded by the Royal Economic Society, with Werner Stark, an émigré economist from Bohemia, serving as the editor. After a drawn-out process the three-volume Stark edition appeared in 1952–54. Hayek remained on the committee until its last meeting in 1947. * * * The School was small enough in the 1930s—there were around 130 instructors, which included both full- and part-time—for staff to get to know colleagues outside of their own areas of study. This was facilitated by the Senior Common Room, where anyone who wished to do so could gather for the tea and coffee served twice a day. Sometimes people gathered around the big table that was in the middle; at other times smaller groups formed (Dahrendorf 1995, 209; Beveridge 1960, 119; Hayek, Shehadi interviews, 7). Aside from the lawyers, many of whom were conservatives, most of their colleagues in the School were ideologically to the left of the economists, and discussions could be lively. Even so, the atmosphere was friendly; people agreed to disagree. On this matter in his autobiography Lionel waxed lyrical when he remembered listening “to friendly badinage between Tawney and Gregory on the merits and demerits of the free-enterprise system” or “discussing life and its arts with Charles Webster and Eileen Power, he with his genial heavyweight learning and common sense, she with her beauty, 18. In the transcript the name is misspelled “Benton.”

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her sisterly friendliness and her lively wit” (Robbins 1971, 124). Hayek echoed Robbins’s description of the Common Room as a place where, despite sharp political differences, the ambiance was friendly, an atmosphere that suited his own tastes well (Hayek 1994, 81). Some examples of the kind of collegial repartee that was characteristic of the School was a “Mock Trial” of economists that Director Beveridge organized in June 1933 (reported in the Economist, June 17, 1933) or Beveridge’s address (titled “My Utopia”) before the School’s Cosmopolitan Club at the beginning of the Michaelmas term in 1934. In the latter Beveridge (1936) spoke of an “elaborate apparatus” that had been invented by “John Maynard von Hayek” which had apparently solved the problem of making money neutral: “So far as I can make out, it automatically changes the air and so affects the blood pressure of bankers and businessmen, as prices rise or fall in relation to productive efficiency” (135). There were also regular events to mark the end of term, all dutifully entered by Hayek into his appointment book: the Christmas party at the end of Michaelmas term and the Strawberry Tea at the end of summer term. When did Hayek do research? One of the consequences of LSE’s repeating daytime classes at night was that Hayek rarely had classes that met before noon. So he did his research and writing in the morning, usually in his study in an upstairs room at home, surrounded by his own books. He took notes on what he read on hand-cut slips of paper or, later, 3×5 cards. This habit may help to explain why Hayek sometimes made small mistakes in transcription when he would quote the words of others in his books and articles, though it should be noted that this sort of error is easy to make. Hayek also occasionally worked at the Reform Club. Membership in the Club, founded in 1836, was originally restricted to those who had supported the Great Reform Act of 1832 that had ended a number of electoral abuses and expanded the franchise. Later in the century it became the de facto headquarters of the Liberal Party. Robbins had been a member since 1929 and invited Hayek to meals a few times, and it was there that they listened (“in deep gloom”) to the returns coming in during the 1931 general election, in which the Liberal Party placed a distant third. Hayek was admitted as a member in 1935 and would sometimes take meals there, lunch or dinner with colleagues or guests (Howson 2011, 170; IB 83; Hayek to Secretary, Reform Club, Feb 2, 1987). He would remain a member throughout his life, coming to look on the Club as his home away from home once he left England. But he was not happy about the changes in membership that he witnessed over the years, lamenting its transformation from “the old center of liberalism” to “a luncheon club for pink civil servants, journalists, and ‘intellectuals’” (IB 83–84). One of its most attractive features was its great

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library. Hayek served on the Club’s library committee and in the late 1930s chose to write his introduction (Hayek 1939e) to Henry Thornton’s Paper Credit of Great Britain there. Aside from an occasional article and letter to the editor, Hayek did not engage in public discourse much in England. He wrote more frequently for German-language publications, and these included a range of types of articles.19 But in England he felt a bit more hesitant: he was, after all, in a new country, and at least in his first few years there, he was not just a foreign national, but one from a German-speaking country. Better not to stand out too much.

The Decline and Fall of William Beveridge If Lionel’s recounting of the respectful but spirited give-and-take he witnessed in the Senior Common Room seems a bit overblown or romanticized, it should not be thought that all his memories of LSE in the 1930s were so pleasant. In his autobiography, a document remarkable for its diffidence and restraint, his treatment of the director of the School, William Beveridge, was at times blistering. To be sure, he was willing to praise the director when it was appropriate, as it often was especially early in his tenure. In the 1920s Beveridge oversaw the physical expansion of the School (Eileen Power once quipped that he “ruled over an empire on which the concrete never set”) and its transformation into a proper research institution, as well as raising impressive sums of money, the largest bits from the Laura Spelman Rockefeller Memorial Fund and, later, the Rockefeller Fund. Perhaps his finest moment came in April 1933, when he hit on the idea of an academic assistance council to raise funds to enable European academics to emigrate after Hitler came to power. The plan was hatched when Robbins chanced to run into Beveridge in the lobby of the Hotel Bristol in Vienna, Robbins being there to meet Ludwig von Mises. When he arrived Mises had with him a newspaper listing of all the scholars who had just been dismissed on racial or political grounds by the Nazis, and he asked his friends 19. For example, “The Fate of the Gold Standard” (Hayek 1999f [1932e]) originally appeared in Der Deutsche Volkswirt, “Capital Consumption” (Hayek 2015f [1932a]) in Weltwirtschaftliches Archiv, and “Technical Progress and Excess Capacity” (Hayek 2015g [1936a]) in Österreichische Zeitschrift für Bankwesen. “The Fate of the Gold Standard” was a kind of political pamphlet, while “Capital Consumption” was a theoretical article, with only a few final comments on economic policy. “Technical Progress” was presented in Vienna at the Institute for Business Cycle Research. The last article, by the way, challenged (without naming names) Hayek’s colleague Kaldor’s arguments for regulating imperfectly competitive markets.

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if anyone in Britain could help. It was a heroic moment; Beveridge’s plan ended up saving the careers, and in some cases the lives, of dozens of professors and their families (Dahrendorf 1995, 142, 160–62, 286–90; Robbins 1971, 143–44; Fleck 2010). By the 1930s, though, Beveridge’s star had begun to fade. He was neither a warm nor an engaging person and could be high-handed. But perhaps a greater fault for a leader of an academic institution was his congenital failure to consult. It would ultimately bring him into conflict with his senior faculty and, when wedded to his stubbornness and a bit of duplicity in his stalwart defense of social biology, with the Rockefeller Foundation. For Robbins the scales were finally and irrevocably tipped against the director at the end of the summer 1933 term, when he walked into Beveridge’s office to find him jubilant over having all but completed an agreement to bring the Frankfurt Institute library to London. Robbins, who viewed the Institute as a hotbed of Marxism, was aghast, certain that the move would include not just books but Marxists, thereby changing forever the nature, not to mention the public perception, of the School. He was even more distressed that Beveridge would consider making such a momentous move without first consulting the faculty. He immediately called in several senior staff, among them Sidney Webb and Hayek, all of whom spoke against the proposal. Beveridge was resistant, but ultimately gave in (Dahrendorf 1995, 290–93; Robbins 1971, 139–41). The next year he embarrassed the School publicly when his attempt to restrain the irrepressible Laski from making provocative political statements in his column in the Daily Herald backfired (“one of the most mishandled episodes of Beveridge’s career” is how his biographer Jose Harris [1997, 294] put it). The move was perceived by many of his colleagues, among them Robbins and Hayek, as at a minimum administrative overreach, if not an attack on academic freedom. The discussion of that scandal spread well beyond the School, and the popular myth that LSE was a hotbed of communist teaching was fed anew (Dahrendorf 1995, 273–82; cf. Harris 1997, 283–95). There was also the Hogben affair. Beveridge was obsessed with the idea that a natural science of society needed to be added to the study of economics and political and social relations. He used some of the funds that he got from the Rockefeller Foundation to establish a chair in social biology and soon filled it with Lancelot Hogben, who began work there in October 1930. Though the idea was wholly his own, Beveridge represented to the Foundation that the professors at the School supported it and represented to the professors that the Foundation did. As it turned out, Hogben was not

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a good fit, though that seems to have been the case for most places that he went. Hayek (1994) remembered him as “a not uninteresting” but still “difficult person” (84). At LSE a major problem was that no one really knew exactly what social biology was, or how its findings might be integrated with those of the other social sciences, and Hogben’s relationships with other professors were so strained that no progress was made. By 1935 the Rockefeller Foundation decided it would no longer support social biology at LSE. Hogben hung on until 1937, when he decamped for the University of Aberdeen. Beveridge managed to make matters worse by relentlessly pressing for the continuance of the field. Ultimately the Rockefeller funding was pulled from the School in toto (Hayek 1994, 260–63, 314–19). And even this was not the whole of it; there was also the director’s strange relationship with the School secretary, the daunting Mrs. Mair. Jessy Mair, strong-willed and blunt-spoken, married to a cousin of Beveridge’s, had been with Beveridge since before he came to direct the School in 1919. In 1942, a year after her own husband’s death, they would marry. At once fiercely loyal to but also jealous of and domineering toward her long-term object of affection, she counted few friends among the professoriate. As early as 1934 Beatrice Webb was describing her in her diary as “a Fury . . . in control of his home and his work-place”; by February 1936 this had changed simply to “Mrs. Mair must go” (B. Webb 1985, 332, 365). When in 1936 Beveridge tried to extend her contract beyond her normal retirement time it provoked a revolt among the senior faculty; the ensuing attempt to work out a compromise outraged and humiliated Beveridge, who by the next year had accepted the position of Master of University College, Oxford (Dahrendorf 1995, 323–24). Beveridge got a small measure of revenge in his final act before leaving the School, delivering the Commencement Day Oration in May 1937. The speech was titled “The Place of the Social Sciences in Human Knowledge” and included the proper way to do social science; he took as an example of how not to do it the theoretical analysis of Keynes. Innocent-seeming enough, but his general attack on theory as well as other comments on the impropriety of professors’ making public political statements was heard by his audience as aimed directly at them, Laski and the economics staff in particular. This outraged Lionel Robbins, who recounted the event in his autobiography: with all the professoriate lined up on the platform exposed to public view, he delivered a passionate attack . . . The effect was shattering— and saddening. I can still see the look of horror and incredulity on the

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face of Abba Lerner, then a junior lecturer remote from the stresses and struggles, as he realized what was being said and implied. I walked away with one of the most senior and reserved members of the staff, a staunch conservative on whose lips I had never heard any, even the least, improper sentiment. “I always suspected,” he said, “that he was not quite a gentleman. And now I know it.” One could not demur to this verdict as regards this particular performance. (Robbins 1971, 141–42)

This is strong stuff. Robbins’s moral compass would not brook what he perceived to be ungentlemanly behavior. This character trait will come up again, in his relationship with Hayek. Beveridge’s downward spiral began soon after Hayek was appointed to the Tooke chair, so for most of the time that Hayek was there, Beveridge was a regular source of concern and gossip among his peers. In his own reminiscences about the director and Mrs. Mair (Hayek 1994, 83–85; Hayek, Shehadi interviews, 11), he portrayed him as a poor administrator, a man of constantly changing enthusiasms that led him into trouble. Hayek took Robbins’s side in the Frankfurt Institute library fiasco, and indeed was the first one Robbins went to in seeking support for his position against the director. And like everyone else, Hayek thought his very public and at times embarrassing relationship with Mrs. Mair made the director seem weak and ultimately ridiculous. His account of his own small contribution to the contemporaneous debate about Beveridge nicely displays his role in the weekly meeting convened in Robbins’s office, and his laconic wit: “There was a time when I concluded every departmental committee meeting by saying, ‘Beveridge delendes est.’ . . . I used this phrase against Beveridge, because I found him quite impossible. The general irresponsibility of the man, which got the School into serious difficulty” (Hayek 1994, 84).20 Of course, Beveridge’s name is today most associated with the Beveridge Report, the blueprint for the British welfare state that, as The Road to Serf-

20. In perhaps another reminder of Hayek’s unfortunate schooldays, he mistakenly rendered the key phrase as “Ceterum censo Catonum esse delendum” (Hayek 1994). Rome had fought two wars with the city-state of Carthage, and Cato the Elder (234– 149 BCE), a senator, sought the final destruction of Carthage in his later years. Ancient sources (including Plutarch’s Lives and Pliny the Elder’s Natural History) relate that Cato concluded every Senate speech, whatever the topic, by calling for the destruction of Carthage. Modern scholars have rendered his statement as “Ceterum censeo Carthaginem esse delendam,” meaning “Furthermore I advise that Carthage be destroyed.” We thank Larry White for his correction of Hayek’s error.

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dom would do for Hayek, overnight made his name a household word. We will have more to say on that later.

Colleagues After he got the Nobel Prize Hayek sat for many interviews, and sometimes would recount stories about his days at LSE in the 1930s, the people he encountered, and their often oversized personalities. It is well to remember that in these stories a man in his late seventies is recalling the life of a man in his thirties (surrounded by colleagues many of whom were equally young, or younger) who was living in a new country, conversing in a new language, and experiencing a new though not uncongenial culture. What then was the young Hayek’s reaction to all of this? And what can we learn about him from those reactions? The anthropologist Bronislaw Malinowski was on staff when Hayek arrived at LSE. Though Hayek was fifteen years his junior, the two men had some things in common. An ethnic Pole, Malinowski was born in Cracow, then part of the Austro-Hungarian Empire. He apparently shared Hayek’s pleasure in observing the idiosyncrasy of British manners and behavior: “My only education in anthropology I owe to Bronislaw Malinowski, who took the younger arrival from the same educational background (though different native language) in hand to interpret to him from a corner seat of the Senior Common Room of the LSE, the folkways of English academics, an amusement which became positively hilarious when once or twice Elie Halévy joined us in our good-natured fun about what we all loved” (IB 83). Hayek referred to their place in the Common Room as the “Sardonic Corner” (Cubitt 2006, 5). The French historian Halévy was a perfect addition: he had written a three-volume work on the development of English utilitarianism, first published in 1901–4, so had a long familiarity with his subject (for a translation, see Halévy 1955 [1928]). He died in 1937. Hayek referenced his work on Henri de Saint-Simon in the Abuse of Reason project he would undertake during the war and published a translation of a piece by him in Economica in the same issue that the first installment of his own “Counter-Revolution of Science” essay appeared (see Halévy 1941). Recall that people who were at the School in the 1930s remembered Hayek for his understated and unassuming personal style, as a low-key person who stuck to making arguments. To adopt such a persona makes sense when one is a stranger in a strange land, with markedly less than mastery of the language, and even more so when many colleagues have political commitments that conflict with one’s own. On the other hand, LSE was a cosmo-

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politan if not polyglot space, increasingly so as the 1930s progressed, and at least some of his colleagues among the economists were also liberals. So it seems reasonable to assume that this was less a pose than a reflection of his own personal tastes. When he assessed others who did not share his politics, an important characteristic was whether they were willing to engage with him, understandable enough given the minority status of his views. For the record, among those he found undogmatic were Keynes and his friends in the Bloomsbury group, the economic and social historians Eileen Power and R. H. Tawney (the latter “a man you could talk with, not doctrinaire, very interesting man; personally I liked Tawney”), Sidney Webb (“a very human person, with whom you could discuss”), the sociologist Morris Ginsberg (“a sensible man”), Evan Durbin (“a nice person, whom everybody liked” but “not a great thinker”) (Hayek 1994, 83; Hayek, Shehadi interviews, 10– 11, 25–26). The comment about Durbin referred to the fact that in Hayek’s opinion, he had a sentimental political attachment to socialism but was less able to defend it on intellectual grounds. In this he reminded Hayek of Barbara Wootton, who in her books would acknowledge all the economic limitations of socialism but in the end still embrace it for moral reasons. Hayek felt that he had proven scientifically that socialism could not work, that it could not achieve the lofty goals it promised, so appeals to moral sentiments by those who understood but still chose to ignore the economic arguments left him unimpressed. Hayek clearly enjoyed the give-and-take of argument, but he liked to keep discussions on a civil and professional level rather than allow differences of opinion to interfere with one’s personal relationships. This was why he was so comfortable in English academic settings. The ability to engage in fierce debates in the seminar room (though his personal style in this arena was to state his arguments in a reasoned and calm manner) and then seamlessly retire to the repartee and banter of the Common Room was both quintessentially British and a highly prized element of that particular culture. It was how intelligent men fought, and how they played. Fully sharing in the preconceptions of his class, gender, and period, Hayek very clearly felt most at ease in the company of men. But he did have at least some interaction with women at LSE. For example, he appears to have had a healthy and open working relationship with Vera Smith, whose thesis he had supervised. In November 1938, after she had moved to the States with her new husband, she sent him a four-page handwritten letter most of which contained commentary on a draft of chapters from The Pure Theory of Capital. He asked for suggestions for improvement, and though polite she pulled no punches, noting that a concluding summary chapter

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might help, “in case the reader has not yet recovered from the strain of the earlier chapters (three-dimensional diagrams etc.)[.] I shall also reexamine the whole thing to see if something could not be done about summarizing some of that very stiff early part” (V. Lutz to Hayek, Nov 11, 1938). She closed her letter “Affectionately,” so it seems she at least saw their relationship at the time as a friendly one. This is the only letter between them in the Hayek archives, so it does not appear to have been a long-lived relationship. Hayek’s only mention of her in his reminiscences reveals his biases: in response to a remark by Armen Alchian, who said that he imagined Vera had been “a pretty good-looking woman,” Hayek replied: “She was a very good-looking woman, and extremely intelligent. But she wasn’t really very female; she had too much of a male intelligence [laughter]” (Hayek 1983a, 363). This speaks embarrassingly frankly to a common attitude of the day, clearly shared by Hayek, that women for the most part were not cut out intellectually for academia; they were fine as students, but as colleagues, not so much. Of the four women he mentioned from this period, his descriptions for two of them were perhaps somewhat predictable. It was inevitable that he would lump the socialist apologist Barbara Wootton in with Even Durbin as not a serious thinker. And he thought Mrs. Mair a crude, unsophisticated woman who was hungry for power and control (he once called her a “termagant”) (Cubitt 2006, 5). He was unusually harsh, though, regarding Beatrice Webb, whom he found narrow-minded (he used the German word borniert) and conceited, “an intolerable prig whom I soon learnt to avoid.” He remembered in particular a celebration that he attended at the Webb cottage in the country in which the adulation of the crowd was for him “rather disgusting” (Hayek, Shehadi interviews, 10; IB 83). If this seems over the top, it is not altogether an inaccurate picture. Beatrice had a reputation as a cold and humorless ideologue, someone who worked tirelessly for the cause of socialism. She made little time for a personal life, describing her marriage in her diary in almost clinical terms: “Sidney and I prefer a social habit to a personal relationship . . . Our main end and preoccupation has been to discover how to change society in order to increase the well-being, energy, and dignity of the human race” (B. Webb 1985, 419). Quite sure of her own eventual place in history, Beatrice left for posterity carefully crafted diaries. Fascinating to read, they are filled with character sketches, brilliantly drawn but often unflattering to the point of vitriol. Beatrice Webb was a complicated and highly intelligent woman, but not a pleasant one. Perhaps that combination is what Hayek found so hard to tolerate, especially in someone who was a standard-bearer for a belief system he rejected.

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Hayek may have exhibited the chauvinist tendencies of his day but he was no misogynist. He introduced the historian Eileen Power in a letter to Gottfried Haberler as a “charming colleague” whom he recommended “as a particularly amusing and likeable person (around 40, but decidedly younger in her character)” (Hayek to Haberler, Feb 4, 1933). In a later interview he described her as “the charming Eileen Power . . . who loved to be the perfectly finished picture,” “a magnificent lecturer” but “shy” when it came to engaging in “scientific discussion” (Hayek, Shehadi interviews, 9, 13). If Hayek seems vaguely smitten, he would not have been alone. Every description of Eileen Power mentions that she was always immaculately dressed, clever, witty, a wonderful conversationalist. Many men fell for her (on the other hand, Mrs. Mair disliked her, and her first dinner at the Webbs’ “was not a success”) (Berg 1996, 148). Power had grown up in a respectable middle-class family in Manchester, but everything changed when her stockbroker father forged a check, an act that ultimately led to time in prison for him and scandal and bankruptcy for the family (Berg 1996, 30–31, 154). She overcame the adversity, going on to Girton College, Cambridge, and from there eventually to join with Tawney teaching social and economic history at LSE. A specialist in medieval history, she became a leading academic, a founder of the Economic History Review, and a role model for female students. Her lectures were as popular with the LSE students as Laski’s, but her style was very different; whereas his rambled, hers were as impeccable as her dress: “they ‘came out’ so neatly that there was no need to fair copy them,” as one undergraduate put it (Godfrey, LSEA History Project Box 45iv; cf. Berg 1996, 155–56). Whatever we may think about the accuracy of his observations about women colleagues, one thing is evident: none of these people fit well in those corners of Hayek’s universe where he felt most comfortable. Though there were other reasons, it is unsurprising that during his war years there he would find the culture of Cambridge more to his taste. It is evident, though, that he enjoyed a good level of camaraderie with his male colleagues. As we saw in his comment about Hogben, “difficult men” did not seem to faze him—“on the whole I got on with all the difficult persons” (Hayek 1994, 85). Throughout his life he stayed on excellent terms with both Karl Popper and Ludwig von Mises, prototypically difficult men whose ideas on scientific method were at least superficially diametrically opposed. And true to his Viennese storytelling roots, he delighted in recounting the occasionally absurd behavior that had been displayed by some of the strange men who surrounded him. In this category Harold Laski of course stood out. In the 1920s and

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1930s, and on both sides of the Atlantic, Laski was the best-known public intellectual at LSE, “everyone’s favorite socialist.” He wrote books, he lectured, he wrote columns for the newspapers, he offered his opinions constantly. He was sufficiently prominent that one esteemed historian even dubbed the interwar period in England “the Age of Laski” (Kramnick and Sheerman 1993, 1–2). But for all that, Laski had a fatal flaw: as his biographers gently put it, “The fundamental ‘Laski problem’ is that he boasted and exaggerated about achievements and acquaintances, which we refer to as his myth-making” (5). A natural actor and mimic, he loved to be the center of attention and achieved this by constructing elaborate stories, most of which involved him hobnobbing with one famous figure or another. The standard joke when he became chairman of the Labour Party in 1945 was that he had finally become famous enough to meet some of the people he had known all his life; another wag said that “you couldn’t mention anyone that he had not met the previous night” (203). Hayek had his own stories about the “extraordinary” Harold Laski, whom he deemed, appropriately enough, both an entertaining raconteur and a congenital liar. He seemed to enjoy the stories and never expressed any animus toward him, but also clearly found him someone impossible to take seriously. Laski tailored his tales to the audience. Since they were both book collectors, one involved his buying a book for sixpence and then discovering hidden in its binding four letters between Voltaire and Rousseau. Another changed shape each time it was retold—a story about how a bomb fell near his hotel on a visit home to Manchester later became one in which the bomb hit the hotel and he and his bed fell four stories into the basement (Hayek 1994, 82–83). Hayek got on well enough with Laski until an episode that also involved Karl Mannheim caused something of a break. On one occasion he said it was because they thought that The Road to Serfdom was aimed at them, which as we will see is not altogether implausible: both are certainly criticized in it (Hayek 1994, 85). An émigré from Hungary, Mannheim was forced to flee an academic post at Frankfurt in 1933 and, through a refugee assistance fund that drew on staff salaries that Beveridge and Robbins had set up, secured a position as lecturer in sociology at LSE. Hayek never really liked Mannheim, whom he spent some time with when he first arrived, trying to introduce him around and help him to get acclimated. This ended when, after listening patiently to Mannheim complain about the inadequacy of the English language for expressing his ideas, Hayek finally blurted out, “So much the worse for your ideas!” Mannheim never forgave him (Hayek, Shehadi interviews, 13–14). We do not know when this happened, but it is

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well to note that Hayek was already deriding Mannheim’s ideas about the sociology of knowledge in his 1933 memo to Beveridge.21 In general Hayek seemed to enjoy the parade of figures who came through LSE in the 1930s, with one exception, Sigmund Freud. Because both were from Vienna, when he first arrived in London people would ask Hayek if he knew the world-renowned psychoanalyst. Hayek did not, and took the question as indicative of the ignorance of his interlocutor about Viennese society—Freud (at least according to Hayek) would have traveled in Jewish circles, not the mixed circles that Hayek traveled in. He could not help adding that no one in his own circle in Vienna considered Freud to be much of a scientist (IB 77). Freud exited Vienna for London at the last possible moment in June 1938; his four older sisters, who did not leave, would all die in the Holocaust. His respite was a temporary one. He died on September 23, 1939, from the cancer of the jaw that had afflicted him since 1923. Freud’s arrival in London created a sensation. The train that brought him to Victoria Station arrived at a different platform from the usual to avoid the crowd of well-wishers and newspapermen that had gathered. Bouquets of flowers, letters, antique furniture for him to use, and all manner of other gifts arrived daily at the flat he initially rented. In June the secretaries of the Royal Society stopped by to have him sign the Charter Book of the Society; in July Salvador Dali came to visit and executed a quick sketch of him, one in which his face resembled a snail (E. Jones 1957, 242–44, 249– 50). In the short time that remained to him, Freud apparently came to LSE at one point and met with admirers in the Senior Common Room. As had been the case with Beatrice Webb, Hayek found the adulation for a supposed man of science repugnant. In the end he intentionally avoided being introduced to him. When he later read his biography, he reported that it confirmed to him that he had made the right decision (IB 93). Though most of Hayek’s reminiscences appear to hold up pretty well, not all may go unchallenged. In correspondence with John Hicks in the late 1970s Hayek asserted that after one of Robbins’s seminars in the early 1930s, he had told Hicks he should look into Edgeworth and Pareto to develop his ideas. Edgeworth had drawn and named indifference curves in 1881, and Pareto in his Manuale had utilized them to express the tastes of a single individual, but the modern treatment was independently developed by the Russian Slutsky in 1915 and by Hicks and Allen in their 1934 paper (Shackle 1967, 71–88). Hayek repeated the story in an interview with 21. Hayek had left Zurich for Vienna when in 1928 Mannheim first aired his views on the sociology of knowledge. Martha Steffy Braun was in the audience and apparently enthusiastic about what she heard. See the Bartley interview, Feb 27, 1984.

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Jim  Buchanan around the same time: “I told Hicks about indifference curves” (Hayek 1983a, 248). But according to Hicks, when he arrived at LSE in 1926 Hugh Dalton had, on finding out that he read Italian, urged him to read Pareto’s Manuale (Hicks [1979] 1983, 356). So though Hayek may also have told him about Pareto, Hicks by that point didn’t need the advice. Hicks’s account is further defended in a 1979 letter to Hayek in which he details his movement from Pareto to Walras and Edgeworth, all of which would have happened prior to their conversation. Hicks acknowledges that Hayek may have directed him toward certain parts of Pareto that he had not emphasized before, but this comment seems more to reflect Hicks’s overly generous nature than anything else (Hicks to Hayek, Oct 27, 1979).

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Hayek’s early debates with Keynes and Sraffa had left no one satisfied, neither principals nor observers. Was there an alternative theoretical structure to be found? In the midst of the Great Depression, and with Western European democracies increasingly being challenged by totalitarian systems of the left and right, it was more than an academic question. Both Hayek and Keynes spent the early 1930s revising their models. Keynes finished first, publishing in 1936 his General Theory, a book that, just as he had predicted, spawned so many changes in thinking that people began speaking of a Keynesian Revolution. That revolution in thought developed slowly, in fits and starts, before ultimately gaining momentum. Ironically, members of the London School, including Hayek himself, played a role in its genesis and ultimate success. Meanwhile, he continued to work on his own contribution. It was difficult going throughout. By the time his own big book, The Pure Theory of Capital, was finally published in 1941, Keynes was increasingly ascendant, and an exhausted Hayek had become (as Ludwig Lachmann later recounted) a lonely figure at LSE. The literature on the making of the General Theory and the revolution it inspired is enormous, and that story will not be rehearsed here.1 The focus of this chapter is to examine the coming of Keynesian thought to the London School, juxtaposing it with Hayek’s own lengthy struggle to develop an alternative framework. By his own admission, Hayek was unable to complete the task that he had set himself at the beginning of the decade. A late 1. Some representative works include, besides the primary materials gathered in the relevant volumes of The Collected Writings of John Maynard Keynes, Blaug [1987] 1990; Clarke 1988; Moggridge 1992, chap. 21; Skidelsky 1992, chaps. 15–16; Colander and Landreth, eds. 1996; Laidler 1999; and the editors’ essays in Backhouse and Bateman, eds. 2006.

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attempt to engage some of his opponents on their own ground also failed. Still, he had made some progress, and what he learned paved the way for some of his later contributions, if in unexpected ways.

Keynesian Thought Comes to LSE Hayek’s contribution to the success of the Keynesian Revolution was accidental and indirect, but significant. In the early 1930s he had agreed to edit a volume in German on monetary theory, Beiträge zur Geldtheorie (Hayek, ed. 1933), and had reluctantly accepted an article by Gunnar Myrdal for publication in it, a piece that was later translated into English as the book Monetary Equilibrium (Myrdal 1939). We recall Nicholas Kaldor’s statement that at LSE in the 1930s the conversations were endless, taking place at the School but also on walks and on weekends. This was facilitated by proximity. For example, Kaldor and John Hicks had adjacent flats in Great Ormond Street, so that when Hicks got a copy of Hayek’s edited volume, he soon passed it on to Kaldor. It turned out to be a significant event. Myrdal utilized the same Wicksellian framework that both Hayek in Prices and Production and Keynes in the Treatise had employed, but criticized each of them for misusing it (this was the context in which Myrdal chided Keynes for exhibiting the “unnecessary originality” characteristic of Anglo-Saxon economists). The common problem was their failure to deal with “anticipations,” what economists today call expectations. He credited Keynes for having the right intuitions, which were on full exhibit in volume 2, but noted that he failed to incorporate them into his theoretical model. Myrdal’s innovation was to do so by introducing the crucial notions of ex ante decisions to save and invest, and the ex post outcomes that resulted, into his model (Myrdal 1939, 32–47, 116–22). These ideas anticipated the General Theory and would allow those who had read it, like Hicks and Kaldor, more easily to develop a coherent framework for its interpretation when it finally appeared (Kaldor, Shehadi interviews, 9; Hicks 1973b, 8). In the essay that Hayek reluctantly brought to light, Myrdal paved the way for a successful reception of Keynes. If Hayek’s contribution to the Keynesian Revolution was an unintentional one, those of others were more purposive. After founding the Review of Economic Studies in 1933, Abba Lerner and some of his companions went to Cambridge looking for manuscripts for the new journal. They met with Joan Robinson, who talked to them about the demand for output as a whole, a concept that was alien. This led to a weekend meeting of the two camps at a site located halfway between London and Cam-

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bridge.2 Joan and Austin Robinson, together with R. F. Kahn and James Meade, represented the then-developing Cambridge view, and Lerner, Ralph Arakie, and two others represented LSE. There was a lot of talk but not much understanding. The end results were that the Review published an article (“which we didn’t understand,” recounted Lerner) by Joan Robinson in the October 1933 number, and, a bit later, that Lerner decided to spend part of a fellowship year in Cambridge. He was there from late 1934 through April 1935, conversing with members of Keynes’s circle and listening to Keynes lecture from the galley proofs of the General Theory. He returned to LSE a convinced Keynesian, determined to spread the word (Robinson 1978b, xv; Lerner 1996, 88–91). He would not be alone. Brinley Thomas, a Welshman, finished his PhD at LSE in 1931, and on the recommendation of Hugh Dalton received an Acland Travelling Scholarship. While in Sweden from October 1933 through April 1934 he learned the language and sat in on Myrdal’s classes. Back at LSE, he offered in the summer 1935 term five lectures entitled “Neo-Wicksellian Fluctuation Theory in Sweden” in which he detailed the new ideas of Myrdal and Lindahl. Only about a half dozen students were there to hear his “utterance thrilling but Delphic,” one of them being George Shackle, who wrote that line (J. P. Lewis 1976, 3; Shackle 1976, 18).3 It was only a few months later that Shackle went to the meeting in Cambridge where he heard Joan Robinson and R. F. Kahn explain what Keynes would soon be publishing in the General Theory and had his epiphany (Shehadi 1991, 385). The class on the Swedes paved the way for him. Robert Bryce, who graduated with a degree in engineering from the University of Toronto in 1932, accompanied his friend Lorie Tarshis to Cambridge to study economics.4 Both became members of Keynes’s Monday night discussion group, the Political Economy Club, and both attended the lectures in which Keynes was working through the key ideas of the General Theory. Though Bryce found his first year in Cambridge hard going, in his second year he “saw the light,” and by the third he was a research student and venturing down to LSE, “determined to be a missionary for Keynesian ideas” (Bryce 1996, 42). 2. Lerner said the meeting took place at Bishop’s Stortford, but Kahn remembered it as happening at Newport. See Howson 2009, 269. 3. Thomas recalled that in addition to Shackle, Lerner and Kaldor also attended the lectures, but Shackle in his own reminiscences said he could remember the name of only one other person who attended, and did not say who it was (Thomas, Shehadi interviews, 2; Shackle 1976, 18). 4. Tarshis would go on to write the first modern introductory textbook that contained a “Keynesian” analysis (Tarshis 1947).

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Again Hayek played a role. In the same summer term that Brinley Thomas was lecturing on the Swedes, Hayek devoted four meetings of his seminar to Bryce’s paper, “An Introduction to a Monetary Theory of Employment,” that is, to “the type of monetary theory held by Research Students in Cambridge,” ideas that “have been very largely influenced by Mr. Keynes’s lectures and subsequent discussion” (Bryce 1979 [1935], 132). He later thanked Hayek for his kindness in allowing him four weeks to present his ideas (Bryce 1996, 43). In 1984 Ludwig Lachmann remembered the seminar discussion of Bryce’s paper and saw it as part of a campaign to convert the LSE students: “Keynes was interested in what happened at LSE. It was not for nothing that a major figure in Cambridge like Joan Robinson devoted efforts to converting Lerner. It was evidently felt at Cambridge at the time, that persuading LSE would be the acid test . . . It was not for nothing that Bryce was sent to London half a year before the General Theory was to be published, in order both to test and to prepare the ground” (Lachmann, Shehadi interviews, 14). All of this activity took place before the General Theory was even published. The growing storm was not limited by national borders. The book came out in early February 1936, and by then Bryce had gotten a research fellowship to spend two years at Harvard. Joseph Schumpeter was his adviser, but Bryce never made much progress on his dissertation, spending the time instead educating people about Keynesian ideas, through conversations and in a seminar he organized with Paul Sweezy. Schumpeter, always jealous of Keynes’s influence (he wanted to be known, among other things, as the world’s greatest economist), quipped that “Keynes was Allah and Bryce was his Prophet” (Galbraith 1996, 137). Coincidentally, during the 1935–36 academic year Kaldor was awarded a Rockefeller Research Fellowship, which allowed him to visit several campuses in the US. He too was at Harvard when Keynes’s General Theory was published. His mind was of course well prepared to absorb the Keynesian message, having previously imbibed Myrdal’s Monetary Equilibrium. Kaldor returned from his American adventure a “complete convert to the Keynesian revolution, and never deviated from the faith” (Thirlwall 1987, 31). Equally important, he began to make a real mark in the profession as a technically trained theorist. And though he worked on a variety of topics, some of his articles on capital and business cycle theory were directly aimed at refuting Hayek’s own endeavors in these fields. How did LSE, or at least that portion of it that did not share the enthusiasm for the analyses of Myrdal and Keynes, respond to the growing tsunami? Hayek as we saw was willing to invite Bryce to share his views on Keynes’s ongoing work. On the other hand, he did not include either the

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Treatise or, later, the General Theory on the reading lists for his course “Capital and Interest and Industrial Fluctuations” (Howson 2009, 271).5 One way to counteract the growing influence of Myrdal and Keynes was to provide alternative perspectives. The people who were invited to give University Lectures tended to be more conventional in their views. Among the Swedes, for example, these included Eli Heckscher, Gustav Cassel, and Erik Lindahl. In contrast, when Brinley Thomas asked Robbins to invite Myrdal to speak, Robbins refused (Thomas, Shehadi interviews, 1).6 Robbins appears to have been more proactive than Hayek in trying to rein in the younger people. If Kaldor’s memory is correct, when he returned from the States full of enthusiasm for Keynes’s new book, Robbins warned him against teaching such controversial ideas to undergraduates because it would just confuse them (Kaldor, Shehadi interviews, 13, 21). Brinley Thomas in particular blamed Robbins when he was not appointed to a lectureship in Economics, something that he had expected because he had won the Hutchison Silver Medal; he ultimately would get a position in demography instead, before moving to a chair at University College, Cardiff (Thomas, Shehadi interviews, 3, 5–6; J. P. Lewis 1976, 4). As Kaldor put it, “most of the people who were not ready to echo Robbins’ line were either induced to leave, or preferred to leave, it is difficult to say which” (Kaldor, Shehadi interviews, 19). Kaldor confessed that he was “very unhappy” at LSE and put much of the blame on Robbins, expressing surprise when others told him that Robbins always spoke highly of him (18–19, 25). Part of the animus had to do with Kaldor’s perception that Robbins had delayed his appointment to lecturer, which he was expecting would happen in 1936 but came only in 1938. One year of the delay, though, was due to Kaldor’s spending a year in the States. In any event Kaldor was wrong about Robbins, whose letter recommending him for appointment to lecturer was highly positive. Howson speculates that it was likely Beveridge, not Robbins, who 5. Though it should be noted that in the lectures for that class in 1938 he followed his suggestion that nonspecialist students consult surveys by Haberler (1937) and Röpke (1936) with the words “this is supposing that Keynes’ General Theory is familiar anyhow.” The notes may be found in FAHP 188.2. 6. Shehadi (1991, 382–83) misreports that Hayek had been the source of the story and was the one who did not allow Thomas to invite Myrdal. But the source of the claim was Thomas, and according to him, it was Robbins not Hayek who refused his request to invite Myrdal (Thomas, Shehadi interviews, 1). Shehadi also stated that Lerner tried to hold a seminar on Keynesian economics and was denied a room to do so, but he never provided a source for the claim. Hicks commented that at the time mentioned Lerner was not a member of staff, which would explain why he would not have been able to offer such a seminar (Hicks, Shehadi interviews, 6).

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had held up Kaldor’s appointment (Howson 2011, 283; Hayek 1983a, 370– 71; Klausinger 2011, 139). In an interview Hayek (1983a, 370) reported that at one point it seemed that a choice needed to be made between Lerner and Kaldor, and that he always preferred Lerner, while Robbins favored Kaldor. There may have been private conversations between the two friends (Robbins and Hayek) on the subject, but Kaldor and Lerner were never vying for the same position: Lerner was appointed assistant lecturer in 1936, so no choice had to be made (Howson 2011, 283). The remark does point to the steady deterioration in the Hayek-Kaldor relationship, beginning in the mid-1930s, as is evident in a testy exchange between them over the practical implications of the theory of imperfect competition (Klausinger 2011, 146–48; Ingrao and Ranchetti 2005, 399–402).7 A story from later in the 1930s, in which Kaldor accused Hayek of having delayed the publication of his paper “Capital Intensity and the Trade Cycle,” indicates a more serious rift: “[I] submitted this paper to Economica in September. Hayek sat on it for ten months as editor of Economica and wouldn’t give it back. I was absolutely sure he must be preparing to adopt the theory as his own, and this is exactly what happened. He wrote a new article called ‘Profits, Interest and Investment’” (Kaldor, Shehadi interviews, 26). There are some problems with this account. Kaldor’s paper was published in the February 1939 issue of Economica, less than ten months after its submission in September. Furthermore, Hayek was not then the editor of the journal, but only one of eight members of the editorial board. Now it may be that Hayek was the referee for the paper and did not in Kaldor’s opinion turn in his report quickly enough, but it would be quite difficult to simply sit on a paper, given the oversight that the quarterly meetings of the editorial board imposed.8 In any event, the book in which Hayek’s own article appeared came out in September 1939, well after the publication of Kaldor’s article. Whatever truth there may be behind this story and Hayek’s own about his preference for Lerner over Kaldor, they indicate the extent of the animosity that had built up by the time they both were giving interviews some forty years later. Anyway, Kaldor would get revenge for the perceived slight soon after it occurred. 7. Klausinger 2011 provides a detailed account of the gradual change of Kaldor from Hayekian to Hayekian critic. 8. Unfortunately the archives containing the minutes of the editorial board meetings are incomplete, and there is no record of who was assigned to referee Kaldor’s paper, or of its flow through the system. Many records were apparently lost during the move from London to Cambridge when the war started.

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Hayek and Robbins were losing the battle with Keynes, so an obvious question is why Hayek did not write a review of the General Theory when it appeared. In later years he offered many reasons: Keynes would just change his mind again; he was tired of controversy; he thought it better to develop his own Pure Theory of Capital, the second half of which was to have contained a critique of Keynes; he sensed that he would have to deal with the whole new “macroeconomic” approach; by the time he thought of answering him the war was about to begin and they were on the same side. Some of these seem more compelling than others (Caldwell 1998; Howson 2001; Bartley interviews, Feb 9, 1983). But at the time two other reasons also loomed large. One was that (as anyone who has tried to read it knows) it is not an easy book to fathom. In a letter to Haberler soon after it was published, Hayek confessed that he was “hopelessly stuck in chapter 6.” Hayek could not have forgotten how long he labored over his review of Keynes’s Treatise, and with what meager results, and probably did not relish the thought of a repeat performance. A month later he wrote again, saying he thought that “the chance exists just now to isolate Keynes and to bring to a stand a common front” with Cambridge (Hayek to Haberler, Mar 15, 1936, quoted in Howson, 2001, 372). The common front was due to the blistering review of the General Theory that had just appeared in Economica, penned by Keynes’s colleague at Cambridge, “the Prof,” A. C. Pigou. Pigou had been criticized relentlessly in the book as the modern representative of the classical school whose work had done so much damage that Keynes sought to replace it with his new theory.9 Pigou’s response was uncharacteristically unrestrained. Here is a taste: Einstein actually did for Physics what Mr. Keynes believes himself to have done for Economics. He developed a far-reaching generalization under which Newton’s results can be subsumed as a special case. But he did not, in announcing his discovery, insinuate, through carefully barbed sentences, that Newton and those who had hitherto followed his lead were a gang of incompetent bunglers. (Pigou 1936, 115)

For the Cambridge don who was the heir to Marshall to write such scathing lines was remarkable. Perhaps Hayek thought that Pigou’s review would sink Keynes’s reputation once and for all, and he didn’t want to give the impression of piling on. It was, to say the least, a miscalculation. 9. Cf. in particular the critique of Pigou’s Theory of Unemployment (1933) in the appendix to chapter 19 of the General Theory.

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Hayek’s Long Struggle It appears that Hayek began his “capital project” almost immediately after arriving at LSE in 1931: before the Michaelmas term had even ended he told Mises that he planned to write a book on “a restatement of Böhm-Bawerk’s capital theory,” destined for the Vienna Institute series (Hayek to Mises, Nov 21, 1931). When he returned to Vienna the next summer, he offered a book proposal to the Vienna branch of Springer (Dr. Lange to Ferdinand Springer, July 8, 1932). The book would be entitled (in German) “The Period of Production and the Life Span of Goods.” The impetus for the project was clear: Hayek thought that the analysis in Prices and Production was deficient. He had insisted in his review of Keynes’s Treatise that proper capital-theoretic foundations were an essential part of any theory of money and the cycle. He quickly recognized that the one that he had used in his own book, a stages model that described the structure of production by means of an average period of production, was insufficient to the task. As he later admitted, “The invitation [to deliver the lectures at LSE] reached me when I had for the first time a clear picture of this theory but had not yet gone into all the complicated details. If I had progressed in working out an elaborate treatise, I would have encountered any number of complications” (Hayek 1994, 77–78). The capital-theoretic foundations of Prices and Production were restricted to a special case well suited to an economy with variable capital (goods in process), but not to one with fixed capital, that is, durable capital goods generating a continuous flow of output over time. A more sophisticated capital theory would therefore need to allow for a truly general time structure of inputs and outputs. The first move would be to replace the “beautiful simplification” (Hayek 1994, 77) of an average period of production used in his lectures with a more complete specification of an economy’s capital structure: this preliminary step would, when finished, yield the pure theory of capital. He would then use the more sophisticated framework to investigate those successful and failed traverses—cycles and crises—which resulted from monetary disturbances. This dynamic theory of capital would allow capital theory and monetary theory finally to be integrated and together be used to explain the nature and causes of the cyclical fluctuations that afflict market economies. That, anyway, was the plan. It was an ambitious project, and one that would come to define his place at the School. As we saw, his very first research seminar with Robbins was on the topic of capital, interest, and industrial fluctuations, and throughout most of the decade he offered a lecture course on the subject to advanced undergraduates and postgraduates. His own research seminar also often focused on it.

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Hayek’s progress the first few years was fitful. By the end of 1933 he had finished only a quarter of the planned book, that is, 120 pages, and by then was complaining about the “incredible complications” that arise from a time structure of production that is not reducible to average periods: it could not be properly represented by diagrams, and a verbal account would be very cumbersome, so a mathematical appendix—not exactly Hayek’s forte—might be necessary (Hayek to Haberler, Nov 30, 1933). He did, however, reach the fateful conclusion that the “beautiful simplification” had to go. When in April 1934 Fritz Machlup sent out a questionnaire to some of his colleagues in order to clarify controversial issues in capital theory, Hayek said as much, noting “that a unique relationship between such a onedimensional time period and the solely relevant value magnitude of capital cannot be established.”10 Hayek proposed an alternative approach in a series of contributions to major journals.11 In his 1934 Economic Journal article “On the Relationship between Investment and Output” (Hayek 2015a [1934c]) he introduced the analytical instruments of an investment function (later to be dubbed an “input function”) and an output function that would replace the stages model. This was also the first place that his “three-dimensional” diagrams appeared, doubtless reflecting the insights that Allen had been able to provide with his cardboard models in the Grand Seminar. In the course of defending his new apparatus, Hayek also took a swipe at alternative approaches to capital theory—Frank Knight’s work is mentioned in a footnote—noting how his would allow economists to “free themselves of the idea that capital is some homogeneous mass, some given quantity of value, which will preserve its magnitude independently of the value of the real commodities of which it consists” (Hayek 2015a [1934c] 96–97). In Economica he criticized the idea (which he attributed to Pigou, but a similar position can again be found in Knight) that “there is a quantitatively determined fund of capital, which can be distributed and redistributed in any way between the different lines of production without changing its aggregate value” (Hayek 2015a [1935d], 157). This drew a strong response from Knight (1935), to which both Fritz Machlup (1935a) and Hayek (1936c) responded. In their joint effort Machlup focused on the link between the Austrian theories of capital and the explanation of the cycle, while Hayek criticized Knight’s belief (what Hayek termed the “mythology of capital”) 10. The documents are in FMP 86.29. Hayek’s letter is dated Oct 26, 1934. Other responses were from Ludwig von Mises and Jacob Marschak, while those from Haberler, Richard Strigl, and Georg Halm are missing in the folder. 11. For an introduction to Hayek’s works from this period see White 2015.

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that capital was best conceived as a homogeneous quantity that could be seamlessly adapted to arbitrary uses.12 Hayek acknowledged early on in these discussions that he considered the “average period of production” a highly simplifying and possibly misleading construction (Hayek 2015a [1934c], 80), at one point even terming the construct “hopelessly inadequate” (Hayek 2015a [1936c], 135). But he also objected strenuously to “the notion that capital as such . . . is completely mobile and can at will and without any loss of value be transformed in any concrete form” (Hayek 2015a [1934c], 97). In his view, the capital stock is always composed of a collection of concrete capital goods, so that any adjustment would necessitate a change in the structure of capital, and the process of transition would thus depend on the capital structure inherited from the past. In the same vein, Hayek argued that in the face of such changes in the real data, the “maintenance of capital” must be accompanied by structural adaptations, in the course of which some capital goods would lose and others gain in value. As the decade progressed the book project switched from Vienna to London, that is, to the publisher Macmillan. From that point onward, and understandably given their joint effort to defend Austrian capital theory from the Knightian onslaught, Hayek’s most important reader became Fritz Machlup. Their correspondence gives a taste of the difficulties of Hayek’s task.13 In May 1936 Hayek told Machlup that he had finished up a first draft, but then in June he had so completely rewritten the early part of the book that nothing that Machlup had already seen remained. Later that year Hayek sent more chapters, and the ever dutiful Machlup provided him with eight pages of comments. Things looked promising at the beginning of the next year when, in a German version of a planned introductory chapter published in the Zeitschrift (Hayek 1937d), Hayek announced that the book would be forthcoming in the same year. But then further changes were necessary: Hayek had to rewrite the second chapter to reflect a new definition of “equilibrium,” one he had introduced in his “Economics and Knowledge” address, as the mutual compatibility of agents’ plans so that no expectations are disappointed. That was a major innovation, but also 12. For details of the controversy and links to earlier debates see Cohen 2003, 2008. Cf. also Emmett 1997. It should be noted that other works, e.g., Eucken’s 1934 investigations into capital theory, met with approval from Hayek and his friends (cf. Machlup 1935b, also Machlup to Hayek, Apr 8, 1935). 13. The evolution of the capital project can be traced in Hayek’s letters to Machlup; see May 1 and June 21, 1936, Mar 11, 1937, Jan 28, Feb 14, and Mar 12, 1938, Aug 27 and Nov 5, 1939, May 22 and June 21, 1940, and Jan 2, 1941. See also L. H. White 2007, xviii–xx.

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one that made it all the more difficult to move the analysis from statics to dynamics. After that, progress was so slow that Hayek apparently put the manuscript aside for a time. Perhaps the nadir came in February 1938, when he had to ask Machlup to send him a few pages from the manuscript that he had apparently lost. But by the end of the year Hayek’s student Vera Lutz was typing chapters 20 through 26 (of an eventual twenty-eight). In August 1939 he could finally tell Machlup that, aside from a final revision (in which he deleted a planned mathematical appendix), the book was complete. The corrections of the galley proofs and page proofs filled much of 1940, and then the scarcity of paper caused another delay, so it was not until winter 1941 that the book eventually appeared. Of course, this was at a moment when the economics profession and the wider public alike were preoccupied with issues more urgent than the refinement of capital theory. But at least the ordeal, so well captured in these lines by G. L. S. Shackle, was over: The Pure Theory of Capital emerged in its published form from several manuscript versions which I had the privilege of reading during its composition. The sustained intensity of thought which it cost its author . . . [required] high moral courage and implacable resolve . . . As this work progressed through several drafts during the middle and later 1930s, he responded to its ever freshly multiplying difficulties with an intense and sustained effort nothing short of heroic. (Shackle [1981] 1990, 164, 157)

The Pure Theory of Capital (Hayek 2007b [1941a]) became Hayek’s most extensive, and also his final, venture into the field.14 Though magisterial, it is also a difficult and in its very thoroughness a tedious book—Hayek even apologized at the beginning of the second section, warning that what was about to come would be perceived by most as “a rather arid tract” (111). This admission was reached only after the reader had waded through seven chapters and over seventy pages of introductory material! In that opening section he laid out the scope of the study, identified the major attributes of the Austrian approach and how it compared with the “Anglo-American” point of view, and offered various key definitions. Much of the rest of the book consists of a careful, systematic exploration of a variety of possible relations between inputs (both those available at a point in time and those 14. See on the following the editor’s introduction, L. H. White 2007. White is to be commended not only for his informative introduction but for the many explanatory footnotes he provided to assist the reader in working through Hayek’s dense text.

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available over a continuous period) and outputs (whose availability might likewise vary over time). The book examines the effects of substitutability and complementarity, of the introduction of new “inventions,” both in cases in which they are foreseen and when they are not, and of whether decisions are made by a single individual or within a competitive system. A key theme of the book is that the capital structure is constantly evolving as the market continually provides new information. In that evolution, capital is rarely either so malleable as to be instantaneously transformable, or so permanent as to be incapable of being applied in a different production process. By using the term “pure theory” Hayek indicated that the field covered was that of economic statics. He once again stated how to draw the line between statics and dynamics: “The only relevant distinction is between two methods, that of logical analysis of the different plans existing at one moment (‘equilibrium analysis’) and that of causal analysis of a process in time” (Hayek 2007b [1941a], 43n7). He reiterated that static analysis, consistent with the new definition of equilibrium developed in “Economics and Knowledge,” can “be applied to situations which are not stationary and where the same correspondence between plans prevail . . . because [individuals] correctly foresee what changes will occur in the actions of others” (43–44). Thus, Pure Theory may be considered as a final attempt to integrate the concepts of intertemporal equilibrium and time-consuming production, and in this respect represents a continuation of Hayek’s earlier work. At the same time, Hayek (2007b [1941a]) was at pains to stress the “fictitious character” of a state of full equilibrium, warning that “we must abandon pretense that it refers to something real” (46; see also 44 and 47). When he went beyond equilibrium analysis to discuss a “causal explanation of the process in time,” in Pure Theory such “causal analysis” was restricted to adjustment processes undisturbed by monetary complications. In contrast to the simplifications of Prices and Production, in Pure Theory his approach was more reminiscent of the far more sophisticated analysis of adjustment processes exhibited in his “Investigations” (see, e.g., 249–51). Here the heterogeneity of capital proves decisive. The attempt to reanalyze the “traverses” from Prices and Production for the case of a heterogeneous capital stock lay at the core of Hayek’s project. It was also a vital element in the defense of Austrian capital theory against Frank Knight’s concept of capital as a fund. Knight’s vision of capital as permanent, homogeneous, and completely malleable evidently stands in direct contrast with the Austrian emphasis on its temporal structure. For Hayek, the capital stock by its very nature consists of a variety of heterogeneous capital goods, with a

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limited number of uses in the different branches and stages of production and with a limited range for substitution. In this conception, it is not only the stock (conceived as a quantity) of capital that is economically relevant, but its hierarchical interpenetrating structure, that is, that it is composed of an interconnected variety of capital goods. A given capital structure determines the type and the quantity of goods that can be produced with its help, and the heterogeneity of capital goods prevents them from being instantaneously rearranged as a reaction to a change in the economy’s data. As the structure of capital is built up over time, then, it necessarily reflects a history of past disturbances and adjustments, which in turn determines the possibilities for present production (see Hayek 2015a [1934c], 95). Indeed, regarding processes in real time that characterize an actual economy, the capital structure will of necessity always be out of equilibrium. Forward- and backward-looking measures of the value of capital, that is, discounted future returns and actual production costs, will as a rule not coincide, and so profit-maximizing decisions will typically not lead to a mere reproduction of the existing structure. An economy that is continually adjusting to an ongoing series of disturbances cannot be represented by an equilibrium capital structure. Consequently, the idea of “the maintenance of capital” as a mere reproduction of the existing capital stock is misleading. Rather the obsolescence of individual capital goods depends on the ever-changeable intertemporal plans of consumers and producers.15 While most of the book focuses on the detailed representation of intertemporal input and output functions, that is, on the “time productivity” side of the problem, in the later chapters Hayek also turned to the role of “time preference” in determining the rate of interest. In the end, using an apparatus similar to that of Irving Fisher (with intertemporal transformation and indifference curves), Hayek (2015a [1934c], appendix 1; see also 1945b) argued the case in favor of time productivity, largely based on his belief—already implied in his earlier piece (Hayek 1936b)—that typically 15. Hayek’s insight into the inadequacy of the “average period” concept, and of attempts to represent the capital structure by a scalar measure in general, anticipated some aspects of the so-called Cambridge capital controversy of the 1970s (see Cohen and Harcourt 2003, Samuelson 2001). Note that, in principle, the rejection of such a scalar measure invalidates the use of notions like “capital intensity” for describing the structure of production. In addition, it becomes impossible to relate such scalar measures unequivocally to other economic variables (like output, consumption, or factor prices). Apparently, Hayek was not always consistent in this respect (see, e.g., Steedman 1994, 21–23).

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the curvature of the transformation curve will be much smaller than that of the indifference curve. Thus, on this issue Hayek sided—although for different reasons—with Fisher and Wicksell against the Austrian “time preference” theorists, Mises and Fetter. If Hayek’s book made important advances in the Austrian approach to capital theory, on his own admission he was unable to accomplish his larger goal. He characterized his fragmentary comments in the final three chapters as providing only an “outline” of how to integrate his capital theory into a monetary framework; the problems only sketched there would require “another book of about the same size as this one” to treat adequately (Hayek 2007b [1941a], 324). Nonetheless, at the close of the book he offered up a thundering denunciation of the ideas of “Mr. Keynes”: it is alarming to see that after we have once gone through the process of developing a systematic account of those forces which in the long run determine prices and production, we are now called upon to scrap it, in order to replace it by the short-sighted philosophy of the business man raised to the dignity of a science. Are we not even told that, “since in the long run we are all dead,” policy should be entirely guided by short-run considerations? I fear that these believers in the principle of après nous le déluge may get what they have bargained for sooner than they wish. (Hayek 2007b [1941a], 368–69)

These uncharacteristically uncharitable lines, we think, show as much Hayek’s frustration with his own failure to accomplish the goals he had set for himself as his dissatisfaction with the success of the Keynesian message. The most important reviews of the book came from Arthur Smithies (1941), Ralph Hawtrey (1941), Kenneth Boulding (1942), and Friedrich Lutz (1943). All paid due respect to Hayek’s efforts but also agreed that despite the numerous refinements of Austrian capital theory, Hayek had not succeeded in providing a convincing foundation for a superior theory of the cycle. The reviews and attendant criticisms came from different perspectives. Smithies had been invited by Machlup to review the book for the American Economic Review but turned out to be an awkward choice, because by that he time he had become “thoroughly Keynesian” (Machlup to Hayek, Aug 3, 1941). Smithies objected in particular to the “real” explanation of the interest rate, and coming from a Keynesian savings-investment perspective found Hayek’s approach impenetrable. Hawtrey took a “pragmatic” stance in his review in the Economic Journal, finding the puzzles

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and paradoxes that Hayek had investigated of at best minor importance. Lutz, who was well versed in Austrian capital theory, attempted a rational reconstruction of Hayek’s approach and pointed toward the loose threads that Hayek had left.16 In a short but insightful review, Boulding in examining their respective approaches to crisis theory juxtaposed “Puritan economists, like Dr. Hayek” with “Mr. Keynes’s economics of surprise.” The fact that Hayek had failed to complete the project as originally envisaged led Boulding cleverly to conclude that the book was itself an example of an incomplete investment project, invoking the cautionary tale in Luke 14:28–31 about a man who spent so much time building a firm foundation for a planned tower that he ran out of funds to finish it, “perhaps the first example of capital theory” (131). When asked why he never tried to do the second volume, Hayek sometimes said that his interest had turned to other topics, which as we will see in future chapters was true enough. The coming of war even provided a cover: “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, . . . and without having even started on what I intended to be the second dynamic volume” (Hayek 1983a, 413). But he also admitted that once he got beyond Böhm-Bawerk’s simplifying assumption of an average period of production, “things become so damned complicated, it’s almost impossible to follow it” (190). And that too appears to be true. As the editor of the Collected Works version of the book astutely pointed out, later contributions to the Austrian tradition “have been largely thematic discussions about capital theory and its implications rather than exercises in constructing capital theory for comparative-equilibrium analysis” (L. H. White 2007, xxxv). Roger Garrison, when he applied Hayekian capital theory to the analysis of business cycles, reverted to the more tractable model of Prices and Production (Garrison 2001). Hayek’s foundational structure appears to have been too elaborate to support more work. Luke 14:28–31 indeed. All that said, there may have been still another reason why Hayek was willing to forgo a second volume. For he did in fact try to introduce some of the insights from the pure theory of capital into a monetary setting in his essay “Profits, Interest, and Investment” (Hayek 1939b). In a letter to Machlup (Apr 4, 1939) he described its origins: “I have worked since Christmas on a great essay on business cycle theory. Originally it should have been the final chapter of my capital book, yet it has grown far beyond that and will now be published in a volume of essays titled Profits, Interest 16. Lutz’s was the only review to which Hayek responded (see Hayek 1943c), even if very briefly.

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and Investment.” As it turns out, this is the same essay that Kaldor had complained about, when he accused Hayek of delaying publishing Kaldor’s own paper so that he could steal some of his ideas. In his essay Hayek intended to demonstrate that a mechanism (something he dubbed “the Ricardo effect”) analogous to one he had used in Prices and Production would still inevitably bring about the end of an inflationary-induced boom, even in a setting closely resembling that assumed by his critics.17 His target was the idea that an increase in the demand for consumers’ goods will stimulate investment; Hayek referred to it as the “accelerator principle,” and at the time associated it with the new approach of Keynes and his followers. Accordingly Hayek designed his model to closely mimic the assumptions commonly used in the Keynesian approach, e.g., a given rate of interest and a rigid money wage. In his paper he tried to show that at some point increases in consumption demand would cause the demand for investment to shrink and thereby initiate a crisis, because the “Ricardo effect” would outweigh the “accelerator effect.” For according to the Ricardo effect, decreases in the real wage would lower the capital intensity of production, a result Hayek (1939b, 216) derived from a numerical example. Notably, and in contrast to the mechanism in Prices and Production, this might happen before the rate of interest starts to rise or before capacity constraints in the investment sector become effective. Unfortunately, the numerical example was misleading, so that the Ricardo effect was not able to do the work it was supposed to do.18 The deficiencies in Hayek’s formulation were forcefully pointed out by Kaldor’s student Tom Wilson (1940), basing his criticism on Kaldor’s (1939) Economica article. He was not alone. In a critical review of the whole collection of essays, of which “Profits” was a part, Hugh Townshend (1940) concluded that the book was “the record of a mind struggling to be clear” (103). Even some of Hayek’s Austrian colleagues were dissatisfied. Haberler (in a letter to Machlup, Apr 18, 1940) judged Hayek’s new essay “a catastrophe: incomprehensible, and where comprehensible wrong, that is, completely unrealistic, irrelevant for the short run (cycle).” He expressed his reservations publicly when he discussed the work in the third edition of his League of Nations survey (Haberler [1937] 1943, 481–91). The coda came in 1942, when Hayek published “The Ricardo Effect” in 17. For a critical evaluation of Hayek’s attribution of the effect to Ricardo see Hagemann and Trautwein 1998 and Gehrke 2003. 18. See Klausinger (2012b, 15–25) for a fuller account of this episode, including the details of Hayek’s model and where it went wrong.

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an attempt to rescue his earlier effort (Hayek 1942a). This gave rise to a still more devastating critique, this one directly from Kaldor (1942), who was able to point out crucial inconsistencies in Hayek’s argument. Seizing on a formulation earlier used by Hayek (2012a [1931b], 258n39), Kaldor rechristened Hayek’s mechanism the “concertina effect.” All in all, Kaldor’s attack was an act of brute force, aimed at total destruction, and it was quite effective: it has since then been accepted, at least outside the Austrian economics community, as the definite refutation of the Ricardo effect.19 When he published his defense of the Ricardo effect, Hayek complained to Machlup that the task of editor of Economica had forced him “again and again (already with the Ricardo effect) to bring things out before I am really ready” (Hayek to Machlup, Aug 8, 1942). Much later he confessed: “On the more technical kind of economics my advance was impeded by my inadequate knowledge of mathematics which I had never found helpful in my work, even at such times as when I had temporarily mastered the particular techniques required, but felt not to be worth the effort to acquire real competence merely to be able to refute or criticize the work of others—as I now recognize, a serious mistake” (IB 92). Hayek did not offer any substantive response to Kaldor’s onslaught (see Hayek 1942b, c), yet he remained unshaken in his belief in one crucial implication of the Ricardo effect: that there is some mechanism by which increases in consumption expenditure will crowd out investment before the final stages of the upswing have been reached. Notably, in future discussions of the dangers and inconsistencies of full employment policies Hayek stuck to this argument (see, e.g., Hayek 1946, July 18, 372; 2012b [1969], 330), and it was still there even in 1981, fifty years after his LSE lectures (Hayek 2012b [1981b], 340–43). Still, we must not conclude that Hayek’s exploration of capital theory bore no fruit. The vision of capital as heterogeneous and embodied in a complex, interconnected, and hierarchical structure, one that is constantly adjusting in the face of changed plans and circumstances, would become a fundamental feature of the Austrian program. The notion of statics and dynamics in the book nicely complements Hayek’s prior division, articulated in “Economics and Knowledge,” between a logic of choice and the investigation of causal processes. As we will see, Hayek would investigate that distinction further when he went to Cambridge. Finally, it is not too much of a leap to imagine that his thinking about the capital structure would later inform his investigation of the mind—both being examples of 19. Hayek’s position has been seconded by, e.g., Moss and Vaughn 1986 and Birner 1999.

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what he would later call hierarchical, structured complex orders.20 What Hayek was beginning to envisage in these various domains would not be easily captured in the mathematics of his day. And he himself knew that his own understanding of the workings of the market process was not well captured by equilibrium models, like that of perfect competition. Much work lay ahead.

20. Horwitz (2005, 82) suggests this possible link.

· 22 · Hayek and Austria

While Hayek was working and living in London he of course still kept up with his friends, family, and colleagues from Austria and Germany. Many of his closest economist colleagues, people he had known since university days, had like him departed for fellowships or work in other countries. But the friends nonetheless stayed in touch. As we will see, in their correspondence they commented on and criticized each other’s work, sometimes directly, and sometimes by way of complaints in letters to third parties. Those who like Hayek were out of the country when Hitler came to power in 1933, and again in 1938 when the Anschluss took place, played a critical role in helping people get out of harm’s way. Hayek’s efforts on behalf of friends and colleagues on the continent in both instances were immediate and impressive.

Austrian Colleagues Hayek came to Austria frequently during the 1930s to visit family and friends, seeing them either in Vienna or, on vacations, in more picturesque climes. He used his regular stays in Vienna to present papers, mostly at the NOeG. These were often preliminary versions of pieces he would publish later. In September 1933 he spoke there on the maintenance of capital (see Hayek 1935d), in April 1935 on 100 percent banking, in October 1936 on knowledge and economics (see Hayek 1937b), and even as late as December 1937 on the foundations of economic policy. The Institute provided another venue: it is where he presented his semipopular paper on technical progress and excess capacity (see Hayek 1936a). Although he regularly met Mises on his visits, Hayek’s schedule at LSE made it nearly impossible to attend the Mises seminar, let alone present papers. From his departure for London in 1931 to the seminar’s close in summer 1934, the only paper by him of which we know, a version of “Capital Consumption” (Hayek 1932a),

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was presented at the seminar on April 1, 1932, by Machlup in Hayek’s stead (see Morgenstern diary, Apr 2, 1932). Of course, on visits it was not always just work: from Morgenstern’s diary we know, for example, of several social get-togethers at teatime or over dinner. And sometimes his trips to Vienna were for practical matters—in April 1936, after a week of skiing in Tyrol, he chose a Vienna hospital to undergo surgery on varicose veins (Hayek to Haberler, Mar 15, 1936; Hella to Fritz, Apr 4, 1936). Hayek would see his Austrian colleagues on these trips—in particular such peers as Fürth, Machlup, Haberler, and Morgenstern—if they were still in Vienna, and also sometimes at conferences or during vacations.1 But as they gradually moved away, correspondence became an increasingly important means for staying in touch.2 Even though he was Hayek’s closest friend in the group, we know the least about his contacts with Fürth, because up until 1938 no letters survived. After abandoning the prospect of an academic career, Fürth worked in the lawyer’s office of Alexander and Max Mintz, the latter, we remember, a fellow member of the Geistkreis. Fürth left Vienna almost simultaneously with Hayek, spending 1931/32 as a Rockefeller Fellow abroad. When he returned to Vienna, he kept the Geistkreis going, admitting new members like the historian Friedrich EngelJanosi, the journalist Friedrich Thalmann, the art historians Johannes Wilde and Otto Benesch, and the psychiatrist Robert Wälder. Hayek may have participated in some of its meetings but did not offer a lecture there. Haberler left Vienna in September 1931, too. He moved from his position at the Chamber to a one-year visiting professorship at Harvard, where at the time Schumpeter was teaching. After returning to Vienna, Haberler temporarily joined the Institute now directed by his friend Morgenstern. In February 1934 he accepted an invitation from the League of Nations in Geneva to undertake a research project to synthesize contemporary theories of the business cycle. He produced a first draft (Haberler 1934), which was widely circulated and commented upon by fellow economists. The eventual outcome was the magisterial study Prosperity and Depression (Haberler [1937] 1943). It would have been a major contribution to business cycle theory itself, and not only to its history, had it not been super1. The following draws on Craver 1986a and Klausinger 2006. 2. Most of the correspondence that survives is to be found in his colleagues’ archives rather than in the Hayek papers, where only a handful of letters from this period were preserved. Well into the 1940s the correspondence remained in German and, notably, Fürth was the only one whom Hayek addressed with the familiar German “Du” (roughly equivalent in English with addressing people by their first name), while with the others he used the more formal “Sie.”

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seded and in fact overshadowed by Keynes’s General Theory. Even before the conclusion of his Geneva project Haberler received a call to a full professorship at Harvard, where he taught from 1936 until his retirement. Machlup stayed in Vienna for two more years. In 1933 he received a Rockefeller Fellowship that allowed him to visit the US and England for the next two years. From abroad he applied for a lectureship at the University of Vienna with his treatise on the role of credit in capital formation (Machlup 1931, trans. 1940). His timing could scarcely have been worse. Of the economics professors at the faculty, Spann and Degenfeld rejected him because of his Jewish descent, Mayer because he was a pupil of Mises, and Reisch, the former president of the Austrian National Bank, because he felt insulted by the criticism in Machlup’s Tagblatt columns. Apparently Machlup hired Fürth to represent him in a case against the Vienna faculty, but in the end he gave up (Furth to Haberler, May 11, 1984; see also Craver 1986a, 24). Deciding not to return to Austria, he sold his shares in the family business, and after spending a few weeks in autumn 1935 in England, accepted an economics chair at the University of Buffalo in New York. Later in his career he moved to more prominent universities, among them Johns Hopkins, Princeton, and NYU. Lack of proximity—Hayek was in London, Machlup in Buffalo, and Haberler in Geneva and then Harvard—did not interfere with the continuous exchange of ideas, mostly on matters of economics, in this three-way conversation. All three joined by Röpke participated in an intense debate on the connections between deflation and depression, and on the potential thus created for activist policy; unfortunately only a single letter (Hayek to Haberler, Dec 20, 1931, reprinted in Hayek 2012b, 185) of this discussion survived. When Haberler circulated the first draft of his League of Nations study, Hayek offered extensive comments (Hayek to Haberler, Sept 4, 1934). His main criticism was that for the sake of a balanced treatment of all sorts of theories, Haberler sometimes conceded too much to the critics of Austrian business cycle theory. Moreover, Hayek did not concur with Haberler’s characterization of his own position as a radical one.3 Machlup’s careful reading of the page proofs of the second edition of Hayek’s Prices and Production led him to a series of notes, ranging from substantive queries to the correction of typos (Machlup to Hayek, Mar 11, 1935). In the mid1930s all three also discussed Frank Knight’s attacks on Austrian capital theory, which they feared might “cause harm” if a proper response was not 3. As noted in the previous chapter, this did not prevent Hayek from recommending the published version of Haberler’s book in his Industrial Fluctuations class.

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forthcoming (see, e.g., Haberler to Machlup, n.d. [1934]). As noted in the previous chapter, this gave rise to a joint effort by Machlup (1935a) and Hayek (1936c) to challenge the Chicago economist’s approach and answer his criticisms. Another issue of persistent concern was the state of British and American economics; Machlup in particular did not hide his disdain for most of what he encountered during his Rockefeller tour through American universities. As he wrote to Hayek (Jan 4, 1938): “I was elected to the Board of Editors of the American Economic Review. I do not know whether I can do much to raise its scientific level.” This three-way correspondence from the 1930s distinguished itself both by the amicability of the atmosphere and the seriousness of the intellectual discourse, occasionally lightened by a tincture of gossip (of which Haberler was a master). It might indeed be regarded as the equivalent in writing of the Vienna coffeehouse conversations that all three possibly were missing. In contrast, over the years Hayek’s relationship with Morgenstern became gradually more strained. Their cooperation at the Institute appears to have worked out well: in his diary Morgenstern described his relationship with Hayek as “excellent” (Jan 26, 1930). When Hayek got the invitation from LSE in 1931, it delighted both Hayek and Morgenstern, for it offered the latter the prospect of becoming Hayek’s successor at the Institute. Afterward, although the letters remained friendly, there was less and less agreement on substantive questions of economic theory. In Vienna, Morgenstern tried to step outside the shadow of the Austrian school and emancipate himself from the “prima donnas” Mayer, Mises, and Spann. As he did so he became ever more critical of the Austrian school approach, trying instead and in close cooperation with the mathematician Karl Menger to make economics an “exact science” in the sense of the Vienna Circle. His alienation became obvious in his monograph Die Grenzen der Wirtschaftspolitik (Morgenstern 1934), a weakly veiled attack on liberalism and in particular on Mises’s defense of it.4 The Austrian economists abroad reacted with irritation. In a letter to Machlup (Jan 14, 1934) Hayek judged the book “wretchedly bad and impertinent in tone” and was embarrassed how to respond when Morgenstern sent him a complimentary copy. In the end, he declined to offer a detailed 4. The literal title is “the limits of economic policy,” so the title of the English version, The Limits of Economics (Morgenstern 1937), is not an exact translation. Leonard (2010) offers the following description: “A rambling book, it is critical, rarely constructive, and targets a range of established economists, including Robbins, Mitchell, Keynes and von Mises. Indeed, it is for the latter that Morgenstern reserves his sharpest barbs” (166).

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critique and stated that at the moment they could only agree to disagree (see Hayek to Morgenstern, Apr 2, 1934). He felt too that Morgenstern had neglected his duties as the editor in charge (because of Mayer’s inactivity) of the Viennese Zeitschrift. Hayek told Haberler that Morgenstern’s (1935) Zeitschrift article on the period of production had left him “speechless,” complaining that the “Morgenstern-Menger-group” had made the Zeitschrift “terrible, scientifically” (letters to Haberler, July 12, 1935, and to Machlup, May 1, 1936). Hayek’s feelings were reciprocated by Morgenstern, if not openly in correspondence, then definitely in his diaries. Morgenstern bemoaned— drawing on reports from Georg Tugendhat and Hugh Gaitskell when they visited Vienna—that Hayek and Robbins had become isolated in Britain owing to their extreme positions and thereby had tarnished the reputation of Austrian economics (diaries, Dec 28, 1932, and Aug 30, 1935). Indeed Morgenstern’s 1934 book may be seen as an attempt to publicly demonstrate his disagreement with these views. On an occasion when Hayek and Robbins were visiting Vienna, Morgenstern disparaged Hayek as “a bigwig” (verbonzt) (diaries, Apr 14, 1933), and after reading Hayek’s article “On the Relationship between Investment and Output” in the Economic Journal (1934c), Morgenstern ridiculed his use of mathematics (diaries, Oct 26 and Nov 11, 1935). However, in weighing Morgenstern’s barbed comments one must remember that in his diary few people were spared from his attacks. Even so, some element of felt competition between them is certainly present. After 1938 personal animosities were indiscernible on either side, though Morgenstern continued to distance himself from the approach traditionally associated with the Austrian school. Hayek’s exchange of letters with Mises was, of course, of a different sort. The correspondence from Hayek’s early years in London shows Mises and Hayek still in the roles of master and pupil. This is apparent from the asymmetric salutations used: while Mises soon switched to “Dear Colleague,” Hayek stayed with (in literal translation) “Highly Respected Professor” throughout. In Hayek’s very first letter from London, he not only described his warm welcome at LSE, especially by Robbins and Plant, but also expressed his gratitude toward his mentor: “For the first time, I fully realize that, even outside my narrower field of research, everything where I am ahead of my colleagues and most economists in general I owe to you. In Vienna, where all this is the unquestioned common basis, it is not recognized so easily, but if I succeed here in not disappointing the expectations of these people too badly, this is all to your credit, not to mine . . . here I feel more indebted to you than ever” (Hayek to Mises, Nov 21, 1931). In his response (Dec 7, 1931) Mises reciprocated by emphasizing how much

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he missed Hayek, with whom he would have liked to discuss a “thousand things.” Later correspondence was of a more typical academic kind: for example, Hayek asked Mises for comments on his paper on “Capital Consumption” (Hayek 1932a), and they discussed extensively Hayek’s inaugural address (Hayek 1933d), while Mises reported in despair about the economic events in Austria (Hayek to Mises, Feb 3 and Mar 10, 1933, and Mises to Hayek, Feb 11, 1933). There were Austrian colleagues of a different sort, too. For example, Hayek entertained good relations with, but was not close to, Rosenstein, who was in London from 1931, teaching at University College. Of the school’s older generation, Hayek met Strigl sometimes in Vienna, but appears to have avoided Mayer. And what of Hayek’s German friends, Röpke and Eucken? As the economic and political crises deepened in Germany, Röpke publicly exposed himself as a defender of liberalism and the Weimar Republic and an outspoken opponent of National Socialism. When Hitler came to power in 1933, his position became precarious. He was forced out of his chair at the University of Marburg and soon left Germany with his family, ultimately settling in Turkey. At the time the Turkish leader, Kemal Atatürk, was determined to build a Western-type university in Istanbul with the help of scholars from abroad, and their exodus allowed him to draw upon German professors. Thus Röpke was not alone in Istanbul but was joined by economists like Alexander Rüstow and the young Fritz Neumark (see Ege and Hagemann 2012). Röpke could not, however, fully accommodate himself to the climate, meteorological and otherwise, at his new place of work. He regularly traveled to the continent, both to keep in contact with former colleagues and to present papers, e.g., in Vienna or Geneva. In Austria, he was even considered for an economics chair at the small Vienna Welthandel business school in 1936, though in the end he lost out to a parochial nonentity. Then, in 1937, there was a godsend: a call from the Geneva Graduate Institute of International Studies. The Institute, a child of the League of Nations, had been founded in 1927 by William Rappard, a Swiss diplomat, and Paul Mantoux, a French economic historian, and from 1928 had been directed by Rappard. From 1933 onward it provided a home for scholars escaping authoritarian regimes of various forms, among them Ludwig von Mises and Hans Kelsen. In the 1930s it hosted both Hayek and Lionel Robbins for lectures (Hayek 1937a; Robbins 1939). The Institute was evidently the perfect place for Röpke to reestablish contact with his liberal European colleagues. In Geneva he undertook a Rockefeller Foundationsponsored project on the causes and effects of international disintegration

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(Röpke 1942a). This set the tone for his coming years in Geneva, where he would stay throughout the war. As for Eucken, after Hitler’s rise to power he became known at the University of Freiburg as an outspoken critic of the National Socialists, in particular during the short-lived reign of the first rector appointed by the NS regime, the philosopher Martin Heidegger. In 1936 he helped form what was to become the Freiburg circle, consisting of besides Eucken the jurists Franz Böhm and Hans Großmann-Doerth and the economists Adolf Lampe and Constantin von Dietze. Their views were epitomized in the publication of what came to be known as the “ORDO Manifesto” (Böhm et al. 1989 [1937]). Leaning on Eucken’s earlier thought, it focused on the design of a legal order conducive to an economic system that minimized private and public power and thus allowed for human flourishing, utopian as the propagation of such ideals might have been under Nazi rule. Its concrete proposal was to curb the concentration of private power by encouraging competition within a well-specified competitive order. When Hayek spent his summer vacations in Austria, he used to schedule his trips so as to be able to meet Eucken in Freiburg, for example in the summers of 1936 and 1937 (see his datebooks, and Hayek to Eucken, June 27, 1937; Hayek to Haberler, Oct 25, 1937). It was only owing to the restrictions of movement imposed on him as a notorious critic of the regime that Eucken was unable to attend the Colloque Lippmann in 1938. With the outbreak of World War II Eucken would become almost entirely cut off from contacts with his colleagues abroad, with the exception for a while of people like Wilhelm Röpke who lived in neutral Switzerland.

Austria in the 1930s When we last looked at Austria in the late 1920s, political tensions were steadily increasing.5 These problems worsened when in 1929 the economic crisis put an end to the short boom of the mid-1920s. As elsewhere, over the next few years the slump degenerated into a full-fledged depression: by 1933 real GDP had decreased by 20 percent, the output of industry by 40  percent, and unemployment neared 30 percent (see, e.g., Kernbauer 1991, 288–89). Such statistics were not available at the time (they were reconstructed in the postwar period), but those reported in the Monatsberichte were equally terrifying. For example, in January 1933 all the exist5. In addition to the sources cited in earlier chapters see the classical study by Gulick 1948 and, e.g., Bischof, Pelinka, and Lassner, eds. 2003, and Reiter-Zatloukal, Rothländer, and Schölnberger, eds. 2012.

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ing blast furnaces of the Austrian steel industry closed down: that month no steel was produced. The same report also tells us that in the Vienna coffeehouses sales fell 30 percent below the precrisis level. In an echo of the events of the early 1920s, when in 1931 the Austrian central bank after its ill-considered defense of parity lost almost all its reserves and also its access to international financial markets, the only alternative remaining was to turn to the League of Nations for an international loan. It was eventually granted in the Lausanne Protocols, under conditions similar to those of the 1920s: strict supervision of Austrian finances and a reconfirmation of the prohibition of Anschluss. In summer 1932 the Lausanne treaty was approved with the thinnest of majorities. After that the government found itself constantly on the brink of losing its support in parliament. At the same time, radicalization within all parties grew, and drawing on the German example the inroads of the Austrian Nazis into the other parties’ constituencies increased slowly but steadily. In March 1933 a procedural accident at the Nationalrat (the first chamber of parliament) offered the Christian Social chancellor, Engelbert Dollfuß, the opportunity to cut the knot. When, on a minor issue, all three chairmen resigned and the session was closed, Dollfuß declared this to be the “self-liquidation” of parliament. Henceforth, the government—by making use of some contrived legal instruments—acted by decree and without parliamentary control. With this move it not only avoided the problem of insecure majorities but by postponing all elections prevented the Nazi party from winning seats in the legislative bodies. The next months witnessed a war of attrition between the authoritarian government and the opposition parties; the Austrian Nazis turned to terrorist actions and consequently the party was dissolved, while the Socialists—despite increasing harassment—sought a peaceful solution through negotiations, which came to naught. In February 1934, an incident provoked a Socialist uprising, doomed to failure from the beginning. By the end of a short civil war that resulted in up to 250 deaths, most of the Socialist leaders had fled the country, others were incarcerated or executed, and the party dissolved. This marked the end of the First Republic, which finally gave way to the Christian corporate state proclaimed by Dollfuß in May 1934, marking the beginning of the so-called Austrofascist regime.6 All parties were dissolved 6. Among Austrian historians there is no consensus on how to refer to the regime. While some, e.g., Tálos 2013, use the term “Austrofascism,” others prefer the regime’s self-designation, (authoritarian) “corporate state,” or simply speak of the “DollfußSchuschnigg regime.” The latter argue, e.g., that the Austrian regime lacked the mass

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and replaced by the unitary movement of the Patriotic Front; the newly created representative bodies were left with only decorative functions, while the government exerted dictatorial powers. However, the corporate structure to which the new constitution alluded was never established; Othmar Spann, the longtime advocate of the “true” corporate state, derided its Austrian model as “a weird carnival joke” (Spann 1934, 246). Politically, the new rulers rested on the support of the former Christian Socials and the Heimwehr. The new regime tried to distinguish itself from Nazi Germany— by emphasizing its Catholic nature and its corporate constitution—as the second and, as it were, better German state. Despite its triumphant pronouncements, it struggled from the very start, lacking public support in its two-front war against the remnants of the Socialists and the Nazis. In July 1934 during a failed Nazi putsch Chancellor Dollfuß was assassinated. Kurt Schuschnigg, remembered mostly for his all-embracing lack of charisma, became his successor for the next four years. For the remaining period until the Anschluss, the weakness of the authoritarian regime became ever more evident. One glaring deficiency was its utter inability, in particular when compared with the apparent successes of Nazi Germany, to improve economic conditions. Austria was among the countries hardest hit by the depression and among those with the weakest recovery. This might be explained by the awkward combination of a conservative hard currency policy, much acclaimed by economists of the Austrian school, with rigid interventions on the supply side—which the very same economists abhorred. Thus monetary and fiscal policies were not used to counteract the contraction in the stream of money directed at the purchases of goods, while simultaneously price controls and other interventions kept individual prices and the price level as a whole rigid—a sure recipe for disaster. Moreover, owing to its international isolation, as the 1930s progressed Austria became ever more vulnerable to threats from Hitler’s Germany. The Austrian foreign policy strategy had been to seek protection by closely cooperating with Mussolini’s fascist Italy, attractive in part because of its alliance with the United Kingdom and France. Mussolini’s ill-advised venture in the Abyssinian war made him lose these Western allies and at the same time seek help from the German Reich. From that crucial moment in 1936 onward, Austria’s submission to Hitler’s Germany became inevitable. On March 11, 1938, the Austrian corporate state gave in to Hitler’s base of support characteristic of full-fledged “fascisms” like the Italian one. On the discussion see Botz, Feb 21, 2015; cf. also the variety of approaches in Wenninger and Deidemy, eds. 2013.

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threats and installed a pro-Nazi government. On its invitation German troops marched into Austria the next day, and the Austrian government decreed on March 13, before its own dissolution, the union of Austria with Germany. The Anschluss had been accomplished and Austria had ceased to exist as a sovereign state. A subsequent plebiscite, on April 10, ratified the union with almost 100 percent of those voting approving.

Hayek’s Prewar Efforts in Germany and Austria In addition to coming to the continent for professional reasons, throughout the 1930s Hayek regularly spent his vacations there, as a rule for ten weeks in the summer, and for three weeks—mainly for skiing—over either the Christmas or Easter holidays. He certainly was familiar with political and economic developments in both Germany and Austria. But he almost completely refrained from stating his views in public, and of what he may have said in private correspondence, only a little has been preserved. We find scarcely any public statements on the situation in the German Reich after Hitler came to power in 1933. We do, however, gain clues from his activities in support of German emigrants. In particular, Hayek worked closely with the British-based Academic Assistance Council (renamed the Society for the Protection of Science and Learning, or SPSL, in 1936), founded to support German refugees. The Council asked him for a list ranking German refugee economists, which he ultimately provided. In its correspondence the SPSL often refers to the list (SPSL 163.2 “Hayek 1934”), but unfortunately it was not preserved in its files.7 Either through the Council or independently, some of those refugees also came into contact with Hayek and LSE directly. For example, shortly after Hitler came to power Hayek met two German delegates at a conference; while he felt good about one of them, he despised the other, calling him “a monster and a Nazi” (Hayek to Haberler, Apr 17, 1933). He also mentioned a group of well-known German economists who were at the moment visiting LSE, looking for some future position there or elsewhere— and some who were heading to the newly founded “University in Exile” at the New School for Social Research: Emil Lederer, Adolph Löwe, Hans Neisser, Jakob Marschak (all affiliated with the Kiel Institute), Melchior Palyi, Moritz Bonn, Eugen Altschul, and Fritz Neumark (Hayek to Haberler, Apr 17, 1933). A few months later, he was able to report some moderate success at placing people: “Bonn is a very pleasant colleague and has rap7. The abbreviation “SPSL” refers to the Archive of the Society for the Protection of Science and Learning, Bodleian Library, University of Oxford.

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idly succeeded in creating a good position for himself” (Hayek to Haberler, Nov 30, 1933), while Altschul was on the way to Mitchell at Columbia, and Palyi to Chicago. Three years later Hayek expressed concern about three economists—Arthur Sulzbach, Otto Veit, and Georg Halm—who had remained in Germany and whose positions appeared ever more precarious, so that “now it becomes ever more urgent to find something for them” (Hayek to Machlup, May 1, 1936). Turning to Austrian politics and economics in the 1930s, Hayek watched events unfold with increasing dismay. From his correspondence with Austrian colleagues, some persistent themes emerge. Though there are no specific comments on Austria’s transition from democracy toward authoritarianism, the phrases “intellectual decay,” in particular with respect to Vienna’s economics community, and “political corruption” recur frequently in his letters (see Hayek to Haberler, Apr 14, 1935, and June 3, 1936; to Machlup, May 11, 1935, and May 1, 1936). In the June 1936 letter to Haberler, Hayek for the first time expressed “serious doubts” about Austria’s long-term potential for survival. It was a prescient observation. The day that the Anschluss occurred Hayek wrote to Machlup to express his disgust: “In fourteen days I am going to visit Vienna to have a look at this sad mess. I had hope until the last moment, and the more depressed I am now” (Mar 12, 1938). For a professed adherent of a liberal order to visit Vienna at this point in time was of course dangerous. Hayek took the risk but appears also to have taken some steps to camouflage his intentions: the dates he chose to go could as well have resulted from the desire of an Austrian citizen to participate in the plebiscite scheduled for April 10. In fact, he spent a week skiing, in the Kitzbuehler Alps, and complained to Hella (postcard, Mar 31, 1938) about the bad weather, before going to Vienna to see family and friends— it is impossible to determine in hindsight if he was skiing just for pleasure or if this was just one more step to veil his true intentions. Anyway, after this April visit Fritz, by then as a British citizen, took three more trips to Austria before the outbreak of World War II: two weeks spent in Vienna in March/April 1939, and two short excursions in the Alps in the summers of 1938 and 1939. During his first visit in April 1938 Fritz’s reports to Hella, on postcards that could have been easily read by anyone, exhibited a mixture of frankness and camouflage. This is how he described the reaction to the new regime: “The people don’t seem to be particularly happy, but on the whole take it with good humour, even those who have been locked up for a while. On the whole there is a good deal of skepticism, and although the old regime

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was evidently intensely disliked, there is apparently not much more love for the new one. But now the first few days of excitement have past [sic], the fine spring seems to be more important than anything else” (Apr 3, 1938, written in English). And on the day of the plebiscite he noted dryly that “yesterday and today Vienna was in a kind of delirium,” but that the situation should calm down soon (Apr 10, 1938). After assuring himself that his family members were safe, Hayek checked up on members of his various circles. When he returned to London, he offered a detailed report in a letter sent to both Haberler and Machlup: Overall our friends have fared relatively well. The news of the suicide of Karl Schlesinger is unfortunately true. Moreover, Lene Lieser did a week and Herbert Fürth 36 hours in jail (the latter because foolishly Max Mintz had phoned him from Zurich), and Marianne Herzfeld, who had been arrested jointly with Lene Lieser and should have been released at the same time . . . for inexplicable reasons is still in jail. Only Erich Schiff was forced once to clean the toilets of a military barracks, a widely-spread practice of which our circle has been mostly spared. I have seen almost the whole Geistkreis and all the economists. (Mayer has turned into a wild Nazi whom I have shunned therefore— the reason for his enthusiasm is possibly that Spann and his son Raphael were immediately arrested by the Gestapo . . .). During the upheaval Schütz was in Paris and is still there. He hopes to get a position there or here [in London] and I expect to see him in the next days.—Voegelin’s house was searched (first question: “Are you a pupil of Spann?”) but otherwise he was left unmolested; however when he inquired at the ministry it was suggested to him to look for a position abroad. He strives for America.—Kaufmann has provisionally kept his job but not for long. Apparently he has some prospects and did not give me any instructions. Thalmann was four weeks jailed in Graz, he just came to Vienna when I departed, and does not think about emigrating.—Strigl is doing well.—At the Institute, which was immediately taken over by Wagemann (who even had been instructed to close it, but was persuaded by Kamitz to keep it going as a branch [of the Berlin Institute]), Zrzavy and Kozlik are in jail, Steindl was provisionally (and perhaps permanently) suspended. From various sides I was asked to advise Morgenstern not to return, because he had too many personal enemies. John as well as Kamitz continue to work, under strict supervision from Berlin. Dr. Schiff and Dr. Lovasy . . . have lost their jobs.— Brauns want to go to Australia. (Hayek to Machlup, Apr 17, 1938)

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This is followed with more detailed information on Fröhlich, Winternitz, and Fürth. He remarked on how difficult it was both to leave Austria, now that it was part of the German Reich, and to get permission to enter a foreign country. For many of Hayek’s friends the preferred destination was the United States, where the crucial obstacle was finding an American ready to provide an affidavit of support, that is, a pledge of financial support for the immigrant. While in Vienna Hayek also met Machlup’s relatives, who were anxious to find a way out. Over time most succeeded and eventually made it to Machlup’s abode in the US. In a letter to Hayek (May 16, 1939) he deadpanned, “my household now consists of eleven persons. Fortunately, I am not at home.” The background to Hayek’s letter was the purges for political or “racial” reasons that hit the Austrian universities after the Anschluss. Of the economists at the University of Vienna, Spann and his disciples were dismissed because by the 1930s the Nazis began to view them as dangerous dissenters. Degenfeld and others closely affiliated with the Austrian corporate regime were forced out of academia, too. Most of the members of the Austrian school, among them Mises, Haberler, Morgenstern, Reisch, Schüller, and Hayek, were deprived of their right to lecture. Surprisingly, Mayer, who throughout the interwar period had been the target of vitriolic attacks from the right-wing press, was able to keep his chair. In an anonymous confidant’s report he was aptly characterized as a “quick-change artist,” and it appears that the Nazis, by keeping Mayer, put their trust in his opportunism.8 He did his best to fulfill expectations, expelling—“to his eternal shame” (Robbins 1971, 91)—the non-Aryan members from the NOeG. Of the members of Mayer’s circle, Schams became a member of the Nazi party, while Schönfeld changed his name, which after his adoption he had taken from his stepfather, the Jewish physician Dr. Schönfeld, to the less suspicious-sounding Illy. Strigl, who at the time was teaching at the Welthandel, was dismissed but soon reinstated. The Institute also became a target of persecution. As noted in Hayek’s letter, Morgenstern was a visiting scholar in the United States and was well advised not to return, and the Institute itself was put under the direction of—of all people—Ernst Wagemann, under whom its focus was turned toward the economy of southeastern Europe. Its deputy, Reinhard Kamitz, 8. See Mayer’s Gauakt (enclosed in the Gauakt Johannes Sauter). The “Gauakten” were files, collected at the provincial (“Gau”) level, containing political judgments on persons of public interest provided by various NS organizations. The “Gauakten” for the province that was formerly Austria are preserved in ÖStA/AdR, Zivilakten der NS-Zeit, Gauakten.

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who had been an illegal member of the Nazi party since 1933, stayed for a while, then started an academic career at the Vienna Welthandel. Other members (Hayek mentioned Steindl, Kozlik, Zrzavy, Erich Schiff, and Lovasy) at a minimum had lost their jobs. When back in London, Hayek soon turned to the SPSL on behalf of these dismissed Austrian scholars. He explained how the peculiarities of the Austrian situation left many eminent scholars locked out of the universities: “The main point is that the strong anti-Semitic tendencies which have prevailed at the Austrian universities at least since the war have had the effect that comparatively few ‘non-Aryans’ have held full-time academic positions . . . My point, which I should like to urge strongly, is that in the Austrian case the bodies which are willing to help academic people should not confine their assistance to people who actually held an academic position, but equally include people with similar qualifications who for reasons of their race were excluded from an academic career” (Apr 28, 1938, SPSL 141, quoted in Feichtinger 2001, 202). This explanation was appended to a list of scholars either dismissed from Austrian universities or otherwise in need of support. Hayek put members of his own and Mises’s circle, and of the Institute, on the list. He also included the law professors Oskar Pisko and Stephan Brassloff, and the lecturer Arthur Lenhoff; two scientists from the Faculty of Philosophy; the professor of psychology Karl Bühler; four members of the Faculty of Medicine; and two Nobel Prize winners, the pharmacologist Otto Loewi and the physicist Viktor Hess. In the next months and years he was busy giving advice and offering recommendations for those who planned to come to Britain; those who were headed to the United States turned directly to the Austrian immigrants who had preceded them. Haberler and Machlup were generous in providing the crucial affidavits, then helping the newcomers in their first steps in a foreign country. Hayek appears to have been impartial in granting assistance, with no discrimination according to ideological position—the possible exception was a bias against those who had been close to the corporate state—but with an overriding concern for scientific accomplishments. When mediocrity and a conservative outlook coincided, as in the case of one lecturer from the Welthandel, Hayek’s judgment could be very reserved (SPSL 228.5). He was far more enthusiastic about Josef Steindl and Adolf Kozlik, two members of the Institute who were in danger of persecution for political reasons.9 9. On Steindl, see Steindl [1984] 1988; Feichtinger 2001, 242–44; and Guger and Walterskirchen 2012, 135–38. On Kozlik see Rothschild 1965; Fritzl 2001; and Feichtinger 2001, 244–46.

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Josef Steindl (1912–93) was dismissed by Wagemann in March 1938 because of socialist leanings. Hayek (SPSL 141, see also 239.1) recommended him as “a young man who in the course of the last few years has published a number of very good articles . . . A competent and well-trained man who would be useful in a research institute.” Thanks to Hayek’s efforts Steindl was offered a three-year research lectureship at Oxford’s Balliol College, which began in 1938. After a period of internment from July to October 1940, Steindl entered the Institute of Statistics, where his encounters with Michal Kalecki shaped his development as an economist. Adolf Kozlik (1912–64) had entered the Institute in 1936. Having been active in the illegal Austrian socialist party throughout the 1930s, he was dismissed and taken into custody after the Anschluss. After his release he escaped to Switzerland in June 1938, staying in Mises’s ambit in Geneva. Hayek recommended him to the SPSL as “a similar case [to Steindl’s], mainly interested in mathematical economics for which he has shown a special gift” (SPSL 141, see also 233.8). With the support of Tintner and Morgenstern, Kozlik obtained a Rockefeller grant for a research assistantship at Iowa State College, where Tintner was teaching. In 1941 he moved to Princeton to be with Morgenstern, but owing to suspicions that he was a Russian spy, he left preemptively for Mexico in 1943. Hayek took special care of two older men whose activities had kept them a bit detached from academia. Richard Schüller, by then in his late sixties, had been forced into retirement. His route to England was both circuitous and treacherous, one that involved first navigating the Alps into Italy. With recommendations from Robbins and Hayek (see SPSL 594.3, Hayek to SPSL, Sept 18, 1938), he found employment at the Royal Institute for International Affairs in 1939/40, then moved to the New School, where he taught from 1940 to 1952. The other was Karl Forchheimer, a civil servant dismissed from his position at the Ministry of Social Affairs and a distant cousin of Herbert Fürth. Hayek intervened on his behalf, noting in a separate letter to Beveridge (Feb 22, 1939, SPSL 230.9) that he was a “very competent economist” who had been denied an academic career only because of the “strong anti-Jewish sentiment” prevailing at the University of Vienna. Hayek found it necessary to add that though Forchheimer was “I understand, fully Jewish, he is not pronouncedly so and I should have hardly known that he was a Jew.” A special case was that of Friedrich Waismann, an important but lesserknown member of the Vienna Circle. He had been Moritz Schlick’s assistant, but after the latter’s assassination Waismann’s academic career was doomed—another example of the “intellectual decay” that Hayek so often

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disparaged. Felix Kaufmann had approached the SPSL in 1937 on Waismann’s behalf, and he was followed by Hayek, who endorsed Waismann’s case in three letters (in SPSL 321.5). In the first he described him as “a scholar of such standing in promise that every effort should be made to enable him to continue his work” (Hayek to SPSL, Feb 10, 1937). Hayek tried in vain to find a publisher for an English translation of Waismann’s (1936) introduction to mathematical thinking. In the end, the SPSL awarded a grant to Waismann, who in 1937 started lecturing in Cambridge, where he stayed for three years before moving to Oxford. We cannot here deal with the fate of all the members of the Geistkreis and the Mises circle separately. Suffice it to say that Hayek and other Viennese expatriates had a hand in facilitating emigration and finding adequate jobs for many of them. Engel-Janosi after teaching at the University of Alabama found a place at a Catholic university in Washington. Fröhlich, Fürth, and Winternitz, who also drew on the support of Haberler when entering the United States, eventually ended up at Marquette University, at Lincoln University (and later the Fed), and as a musicologist at the Metropolitan Museum of Art, respectively. Felix Kaufmann and Alfred Schütz both became members of the New School. Voegelin, after a short stay at Alabama, was appointed to a chair at Louisiana State University in Baton Rouge. Erich Schiff eventually entered the Brookings Institution. Finally, Fritz Schreier chose a job outside academia, in business and marketing. The fate of Franz Glück was different in that he had planned to leave Austria, but owing to his overly optimistic belief in the imminent breakdown of the regime, postponed his emigration until summer 1939 when the outbreak of World War II made all such plans futile (see Hayek to Machlup, Aug 27, 1939); he was able to survive undetected. Not all the stories in which Hayek played a role came to a happy ending. Two members of the circles, Georg Schiff and Ludwig Bettelheim-Gabillon, were murdered together with their wives. Georg was only one of the numerous victims of the Holocaust among the Schiff family (see Schimanko 2011). Furth (“Memorandum,” 9) recollected that eight of his relatives were killed by the Nazis, and from his correspondence (Furth to Wilhelmine Fürth, 1940–41) we know that he had struggled for four years in vain trying to find shelter for his aunt Margarete and her daughter Wilhelmine Fürth. Of the Vienna law professors mentioned in Hayek’s list, Stephan Brassloff died in a concentration camp while Oskar Pisko was spared this fate only through his early death from disease. Of course, it was not just professional colleagues who had been left behind in Austria when Fritz and Hella moved to London. For the rest of the

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Hayek and Fritsch families Austria, and in particular Vienna, was still the center of their lives. Felicitas and Erich were there, all of Fritz’s aunts and uncles, as well as Hella’s mother and her sisters. What was happening in Austria, politically and economically, provided an inescapable background to all of their familial interactions.

· 23 · Domestic Affairs

While Hayek was busy engaging in intellectual battles with Keynes, Sraffa, Knight, and Lange, with giving lectures and running seminars, with writing everything from one-page book reviews to a major volume on capital theory, with serving on committees and going to academic conferences, he was also living with his family on Turner Close, a cozy leafy street in Hampstead Garden Suburb, located north of the city on the edge of Hampstead Heath. In this chapter we will paint a picture of their domestic life there. It was the quiet, simple life of an academic family, made a bit more spartan perhaps by the depression, but for all that peaceful. At least, so it appeared on the surface. The equanimity of their apparently tranquil existence was shattered when Fritz finally confessed his dark secret to his wife, that he was and had long been in love with his cousin Lenerl. This revelation would in time change everything for everyone.

Life on Turner Close Soon after receiving the letter from LSE Director William Beveridge that invited him to come to London as a visiting professor for the 1931–32 academic year, Hayek wrote to Lionel Robbins asking for his advice regarding housing. He pleaded abject ignorance: Though I have now been several times in London I know so little about the living conditions there outside of the hotels that I feel somewhat helpless . . . I have not the slightest idea what the rent of a furnished four or five room flat in London—or rather not in the central parts of London but somewhere in the suburbs—would be. Is there any chance at all to get a flat in the suburbs or would one have to rent a house? What we want most is to live somewhere in green surroundings, if it only were small gardens, and not in a densely settled district of city-character.

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But I know nothing of the London suburbs except the few glimpses of Hampstead which I liked very well. (Hayek to Robbins, May 5, 1931)

As he had done in so many other areas, Robbins promised to help, and in August wrote again renewing his offer of assistance. Writing from his summer address in Tyrol, Hayek replied in detail and at some length. This was the letter in which he described his and Hella’s modernist and minimalist tastes in furniture. It gives a sense of their concerns, and what they were hoping for: Concerning the maid we had planned to look for one in England as ours is rather stupid and would never have learnt a word of English. But during the discussions to which your letter gave rise it turned out that my mothers [sic] maid knows some English and would greatly like to come along. And though she is not a marvel in efficiency we have decided to take her . . . As to house room the only two things which are really essential to us are as much fresh air and light as is possible during a winter in London and a little garden where our little girl could sometimes play unguarded. Next in importance come to any Continental proper heating arrangements as we would probably shiver constantly if we had to depend on open fires. In general we should like to have not less than four and not more than six rooms, including two or three bedrooms (the third only for possible guests) exclusive of the room for the maid. From what I have seen in your house I suppose that our tastes are rather similar. (Hayek to Robbins, Aug 22, 1931)

Hayek’s lectures for the Michaelmas term began October 6, so he came over to London a few weeks early to set things up. Within a few days of arriving in late September 1931, he was able to write Hella about the house he had rented. He was very excited about it, as was Hella in her return post: “I am happy that you are so excited about the house . . . in any case, a nice house in the midst of green surroundings will quickly make us feel at home” (Hella to Fritz, Sept 30, 1931). The house was situated on Constable Close, right around the corner (less than a two-minute walk) from the Robbins house at 10 Meadway Close. Lionel and Iris had bought their house in 1929 when he joined the LSE faculty, and apparently Hayek visited there when he came earlier in the year. Given the house’s location and how quickly the deal was set up, it would seem that once again Robbins provided assistance. Hampstead Garden Suburb is a planned community that was estab-

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lished in 1907 by Dame Henrietta Barnett. Located at the northern edge of the Hampstead Heath Extension, the Garden Suburb was an instantiation of the settlement philosophy. From 1889 the Barnetts owned a house, Evergreen Hill, in Spaniards End at the southern end of the Heath Extension. Concerned about the effects of a proposed expansion of the Northern Line underground service on the area, Dame Henrietta first raised funds to preserve the Heath Extension, then established a trust to purchase land that would be used to create the Suburb. Envisaged was a model community that would allow “persons of all classes of society and standards of income” to live together. There were strict zoning rules: housing density would be kept low, hedges rather than walls would separate properties, roads would be tree-lined and at least forty feet wide. Other rules aimed at ensuring an uplifting community atmosphere: no pubs were allowed, noise was to be kept down by prohibiting church-bell ringing and public transport, and there was no high street within the Suburb. An institute where adult education classes were offered was housed in the Henrietta Barnett School for girls, located on Central Square. It was, in sum, a well-planned, verdant suburb with a moral purpose, that of promoting “the contagion of refinement” among the lower classes (Tames 2006, 251–52).1 Hayek had found the “green surroundings” and “fresh air and light” that were so important to him and his wife. The Hayeks stayed in the Constable Close house that first year while Hayek was a visiting professor, then moved a few houses away to 15 Turner Close, another rental, when he accepted the Tooke chair. The houses on Turner Close were built around a rectangular strip of lawn, which made for a perfect, open yet protected playground for children, in addition to the private gardens that lie behind each house. In 1939 the Hayek family moved a final time, this time catty-corner across the rectangle to 8 Turner Close. It was a smaller house than number 15, but Hayek purchased (for £2,800; they spent £300 more after buying it to build two rooms into the attic; see Hayek to Mann, Mar 25, 1950) rather than rented it. The down payment was financed by selling a tranche of books via Per Jacobsson to the Bank for International Settlements (IB 94). The Garden Suburb was home to a number of young LSE professors. In addition to Robbins, Frank Paish and Arnold Plant also lived there, all three 1. Ironically, but perhaps not unexpectedly given its verdant setting, the Garden Suburb is now one of the most expensive areas in greater London. The strict rules on pubs, buses, and shops made it rather unsuitable for working-class residents even in its day.

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of them born in 1898, so only slightly older than Hayek. Hella became great friends with Iris Robbins and Bea Paish. Another acquaintance was LSE graduate Waldo Forge, who served as the London City editor of the Glasgow Herald, and his wife Kitty, who was the headmistress of the Camden School for Girls and who gave Hella English lessons (Christine interviews, Oct 14, 2012). Hayek’s recollection was that “we lived very quietly with very little social life” (Hayek 1994, 78). The custom of the day (reinforced by the absence of nearby pubs and restaurants, as well as economic considerations) was for couples to entertain in the home. Small dinners or after-dinner gettogethers would be held when out-of-town economists visited the School; guests sometimes stayed in their hosts’ homes. After the American edition of Robbins’s Great Depression was commissioned, the Robbinses bought a grand piano which, as Lionel was to tell Jacob Viner, “contributed greatly to social life at Meadway Close” (Howson 2011, 271). Acquaintances became friends, and some friendships deepened into true trust and affection. This was especially the case for Fritz and Lionel: Their houses were so close that sometimes Robbins would pad over in his bedroom slippers to borrow a book or have a chat. After the publication of Hayek’s Road to Serfdom, Robbins would teasingly ask Christine if she answered the door, “Is the great man in?” Frequently, though, he would simply let himself in, and likewise for Hayek at his friend’s house. On occasional weekends in the summer Robbins and Hayek would go riding together on the heath. The men would sometimes leave together in the morning to go to work, in the summer walking down through the heath, in bad weather down Hoop Lane, past the Jewish cemetery and the crematorium, to the Golders Green tube station. Other times Hayek would ride his bicycle down, which he could then deposit in a storage facility by the station (Christine interviews, Oct 12, 2012). They shared some tragic times as well. In fall 1938 Iris Robbins had been pregnant for about 5½ months when it was discovered that the fetus had died. She had surgery to remove it and hemorrhaged badly afterward. Iris required a transfusion, and the blood was slow in making it to the hospital; she ultimately lost consciousness. Distraught, Lionel called Fritz, and they spent the night waiting up together by the phone and talking (Howson 2011, 321–22). Hayek famously loved England and its cultural and class traditions. As his daughter Christine once (half) jokingly put it, a “pre–first world war upper class family where the children appeared in their best clothes at tea time for about an hour and a half—if that—I think that was rather his attitude” (Christine interviews, Dec 14, 2012). He took great pleasure in observing the British penchant for idiosyncrasy in manners and behavior. He

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once captured an element of his fondness for England when he described the different ways that one might break off a conversation in Austria, America, and England. In England, “You become slightly inattentive or evidently concerned with something else; you don’t need a word. Your partner will break off the conversation because he realizes without you saying so that you really want to do something else. No word need to be said about it.” This was in contrast with the United States, where the listener would be more likely simply to break off the conversation directly, pleading another appointment or task, whereas in Austria, the same thing would happen as in America, but the conversation would drag on as “an effusion of polite expressions” would follow (Hayek 1983a, 446). On his belles lettres shelves at home Hayek had a full edition of Anthony Trollope’s works and delighted in reading and rereading (three times for some of them, he wrote to Shirley Letwin) his brilliant descriptions and dissections of British ladies and gentlemen, of politicians, barristers, and churchmen, of village life and character (Hayek to Letwin, May 16, 1982). Christine remembers that both of her parents enjoyed their Trollope when the family moved to Cambridge—he was that kind of quintessentially British author whose popularity could only increase in England during the war (Ziegler 1995, 196): “Both of my parents read Trollope like mad during the war. ‘Where’s The Warden,’ they would say. I had no idea who they were talking about!” (Christine, conversation with Caldwell, no date recorded). Though the household rhythms were not quite those of a “pre–first world war upper class family,” they did fit in with a certain style of academic British household. After spending mornings doing research in his upstairs study, Hayek would go to the School or the Reform Club for lunch, then teach in the afternoons and evenings. If the children were home when he was working they had to keep quiet. He sometimes was home for dinner, but frequently was not—he might be teaching, or dining with colleagues or guests at the Reform Club, or traveling. When he was home for dinner they ate in the dining room. The one exception was the evening of the Anschluss, when they ate in front of the wireless in the front room. A child of eight at the time, Christine knew from the break from the usual routine that something big was up (Hayek 1994, 80–81; Christine interviews, Oct 14, 2012, Sept 10, 2015). For Christine, then, her father was “the prof in the study.” Her mother, on the other hand, was the person who kept the household running smoothly. Though Hayek definitively controlled the checkbook, it may safely be said that he was completely clueless when it came to anything having to do with household management. He once joked—he thought of it as a joke—that

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he had never seen the inside of his own kitchen.2 Hella, both resourceful and efficient, was a perfect companion for such a man. Though she often had an Austrian au pair in the interwar years to help with cleaning and childcare, she did the cooking, made clothes for the children, kept ducks (Cocky Campbells; their lease in the Suburb forbade hens) and a vegetable garden, mowed the lawn, dealt with hiring plumbers, carpenters, and painters (when she wasn’t performing the tasks herself), arranged the family holidays, put up wallpaper and shelving. Her expertise at household management was a great virtue, especially during the Great Depression and the rationing regime that was in place in England during and after the war. Christine grew up thinking that that was what mothers did; she was greatly surprised when she found out from other friends that their fathers performed at least some of these tasks (Christine interviews, May 20, 2013). Hella also looked after Fritz. For example, when she went to Karlsbad for treatments for her gallbladder in October 1932, her letters told him to get his socks cleaned regularly (!) and where his warm clothes were stored. While she was away Fritz moved into the new house at 15 Turner Close, and she lamented the fact that he had to unpack and shelve his library all by himself, the poor dear. She also reminded him that they needed coal, some lamps, and a kitchen table with chairs, and that he should measure to ensure that it was wide enough but would also fit in the kitchen (Hella to Fritz, Oct 6 and 15, 1934). Her letters often contained reminders, household advice, and mild admonitions: don’t smoke too much, get enough sleep, be sure to exercise (e.g., July 4, 1934). The summer before they came to England, Hella wrote from the countryside to Fritz in Vienna, to tell him where the housekeys were kept and to provide a list of things he should remember to bring with him when he joined her: underwear, shirts, pajamas, socks, belts, ties, bathing suit, woolen socks, leather jacket, raincoat, hat, medications, tea, pipe, knife from England, a cup, tent, and cigarettes (July 20, 1931). As Christine once dryly put it, “She jolly well had to be practical because my father had no idea . . .”—no idea, that is, of how to do anything practical (Christine interviews, Oct 14, 2012). Hella was supportive of her husband’s work and often asked how it was going (see, e.g., her letter, July 14, 1931). But she also told him to try to leave his work at home when he came to the mountains for a family vacation. One gets the distinct impression given the number of times that this request is found in her letters that Fritz typically did not follow the advice. 2. This is confirmed by a remark of Hella in her letter of December 18, 1937: There she describes that—in Fritz’s absence—she had painted the kitchen, and then adds: “If in the next months you ever stray into the kitchen, you will be astonished.”

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Hella was, in short, as her daughter Christine described her, a good “professor’s wife,” someone who tried to make her husband’s domestic life as easy as possible so that he could pursue his work with the minimum of distraction. She was discreet and upbeat, keeping things in the house on an even keel. Though both English and German were spoken in the home in the interwar years (she wanted her children to know both languages, and it was easier, too, for the au pair to learn English when both languages were used), she worked hard to learn English herself.3 She berated herself for not losing her accent, but according to Christine she learned English so well that she was even able to do the Times crossword later in life (Christine interviews, Oct 14, 2012, May 20, 2013). And she was devoted to her husband and family. As she said in a letter about two weeks before Lorenz was born, “I hope that you miss me and Christerl a little. In the long run life would be nothing without husband and child” (Hella to Fritz, June 30, 1934). Given the later course of events, one other characteristic is worth mentioning: Hella did not like confrontation or controversy, and did her best to avoid it. It was on Turner Close that Hayek and Hella’s two children, Christine and Laurence, grew up. Christine of course had been born in Vienna, in July 1929, prior to their coming to London. But as it turns out, Laurence (Lorenz) was also born there, five years and ten days after Christine. It is not known exactly what considerations led Hella to return to Vienna to give birth to her second child, but it is easy to see why it might make sense. She may have felt more comfortable with doctors that she knew in Vienna— besides a gynecologist she was supervised during her pregnancy by her brother-in-law, Dr. Ludwig (Louis) Würffel, the husband of her sister Mariandl. Furthermore, there was the choice of hospital for childbirth. It was the Rudolfinerhaus, a private and certainly expensive hospital, the very place where Ida von Juraschek had worked as a nurse during the war; at the time its medical director was Otto Frisch, well known to the Hayeks from the Brunnwinkl community. Of course, in Vienna Hella could speak German and knew that she would have the support there of her mother and sisters. Christine accompanied her and stayed with her initially, then was taken by Hella’s sisters to the countryside, returning only just before Lorenz was born. Felicitas was visiting Heinz in Rostock and returned only at the end of June. Meanwhile, Fritz stayed in London to work. The baby was due in early July, and the plan was for Hella, Christine, and the new baby to join him afterward at Steeg-Untersee, a small village in the Salzkammergut. 3. The practice of speaking German in the home immediately ceased once the war began, of course.

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Nothing in the late days of the pregnancy went according to plan. On her arrival she met with the gynecologist, who told her that the baby’s head was already quite low and that he was afraid the baby might arrive prematurely if she was too active, so he confined her to bed for the next few weeks. Though she had many visitors, including Mises, who brought her a box of candy and later sent her a newspaper from Paris, Hella passed most of her time reading and knitting. Among the things she read were the New Testament, apparently for the first time, then two books about Jesus, Joseph Klausner’s Jesus of Nazareth and Giovanni Papini’s The Story of Christ. When Fritz worried that she might be becoming too indoctrinated by religion, Hella replied that she just thought it interesting to read two such different books on the same topic with little time in between. She pointedly noted that “in Vienna now everybody claims to be religious, because that is what one is supposed to do, but only very few actually are,” adding, “It’s just that everyone must bear the badge of the Patriotic Front, whether one wants to or not” (Hella to Hayek, June 23 and 30, July 11 and 17, 1934). When it was safe again to get up and about, Hella still had to wait some more, because the baby was late. Lorenz was finally born at 4:30 p.m. on July 15. The birth took a long time, and he was (being late) a big baby (700 grams heavier and 5 centimeters longer than Christine). Because she had a persistent, if slight, fever following the birth, her doctors kept Hella in bed for another three weeks. It was Fritz who had chosen the boy’s given names, Lorenz Josef Heinrich, obviously in commemoration of his ancestors. His choice was not greeted with much enthusiasm: Hella did not like “Josef,” and she told Fritz that her family calmed down on this issue only slowly, and that even Mises found “Lorenz” a turgid name (Hella to Fritz, July 19, 1934). Lorenz’s christening took place at the hospital’s chapel on August 6. Although Heinz had been the first choice as godfather, because of his absence from Vienna Erich was chosen instead; he felt miserable for not even being able to afford a christening gift (Hella to Fritz, Aug 5, 1934). Fritz missed it, having decided to stay in Steeg. Two weeks earlier Hella (in a letter to Fritz, July 25, 1934) had complained about the long period of separation, almost two months and longer than ever before, but it was only after Lorenz’s baptism that she could leave Vienna and join Fritz again in Steeg on August 8. Because of previous plans, only a few weeks later Fritz—after a week’s side trip to Carinthia, more about which soon—would be gone to Vienna, leaving his family behind. The day before Hella arrived in Untersee it began to rain (which is not atypical in the summer in the Salzkammergut region), and it stayed that way for much of the time she was there. Hella, Christine, and Lorenz would join Fritz in London again in

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early October. Aside from the birth, it was not a great summer for Hella, all in all (Hella to Fritz, June 5 and 23, July 17, Aug 8, Sept 22 [postcard] and 25, 1934; Hayek to Robbins, Aug 2, 1934). Christine shared bits and pieces of memories about daily life during the interwar period. Initially she attended the Byron House School, a progressive establishment that many children of academics attended. After a couple of years, though, her parents (she suspects it was mostly her father) felt the education she was receiving was insufficiently rigorous, so they pulled her out and sent her instead to the Henrietta Barnett School. Christine recalled self-deprecatingly (and inaccurately, at least in her case) that the effects of the Byron School experience lingered: she and all her friends who had attended it “spell appallingly badly” (Christine interviews, Oct 12, 2012). That the Byron School had not prepared her adequately seems confirmed, though, in a letter to Hayek written by his mother (she was caring for the children while Hayek and Hella were on a trip), reporting on taking Christine to her “new school” for the first time: “The teacher seems to be very nice, but she wasn’t fully satisfied with the current knowledge of the little lady, because aside from her name she can’t write anything and her math skills are also lacking . . .” (Felicitas to Fritz, Mar 26, 1935). The move was the right one: Christine managed rather quickly to catch up with her peers at the Henrietta Barnett School. Outside of this educational hiccup, her childhood routine sounds fairly idyllic. After school there would be time to ride bicycles (though they were forbidden to ride on the heath) and play in the Turner Close square. She and her friends could see the clock of the parish church, Saint Jude’s, over the trees, so they always knew how much time was left to play. Christine played with other children from the neighborhood and admitted that she didn’t have much to do with her younger brother Lorenz during this time, which of course makes sense, given he was so much younger. She recalled greatly enjoying Christmas parties for the children at LSE and Easter egg hunts on the heath. One of the former is well described in a letter from Hella to Fritz: “There was a magician and in the end a real fishing for presents. Between the door of the Founder’s room and a small adjoining room a high green wall was put up. On one side the children were standing equipped with long fishing poles with line, on the other side George and a porter who made sure that every child would get a present especially assigned for that child. Christerl got a very nice book, The Christmas Carol, with text and the score for music. Lorenz got soldiers. They also brought home 5 balloons. It was wonderful” (Dec 18, 1937). On returning to the Close some forty years after she had left it, Christine

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commented that except for the growth of the trees it looked pretty much as she remembered it. The only noticeable change was that there was now a decorative hedge in front of the house at 8 Turner Close that replaced a little strip of lawn that had been there. This prompted the memory of her mother getting cross at the postman for walking across the front lawn and leaving muddy tracks and at neighborhood dogs who occasionally fouled the space (Christine interviews, Oct 12, 2012). Twice during the interwar period, during the Easter vacations of 1935 and 1937, Hayek’s mother, Felicitas, came over to look after the children while he and Hella went on trips to the mountains and Vienna. (On the 1937 trip they spent some time in Obergurgl, a place to which Hayek would repeatedly return later in life). His mother’s letters indicate that either the Hayeks, or perhaps some of their friends, were quite progressive when it came to discussing the facts of life with their children. Christine’s friend Elisabeth’s mother had recently had a baby, and as Felicitas reports, Elizabeth and Christine decided to play a game: “Christerl’s baby doll made Elisabeth want to play mother, she lay in an imaginary bed, Christerl made a headgear for a nurse, . . . and when Elisabeth pulled the baby out from between her legs, Christerl said she should stick it back in and wanted to know from me which part of the child comes out first!! You can imagine that I was speechless!” (Felicitas to Fritz, Mar 21, 1937). Christine was not quite eight at the time. As for Lorenz, he apparently went through a period just before he turned two when he was destroying everything in sight (Hella to Fritz, Apr 14, 17, and 21, 1936). This behavior moderated but did not entirely disappear over the next year. But as his grandmother recounted, his evident sheer enjoyment of life carried him a long way: we have a simple wooden horse on wheels now, on which the little boy can sit and a pretty big red wooden bus was moved from one garden into the other and Lorenz was so happy that he came to the balcony door again and again and confirmed that it was “wonderful”! He really is a sweet little thing and from day to day is becoming more beautiful and high-spirited. His naptime is only used for sleeping on rare occasions, usually he engages in some nonsense . . . when I came from my nap in the study at 2:30 pm, to check on him, my eyes beheld a bare-naked little cherub, as it falls from the skies in a picture book. Everything was thrown out of the bed, but thankfully the child was still quite warm, so that it cannot have happened a long time ago, and it is also not that dangerous anymore. What do you say about your little son? (Felicitas to Fritz, Apr 4, 1937)

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As anyone who knew him as an adult would attest, Larry Hayek was full of life, open, friendly, and engaged. His childhood antics and enthusiasms would surprise no one. Nearly every summer vacation the Hayeks would of course decamp to Austria to see friends and family. Christine remembers detesting the long boring train ride to get there. They would go to Vienna, but also somewhere in the mountains. As had been done when Fritz was a child, sometimes they would stay with families, renting a few furnished rooms in a farmhouse, other times in pensions, still other times with relatives or friends. Accommodations were always simple but the sights on hikes were breathtaking. Schladming, Axams (near Innsbruck), Steeg, Gaming, Gaschurn, the Tuxertal, Lanersbach are among the places from which postcards were sent. For a while Hayek owned a car that he garaged in the winter in Paris and used only for summer vacations. In 1937, the family crossed the Alps in it, and when they were near Freiburg (probably to visit Walter Eucken), the vehicle nearly broke down. In the end they did reach their destination in Schnalsertal in South Tyrol, but on their return Hayek sold the car (Hayek to Haberler, Oct 25, 1937).

Gathering Domestic Clouds The source of most of the interwar family stories recounted above was Christine, who during this period grew from a toddler into a child of ten or so. Hers were mostly fond memories of a normal happy childhood. But for at least a portion of this time, relations between Fritz and Hella were neither normal nor happy. The source of the tension was Lenerl Warhanek. As noted in earlier chapters, the Warhaneks and the Hayeks had been for several years on amicable terms, seeing each other socially on occasion, especially when they lived in Vienna, but also after the Hayeks had moved to London. We may note that Fritz even tried to help Hans when he was in danger of losing his job as an engineer. His long, plaintive letter to Mises reveals a real respect, if not affection, for Hans Warhanek: I have just got to know of a sad Viennese affair that strongly affects me. An old friend of mine, whom I highly esteem, for many years an engineer at Brown-Boveri [a firm in the electrical industry] thought himself perfectly safe because of the huge work that was regularly assigned to him, yet has been suddenly laid off at the end of the year. You know me well enough to believe me that I would not bring this case—in spite of all the friendship with the man—to you if I were not convinced of his extraordinary competence and reliability. Personal circumstances

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make the case especially crucial: The older of the two children has long suffered from a severe disease which heavily burdened the family, and now that bordering on the miraculous he has almost been healed (intestinal tuberculosis—a diagnosis which however, I believe, the parents do not know) this might be in danger due to this new development. His wife is a distant cousin of mine. Both are highly cultivated, which makes their fate especially sad, and he is indeed not only cultivated, as are many Austrians, but really competent and of good character . . . His name is Ing. Hans Warhanek . . . (Hayek to Mises, Oct 14, 1932)

On the same issue Hella wrote to Fritz: “The Warhanek matter is really bad and sad; hopefully something can be done for them. Recently, both had been in such a merry mood . . .” (Oct 18, 1932). This indicates that as late as autumn 1932 all appeared to be well with the two couples. The timing and sequencing of what happened next are difficult to state with certainty. Our best guess is that sometime soon after this, in late 1932 or early 1933, Fritz dropped an emotional bombshell on Hella. He finally told his wife that he had married her on the rebound after the woman he loved, Lenerl, had married Hans Warhanek. One hopes he did not add that he had married her because of her superficial physical resemblance to Lenerl, but he may have. We do not know the circumstances of how or why the conversation happened. Was there a moment of anger? Did he feel guilty, or frustrated, and simply confess? Had Hella become suspicious?4 Sometime after his admission, he proposed to Hella that they continue to maintain appearances and keep to their usual routine and visit the Warhaneks in the summer of 1933. Hella understandably refused, and indeed insisted that all social engagements with the Warhaneks end, a move that Fritz found unacceptable.5 It is a testimony to his lack of insight that he found Hella’s reaction extreme, but it also seems that he was perfectly willing permanently to carry on with the previous arrangement, where they would occasionally simply visit each other as couples. As Lenerl put it, had Hella agreed to it, “matters may have turned out very differently” (Cubitt 2006, 285). That fall, Hella got pregnant. Under the circumstances, it is hard not to 4. Cubitt (2006, 126) mentions that Hella had found an intimate letter from Lenerl to Fritz, and that that had caused an argument between Hella and Fritz, but she does not say when this event happened. 5. “The one serious mistake my first wife committed was that, after I told her the whole story, she refused social contacts with my cousin and her husband. After a while the result was that they and I after some years resumed separate meetings and for years we met and corresponded privately” (IB 122).

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suspect that she hoped that another child would cement the marriage. For Fritz, though, it may not have come as the most welcome news. The next summer, July 1934, was when Hella gave birth to Lorenz in Vienna, then made her way with her newborn to Steeg to rendezvous with Fritz. It was during that absence that Hella, not having seen her husband in two months, wrote the poignant line, “life would be nothing without husband and child.” Only a few weeks later, Fritz was off again, this time to Vienna to work. But on his way there he stopped off in Carinthia. His purpose was to see Lenerl. According to Lenerl, he had simply showed up, having given no prior notice, and they had spent an evening together, “sitting up by the light of a paraffin lamp until its flame had died down, and had there and then decided to be together one day no matter how unlikely it seemed at the moment” (Cubitt 2006, 285). There was not at this point any firm plan, just a commitment to be together. It was not until another year or two had passed, either late 1935 or early 1936, that Fritz (as he put it to Bartley) “first endeavored to persuade my wife to grant me a divorce.” But the world intervened: “it became clear that even if I could obtain her consent it was no longer possible to get proceedings through before the imminent outbreak of the war” (IB 88).6 Hayek’s statement to Bartley minimizes the hurdles that would have been necessary to overcome for any plan to have been put into action. Both Hella and Lenerl’s husband, Hans Warhanek, would have needed to consent to a divorce. While it seems that Hans, who understood that his wife preferred Fritz, was amenable to the break whenever it came, in Austria the legal loophole that had allowed Catholics to divorce and (with a “dispensation”) marry for a second time was effectively closed in the corporate state period. When she was asked, Hella flatly refused Fritz his request. In England, proof of adultery or violence was necessary for a spouse to petition for divorce, though in 1937 an act was passed that allowed additional grounds: cruelty, desertion, or incurable insanity. In any event, none of these applied. Furthermore, though members of the educated class in England generally supported a loosening up of the laws, divorce was still a considerable source of shame.7 All that aside, there were also practical ques6. In his reminiscences Hayek provided no date for when he first asked Hella for a divorce. However, in spring 1950 in a letter to Karl Popper he said that it had been “nearly fifteen years” since he first broached the question (Hayek to Popper, Mar 6, 1950), which would have been sometime in 1935, whereas Lenerl stated that Fritz had first proposed divorce to Hella in 1936 (Cubitt 2006, 285). 7. See https://www.parliament.uk/business/publications/research/olympic-britain /housing-and-home-life/split-pairs/ for more on divorce laws and the incidence of divorce in Britain since 1900.

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tions. Where would they live? Who would raise the various children? How was all of this supposed to work, in a world slowly but inexorably heading toward war? Given the sizable impediments, the new status quo continued: throughout the 1930s, whenever Hayek saw Lenerl, or visited the Warhaneks in Vienna or in the countryside, it was without Hella. The younger of the Warhanek children, named Hans like his father, recalled seeing Hayek and simply assuming that he was a family friend, which of course he was (Warhanek interview, Sept 10, 2013). Stranger yet, at one point it seems that Hella visited the Warhaneks in Vienna when Fritz was not there. In April 1937, after vacationing for a week with Fritz in Obergurgl, she went on to Vienna while he went to Geneva to deliver his lectures published as Monetary Nationalism and International Stability (Hayek 1937a)—Felicitas was taking care of the children in London. On April 28 Hella wrote to Fritz and mentioned going to visit the Warhaneks: “Maxerl was up the whole time and ate quite well even though he is obviously still very pale and thin.” “Maxerl” refers to Max Warhanek, the sickly boy. It may be that the visit was simply to check in to see how Max was doing—Hayek’s mother had asked about him in a separate letter to Fritz. Then Hella said something quite opaque: “It is very interesting to be seeing so many people and I am touched by how nice and affectionate they all are to me. And then it seems to me that suddenly I know them all much better. Partially this might stem from the fact that I now face all of them without bias, but mostly it probably comes from having learned a lot more about human nature in past months, maybe more than is comfortable. But it is also a benefit.” In her next letter, Hella complained about Fritz’s manner of address: “This is the first time that you call me ‘Hella’ in letter form, first I couldn’t even read on, it struck me as so cold” (Hella to Fritz, Friday morning [presumably Apr 30, 1937]). His failing to use her pet name clearly distressed her. We do not know the cause of his coldness. Had Hella perhaps broken some sort of (perhaps tacit) agreement that she was not to visit the Warhaneks on her own? When Fritz wrote Hella the next time he visited Vienna (Dec 16, 1937, postcard), he once again used her pet name, but not in his postcards preserved from 1938 or later. The December 1937 postcard also contained— amid complaints about his crowded schedule with four lectures (as speaker or in the audience) in four days—the innocuous-sounding remark that on one of those evenings he had “attended a piano concerto with L.W.”— L.W. was of course Lenerl Warhanek. As noted earlier, about a month after the Anschluss Fritz left for Austria to check up on his family and friends. Presumably he saw Lenerl on this

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occasion, particularly given that she had recently lost her father, who had died on February 4 (see Neues Wiener Tagblatt, Feb 5, 1938). Meanwhile Hella and the children took a trip to Blaby, Leicestershire, to visit friends. In her first letter she made sure to point out to Fritz that the children missed him: “Lorenz almost cried the other day when he asked when his father would return and I could not really give him a good answer to the question and Christerl also doesn’t seem satisfied with just getting greetings from you . . . I would like to know how long you will stay approximately so that I can know until when I can send you mail” (Apr 5, 1938). In a postcard three days later Hella noted that Christerl kept asking when Fritz would be home, and in her next, undated postcard she mentioned that “when I read the card to Christerl in which you said that you might have to stay longer in Vienna than planned, she actually started to cry, because the thought of Fritz not coming back until Easter was just too hard for her to even imagine.”8 There was of course real reason for concern: he was a ripe target for persecution on political grounds. But it also may be that Hella was worried that Fritz might be tempted to abandon her and his family in order to stay with Lenerl. Hayek did return to London, though there would be other trips to his former home country before the war began: to Carinthia in July 1938, to Vienna in March/April 1939, and again in summer 1939, this last expressly to see Lenerl. On that occasion Fritz sent Hella a postcard (dated Aug 14, 1939), with the Katschberg on its cover, perhaps the ominous location of his meeting with Lenerl in summer 1934. There remains a final puzzle, a last visit by Hella to Vienna in April 1939. She must have left London soon after Fritz had returned, then gone skiing in South Tyrol (there is a draft of a postcard to her former colleague at the Aba, Fritz Goedicke, Apr 14, 1939), and finally spent some time in Vienna. From there she wrote a postcard to their London home, dated April 26, 1939, addressed to Lorenz, who apparently had recovered from an illness. From what she wrote, a specific reason for the trip cannot be adduced. We may simply note that the picture on the postcard shows Adolf Hitler being greeted by young boys and girls with the Nazi salute, and Hitler’s picture was also on the stamps that Hella advised the children to take care of because these were special issues. The coming world war would give Hella a reprieve from the distressing family drama. Sadly for her, it would only be a temporary one.

8. He actually returned three days before Easter, on April 14.

· 24 · The Hayek Family Debates Politics

There was no escaping politics in interwar Vienna. (Hacohen 2000, 290)

• In the decade preceding the beginning of the second war, the deteriorating political situation on the continent created tensions in Hayek’s relations with members of his birth family, particularly his mother and his brother Heinz. These may have been exacerbated by the fact that in Hitler’s Germany, where Heinz had finally found a job, and in Austria both under the Dollfuß-Schuschnigg regime and again after the Anschluss, untoward political commitments could have dire consequences. Having a family member who was becoming an internationally famous defender of liberalism was an obvious liability. After locating his various family members in time and space, we will explore these tensions by examining the letters that they exchanged in the 1930s. Though not much family correspondence from this period was preserved, enough was for us to get a good idea of where the fault lines lay. We will see that in their frequent family arguments over politics, the Hayeks all tried to buttress their arguments by appeals to competing newspaper reports of current events, but apparently with little effect.

Hayek’s Brothers, Erich and Heinz Hayek’s youngest brother, Erich, is in these regards not very interesting. We recall that he studied chemistry at the university and married Edith Nitsche in 1932, and that after their marriage the couple had so few resources that they lived with Felicitas. In March 1935 he had a pay cut at his job with the First Institute for Chemistry. He began searching for other positions and got a leave from the institute in December 1935 to work on

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a project for the Vienna branch of I. G. Farbenindustrie, the giant German chemical company. This made it possible for the couple to move to a flat on Paradisgasse in Grinzing; in the end Felicitas would end up living there after giving up her residence on Margaretenstraße. Erich secured a permanent job, moving to the German town of Leuna in 1937, then to the headquarters in Berlin in 1939 (Felicitas to Fritz, Mar 5, Dec 11, 1935, Feb 2, 1937). Erich had already left Vienna when his first son, Konrad, was born 1937 in Merseburg (next to Leuna); a daughter, Waltraud, was born 1940 in Innsbruck, where Edith’s parents lived. There is little in the way of prewar correspondence, and nothing that indicates political fervor, or even interest, of any kind. We have more information about Heinz. Though a year and a half younger than Fritz, he entered the University of Vienna in 1918, the same year as his elder brother. Their paths at the university could not have been more different. While Fritz studied law and participated in “mixed groups,” Heinz studied medicine and from 1923 onward worked as a junior assistant to the chair of the Second Anatomical Institute at the university, the conservative nationalist Professor Ferdinand Hochstetter. As we recall, there were two such institutes at the university; the other had as its chair Julius Tandler, an SDAP member and a Jew. Tandler would be forced out of his position in 1934, and Hochstetter’s successor, the ardent Nazi Eduard Pernkopf, merged the two institutes. Soon after the Anschluss, Pernkopf gave a speech to the medical school faculty, delivered in a brown shirt, extolling Hitler and National Socialism and ending with the Nazi salute of “Sieg Heil.” In due course, he became the last Nazi rector of the University of Vienna, serving from 1943 to 1945. All that, though, happened well after Heinz was gone from Vienna. As noted earlier, in 1929 he accepted an appointment as a “second prosector” (senior assistant) at the anatomical institute at the University of Rostock, on the Baltic Sea in northeastern Germany. He and his new German wife, Erika (Eri) Sass, departed Rostock in 1935, when Heinz accepted a threeyear appointment at Tongji University in Shanghai. That university had been founded in 1907 as a German medical school, and though it had come under Chinese authority in the 1920s, the anatomy department traditionally had been directed by German professors. While they were there, the second Sino-Japanese War broke out, and during the battle of Shanghai in summer 1937 the institute was destroyed. Heinz and some other faculty members fled to the interior, where they continued to teach, albeit under primitive conditions. There was personal hardship as well, because during this time he was separated from his family: Eri and their young daughter Helga, born in 1934, remained in Shanghai.

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Upon acceptance of the posting in China, Heinz had been awarded the title of professor (außerplanmäßiger Professor). Doubtless he had taken the foreign posting with the hope that he could get an even better position on his return. In this he was disappointed. At the end of 1937 Heinz received an offer of a second prosector position at the University of Würzburg, in northern Bavaria, a lateral move from his Rostock position. Because of the precarious situation that he and his family found themselves in, he hoped to be able to leave Shanghai early, but the Chinese refused to let him out of his contract. He, Eri, and Helga were finally reunited in 1938 and left China, under perilous circumstances; they wrote to his mother that bombs were falling as they boarded the boat (Hildebrandt 2013a, 288; Felicitas to Fritz, Aug 2, 1938). Heinz began working at Würzburg in September 1938 and stayed there through the war. His duties included lecturing, running labs for medical students, and doing his own research. As far as his politics went during this period, he had become a member of the SA (Sturmabteilung, or “Brownshirts”) in November 1933, and joined the Nazi party in March 1938, that is, while still in China.

Heinz’s Letters Further light on Heinz’s commitments and beliefs, as well as his brother’s reaction, may be gleaned from his correspondence with Fritz during the 1930s. Some speculative leaps are necessary, because only a handful of letters and postcards survive, and as usual, these are only Heinz’s side of the exchange. Regarding Heinz’s contributions, we do not know if they constitute all his letters, or only the ones that Fritz considered important enough to preserve. And we do not know why Fritz’s side of the correspondence was not kept, though given his prominence as a defender of liberalism who chose to live in England, keeping them could have posed risks for Heinz. We will examine three surviving letters in some detail, not only because they help us to understand the nature of the disagreements between the two brothers, but also for the light they shed on their responses to the dramatic events of their times. We know from postcards that the three Hayek brothers and their wives went on a skiing trip to Kühtai, in the Tyrolean Alps near Innsbruck, over the Easter vacation in April 1933. Hayek had just given his inaugural address at LSE and was soon to write up his memorandum to Beveridge that would claim that National Socialism was indeed a variety of socialism. Though there is no hint of politics in the postcards, one suspects that the fraternal ski trip may also have involved some political discussion.

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Later that year, in December and while on his way to Copenhagen to deliver his paper “Price Expectations” (Hayek 1935e), Fritz visited his brother for the first time in Rostock. Prior to the visit, Heinz sent him a letter to say that he was looking forward to the trip. But he also wrote about two other issues: a recent speech by Hitler and a request for a copy of the family tree: “It will also be very interesting for us to hear how the last big speech of Hitler (which was very good) was perceived in England. Generally, National Socialism will hopefully be viewed in a better light than it was half a year ago. Here one really feels that many unemployed people now have a job. About the English rearmament I recently read an interesting article in the medical weekly. A constitution man reported that 20,000 healthy young men who mainly are part of the English Air Force were medically examined, which is an incredibly large number of people to us” (Heinz to Fritz, Oct 27, 1933).1 He continued by asking Fritz to send him a copy of the family tree going back to the great-grandparents, that is, beyond what would have been required by the Law for the Reconstruction of the Civil Service System (Gesetz zur Wiederherstellung des Berufsbeamtentums, 1933).2 Moreover, he averred that “here in Rostock only 3 Lecturers were put on leave due to that reason. One of them was forced to retire and one still has an ongoing investigation.” To ice the cake, a month later Heinz sent Fritz a postcard thanking him for the family tree and providing details of when to rendezvous at the train station. The picture on the postcard was of Adolf Hitler, with the label “#17 of the Men of the Time Series, the Führer and Father of the People” (Nov 27, 1933). The speech to which Heinz referred in his letter was Hitler’s radio address on October 14, 1933. Earlier in the year, on May 17, Hitler had delivered the so-called Peace Speech, described as “one of the greatest of his career, a masterpiece of deceptive propaganda that deeply moved the German people and unified them behind him and which made a profound and favorable impression on the outside world” (Shirer 1960, 209). In it he played off an address given by Franklin Roosevelt the day before in which the American president had called for the abolition worldwide of all offensive weapons. Hitler stated that Germany would immediately agree to such a proposal, and called it “a ray of comfort to all who wish to cooperate in 1. The word used was “Konstitutionsmann.” Here “constitution” is possibly meant in a medical sense: these people examined the constitution of those healthy young men. 2. The law, enacted in April 1933, made it possible to dismiss civil servants for racial or political reasons—Heinz needed a family tree to establish that he was 100 percent Aryan.

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the maintenance of peace . . . Germany is prepared to agree to any solemn pact of non-aggression” (209–10). But along with the olive branch came a condition: that there should be equality of treatment for all nations, including Germany. The October speech to which Heinz referred was Hitler’s announcement that because the other Western powers had not agreed to the conditions that he had laid out in May, he was bound to make the principled decision to withdraw Germany from the League of Nations. After detailing the injustices that Germany had suffered and the many accomplishments that the Nazis had achieved, both in creating jobs and in combating the spread of communism, Hitler closed with a promise to hold a plebiscite. If Heinz in his correspondence seems to have bought Hitler’s arguments in toto, he was not alone, at least not in Germany. The promised plebiscite was held on November 12, 1933, the day after the anniversary of the 1918 armistice, a date few Germans recalled fondly. Hitler’s decision was apparently endorsed by 95 percent of those who voted, and 96 percent of registered voters cast ballots (Shirer 1960, 212). In short, Fritz’s visit to Rostock came at a time when Hitler was perhaps at the peak of his popularity among the German people, idolized both for standing up for equal rights of a subjugated Germany and for the apparent and rapid success of his economic programs at putting people back to work. This was the same month that Heinz joined the SA. Heinz’s request to get a copy of the family tree that went back to the greatgrandparents was a bit curious. As he noted, the materials that his mother had already sent were sufficient to get his civil service appointment—all that was necessary was proof that there were no Jews in his family going back to both grandparents. So why go back further? Possibly it was just to see if they had the records, or even simple curiosity. But there may be another explanation. He was, after all, an Austrian in Germany holding a position that could have been held by a German. People could be done in by rumors of racial impurity. And it is possible that such rumors were about. After the war a diary that belonged to a German anatomist, Hermann Voss, was discovered and later translated. Voss was friends with Curt Elze, who had been on the faculty with Heinz at Rostock and in Würzburg. When Heinz was returning from Shanghai, Voss and he were being considered for the same post. Voss describes “Herr v. Hayek” in his diary as “the little Viennese Jew” (Aly 1994, 112). Was this just competitive jealousy, or had rumors been spread to discredit the man from Vienna? The next letter from Heinz was typed, and undated, but from various statements made in it we suspect that the letter was written and sent in the

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late summer of 1934.3 Heinz wrote concerning two related matters: Fritz’s report to their mother that Heinz had converted to Protestantism, and disagreements with his brother over the political situation in the Third Reich, particularly as it had been reported on in the English press. Mama happily arrived here yesterday, she is well and she immediately told us a lot. We came to the topic of religion and she thought I had converted to Protestantism, she said you told her that! How did you make up such a story? . . . There is absolutely no pressure here, and there are Catholic and Protestant people at the university here . . . . . . the English are always so enthusiastic about democratic ideas. Here however the government under Hindenburg that was fought against so strongly from there, was formed by the strongest party and since then elections and plebiscites have brought even more votes. That these elections are supposed to not be free as the English newspapers claim, is absolutely a lie. I myself went to vote, one marks one’s vote in the voting booth and puts the closed envelope in the urn and nobody knows for whom one voted. Now to the so-called Bartholomew’s night. It is a fact that in Austria under the government of Dollfuß and Schuschnigg there were more deaths than here in the Reich in the past 2.5 years, even though the Reich is 10 times as large, meaning that relatively there were more than 10 times as many deaths in Austria. But about that the “sense of justice” of the English newspapers does not seem to care . . . One is agitated about the compulsory military service established in Germany, but that the French military service has been expanded to 2 years or that Italy is forcing the Germans in South Tyrol into its war adventures in Abyssinia is not being mentioned. That in South Tyrol besides the schools, even gravestones can’t be in German anymore, that in Memelland and 3. Heinz’s reference to “Bartholomew’s night” is to what came to be called the Night of the Long Knives, when the SA leadership was purged by Hitler on June 30, 1934. His mention of the Austrian government under both Dollfuß and Schuschnigg means the letter must have been written after Dollfuß’s assassination on July 25, 1934, and the Schuschnigg succession. Finally, the voting that took place in Germany around this time was a plebiscite on August 19, 1934. President Hindenburg had died on August 2, and on the next day Hitler abolished the office of president and declared himself the Führer and Chancellor of the German people. The plebiscite overwhelmingly supported Hitler’s move: more than 38 million people, about 90 percent of those voting (and about 95 percent of those who were registered to vote in fact voted), approved his actions (Shirer 1960, 229–30).

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yes even in Czechoslovakia the German schools are having difficulties, that the “good” English newspapers remain silent about. Do you really want to bring up your children with the English language? (Heinz to Fritz, undated)

Heinz concluded his letter with “Heil Hitler!” The letter raises a couple of issues. Heinz asserted that nominal identification as a Catholic was not grounds for dismissal or persecution in Germany, and from what we know today, this seems accurate as far as his profession is concerned.4 Given that Heinz was nonpracticing, that his wife was Protestant and his child had been christened Protestant, he would not necessarily even be identified as a Catholic (though his Austrian accent might lead some people to assume it). Perhaps this appearance of being a Protestant is what Fritz was getting at in his earlier report to his mother, and perhaps he was responding to rumors of abuses that he had read in the British newspapers. From Heinz’s next set of statements, it is evident that Fritz had sent Heinz an English newspaper that was reacting to recent events in Germany. Heinz’s response was to compare the differing political situations then existing in Austria and Germany, and to question the veracity of the British press. This was we recall an issue that had preoccupied Fritz since his trip to New York when he found out that the British accounts of the Great War were far more accurate than the propaganda at home. Both the German and the Austrian press were by 1934 heavily censored. Fritz was witnessing the effects again in the course of debating politics with his brother. The final letter from Heinz in the 1930s, sent from Rostock and dated June 24, 1935, was also typed, and was also occasioned by what Heinz took to be bad behavior on his brother’s part. Unfortunately, it is not very clear from the context exactly what Fritz might have said that so agitated Heinz.

4. Sabine Hildebrandt, who has written extensively on both anatomists under the Third Reich in general and Heinz Hayek in particular (Hildebrandt 2013a, b, 2016), confirmed in conversation with Caldwell that to her knowledge only one anatomist who had been Catholic had been forced out, and that that was as much for his political beliefs as for his religion. However, in Austria after the Anschluss there was some discrimination against (practicing) Catholics. One should remember, first, that among German nationalists at the turn of the century there had been a strong movement “Away from Rome” and toward Protestantism, and that, as we now know, in Germany the share of votes for the NSDAP was significantly lower among Catholics than Protestants; cf. Falter 2013.

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I am very surprised that you accuse me of bad manners. I have not told any lies about you and said: “his grandfather was a great man who did etc. but he . . .” I therefore ask you before you tell any stories that put me down to actually find out whether they are actually true and that they have not just emanated from somebody’s fantasy or even from your own. This is because you had already once passed on something from a letter I wrote to you, and of course in a way that put the present situation here in a bad light. This was when I told you about people now again employed, one at a brewery, one at Siemens and one at Henkel, and you on your arrival in Rostock said that all three of them were employed by the war plane industry. It would therefore be good if you could be more accurate and critical when telling stories about Germany. How am I supposed to believe things you tell me about Germany if even the things that you say about me or what you read in my letters is wrong? In your bullheaded animosity, you say wrong things about me and instead believe your informants whom I do not find very credible. Just because of your attitude which sees just about everything here as being bad, you even think to see lack of character in me and don’t even think it worth it to apologize for what any stranger would call defamation. To spread things that somebody is supposed to have said to you in private, but does not want to have written down (Eden, Hitler), does not just seem poor but also beneath contempt.

This was Heinz’s last known letter to Hayek until after the war. He and Eri would soon be on a boat to Shanghai.

Felicitas Before reviewing the sometimes painful correspondence that is to come (and again only her side of the exchange survives), we will revisit a little of Hayek’s mother Felicitas’s history. Though her family had survived the First World War intact, postwar deprivation and the inflation that followed took its toll on the family finances. After August died in 1928, she felt disappointed by how the state, both the Christian Socials in the federal government and the Socialists of Red Vienna, neglected her needs; she complained about the cuts in her already small pension and about the burden of real estate taxes on the Grinzing plot (see, e.g., Felicitas to Fritz, Mar 5, 1935). To make ends meet she was forced to sublet rooms in the Margaretenstraße flat. Sometimes she turned to Fritz for help with small sums of money, occasionally also to other relatives and friends, e.g., to her halfsister Gertrude or some mysterious “Hedwig,” “her dear savior,” who was

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however much maligned by Fritz, probably for her politics (Felicitas to Fritz, Mar 5, 1935; see also Apr 4 and 15, 1937). August’s death was only the first of many separations. The next year Heinz left for Rostock because he could not find work in Austria. Then the Great Depression struck, which made things much worse. In 1931 Fritz left for London, and in 1937 Erich decamped for Leuna. In about ten years’ time her entire family was gone, and she was a person for whom family was everything. We have some evidence of her attitude toward Jews. Writing when Fritz was in Switzerland, she reported about the train on which Erich had left for one of the childcare programs, complaining that in Erich’s cabin “there was a great number of Jew boys, of the cheekiest and most impertinent type; hopefully he could escape to the next cabin where there were . . . only Aryan boys” (Felicitas to Fritz, Jan 19, 1920). Soon after Christine was born Felicitas went to the mountains to try to find a place for the family to stay that summer. She visited a number of possible venues but found one of the places unacceptable, for a number of reasons, the foremost being “that Jews, who are staying until the end of August, sat at the table next to us, so that our entire enthusiasm disappeared” (Felicitas to Fritz and Hella, July 31, 1929). Felicitas visited Heinz and Eri in Rostock in the spring of 1934. She reflected in a letter to Fritz on how different life was there compared with Austria. it is unbelievable what kind of a recovery has been happening here in Germany, for me, who is coming from the poor and battered Austria, where we always just get fed some lies on the radio about recovery, but of which we don’t feel anything, it is especially striking, here I can finally say what I actually think for once, without fearing that I am being spied on and will be locked up. You will have noticed as well when you were here, how well people are dressed, one doesn’t see any beggars and poor people, one can leave luggage in front of the door without any fear, it is being said that all people have food and one hears enthusiasm everywhere, also employees in shops, who have had salary cuts of around 40 Marks, say: it had to be done this way, it will be better in the future, oh, if we didn’t have “our Führer”?—To sum it up, a pleasant atmosphere. (Felicitas to Fritz, June 27, 1934)

Felicitas’s enthusiasm about the Führer seems even greater than that of Heinz. And she had been doing a little summer reading as well: “I have now read the entire [of Hitler’s Mein] Kampf, here, I think you should also

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look at it once more. How incredibly far-sighted this man is, how ideal his intentions, some of his extreme views he has already moderated, which is also one of his assets that he is accessible for changes and improvements, but nobody can deny his genius and all that he has accomplished already is amazing” (June 27, 1934). On the opening page of Mein Kampf, Hitler had declared that Austria, his homeland, must be united with Germany: “One blood demands one Reich” (Hitler 1943 [1925], 3). One must note that adherents of Anschluss had been a majority in Austria from the dissolution of the Habsburg Empire in 1918 onward, and were a majority even in 1934, after Hitler’s advent to power. Fritz himself had been an advocate up to 1933. The disagreement within the family concerned not Felicitas’s preference for a union with Germany, but her preference for a union with Germany under the auspices of Hitler and the Nazis. In 1934, when the corporate state regime had prohibited the Nazi party and Austria’s independence had become the official state doctrine, those who—like Felicitas, as she noted in her letter—still favored Anschluss were treated with suspicion. Notably, at the time when Felicitas wrote her letter the Austrian National Socialists tried to bring about the union with Hitler’s Germany with a bombing campaign. It was only a month later that the Austrian Chancellor Engelbert Dollfuß was assassinated during a failed Nazi putsch. Two days after the event, Felicitas wrote to ask if Fritz would come to Vienna for the funeral (Felicitas to Fritz, July 27, 1934). This did not mean any change of mind politically but was rather an attempt to take advantage of a special situation occasioned by the tragedy of state: train tickets had been set at half price to bring people to Vienna from the countryside. Hella was, after all, still in Vienna, recuperating after Lorenz’s birth, and Fritz was already on the continent, so why not come? Around the same time (July 28) Fritz was arriving in Salzburg to visit the festival and see a performance of Beethoven’s Fidelio. He later reported to Haberler (Aug 10, 1934) that he found the town “completely quiet, so that I did not realize before the next morning what happened in Vienna.” Felicitas was not completely single-minded about the political situation. She was disappointed when Heinz was denied an exit permit from Germany the next year, which prevented him from coming home to celebrate her birthday, her last before he would go away to Shanghai (Felicitas to Fritz, Mar 5, 1935). This was part of Germany’s economic sanctions against Austria—the so-called 1,000 Mark-Sperre, which required tourists from Germany going to Austria to pay the exorbitant sum of 1,000 Marks (which would come to about US $5,000 today) when crossing the border. And though Felicitas complained as bitterly as Heinz about the English

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press, she seemed actually to have liked her visits to England to babysit the grandchildren. Of course, Turner Close was a pleasant place to stay (especially given her complaints about life in Austria), and she enjoyed being with her grandchildren. As the 1930s progressed, Felicitas’s family experienced further losses. In 1936 Wilhelm Schmidt, the husband of her half-sister Gertrud, died of a stroke; death took him, a professor of meteorology, while he was at the university (Neue Freie Presse, Nov 27, 1936, 3). After returning from Munich, Felicitas’s sister Beate had lived in Vienna, first with her stepmother, Ida Juraschek, then at the home of the ailing Ludwig Reitz-Brachelli, a retired commander of the Imperial Army and a distant friend of her father who was twenty years her senior. In 1937, after years of her caring for Ludwig, the two finally married. But as with her first husband, the marriage was a brief one: Reitz-Brachelli died only two months later (Neue Freie Presse, Jan 21, 1938). When the Anschluss finally occurred in 1938, Felicitas could barely contain her excitement: “We have experienced very nice, interesting days here, I would like to know what you have to say about all the big events here, one can barely get through the newspaper without being entirely flat from admiration” (Felicitas to Fritz, postcard, Apr 5, 1938).5 Three months later she reiterated her positive feelings about Anschluss: Hopefully the time will come when you6 will bring forth more sympathy for the united Germany! You can no longer say that the Führer wants the war and it has now been shown clearly where the war baiters are sitting. Bit by bit England is also partially realizing what a danger the disastrous Soviets are posing. That not all people are comprehending National Socialism properly and that through condemnable egoism and ignoble feelings of revenge many assaults have happened, one has to unfortunately admit, but these are trifles in comparison to the immense advantages which the Anschluss has brought. If you would be slightly interested in this matter, you might be able to gather something from the articles of the N.W. [Neues Wiener] Tagblatt that I am sending to you.

5. The postcard was sent from Graz to Vienna, where Fritz was visiting to check up on his friends after the Anschluss. 6. Felicitas here uses “you” (Ihr) in the plural, so it probably is meant to refer to both Fritz and Hella.

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The Zurich paper (“Züricher Zeitung”) that you sent did not quite shock me! (Felicitas to Fritz, July 18, 1938)7

There was further news. Felicitas’s brother-in-law Eduard Castle, the husband of her half-sister Margarete, had been forced into retirement from the faculty even though, as she notes, his “ancestry is spotless” (Felicitas to Fritz, July 18, 1938). According to the political judgment in his NS file (Gauakt Castle) he was incriminated for being a Catholic liberal and for his favorable views on Jewish authors. Franz Juraschek, Felicitas’s half-brother, jointly with Castle had been the editor of a journal Belvedere, published by Juraschek’s small publishing house, the Krystall Verlag, which specialized in art history and poetry. It was dissolved shortly after the Anschluss, despite its publishing a Bekenntnisbuch österreichischer Dichter, a book of commitment of Austrian poets to Hitler’s Germany (Bund deutscher Schriftsteller, ed. 1938). In June 1938 Franz applied for membership in the NSDAP and in 1939 was appointed conservator for Upper Austria, yet although he was deemed a “worthy national man,” he was not accepted into the party as a member (Gauakt Juraschek).8 Felicitas’s mood became a bit more troubled a few weeks later. Her “document research” had not gone well. The authorities wanted more exact dates than she had been able so far to provide. She worried about Heinz, Eri, and Helga, who had reunited in Shanghai and were now sailing home, or so she hoped. Then, completely uncharacteristically she told Fritz that perhaps it was better if he not try to visit her in September. “I am not sure whether you will appreciate if I give you some advice! Is it absolutely necessary to come here before your trip to Cracow?—As much as I would have liked for you to come, it doesn’t seem like a good time, maybe one day you will thank somebody whom you do not feel very sympathetic toward. The change that has now happened to you does not make a good impression right now . . . I wouldn’t have any peace of mind if you would come. If you aren’t worried about yourself, think of Heinz and Erich” (Felicitas to Fritz, Aug 2, 1938). Fritz was to attend the Colloque Lippmann in Paris August 26–30 and was apparently planning on visiting Vienna (perhaps accompanied by Hella) afterward. The “change” that had “happened” to Fritz that made Mama so nervous was doubtless his decision to become a naturalized British citizen. This message was apparently important enough that Felici7. The paper was probably the famous Neue Zürcher Zeitung. 8. These documents are in ÖStA/AdR, Zivilakten der NS-Zeit, Gauakten.

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tas sent a second letter repeating the warning. The second letter, which is undated, makes it clear that she had received some sort of warning about Fritz’s trip from the person that Fritz did not like.9 At the end of the month Mama wrote yet again to Fritz (it was sent to Paris with the expectation that it would be forwarded if he were no longer there) saying that she didn’t think things were dangerous anymore regarding the visit, that things should be fine “if you avoid making any political statements of course.” In the end Fritz did visit Austria in September 1938, but only went as far as Carinthia, not Vienna, and he did not see his mother.10 It was a month in which the Second World War almost started, this time over Germany’s claim to the Sudetenland, the portions of Czechoslovakia that had a majority of German-speaking people. Eventually, after two weeks of increasingly frantic shuttle diplomacy and an ultimatum by Hitler, the Western powers agreed to Hitler’s terms in the so-called Munich Accord. Instead of war there would be, as British Prime Minister Neville Chamberlain infamously intoned on deplaning in Britain after the conference, “peace for our time.” Meanwhile, Felicitas had gotten another angry letter from Fritz, this time about things that had been said about him in Vienna. I am really terribly sorry that through some gossip presumably somehow some talk developed and spread all the way to London, but I am really not aware of telling strangers anything about you. Of course I am often asked about what your opinions are and as much as I regret it, I am probably too often too honest, but can’t imagine who could have made such unkind remarks. That I talked to K.s about this then, I wrote to you and they thought that Hedwig11 was going overboard . . . Why does anybody care that when you come to Vienna you always went to a cer-

9. Subsequent letters reveal that this person was Felicitas’s friend Hedwig, already mentioned above. 10. Hayek to Machlup, Nov 3, 1938: “Finally, I even headed for Vienna and reached Carinthia, where I visited relatives in the countryside, but in mid-September I found the situation too dangerous and took to my heels without having gone to Vienna.” 11. This appears to have been another botanist connection: The infamous “Hedwig” most probably was Hedwig Vierhapper, whom Felicitas often mentioned in her postwar letters; she was the widow of the botanist Friedrich Vierhapper. He had been the author of an obituary of August Hayek (Vierhapper 1929) and, after having been passed over in favor of Fritz Knoll in the succession to the botanist chair of Richard Wettstein, committed suicide in 1932. Accordingly, “the K’s” must have been the Knoll couple, Fritz and Sophie.

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tain unpopular12 bank, or that your old, eccentric professor13 inquired into your descent, because you sometimes cared for certain people especially?—Everything is immediately blown out of proportion and is unnecessarily exaggerated. Finally, I also felt very heavy, when in the scary days of the danger of war, the awareness was hanging over me, you are an English citizen! We are so happy that the danger is over and are hoping the best for the future. Erich and Edith were also in a very exposed situation. Heinz and Eri are writing and are very satisfied with Würzburg . . . (Felicitas to Fritz, Oct 18, 1938)

On November 7, 1938, a Polish-German Jew named Herschel Grynszpan shot Ernst vom Rath, a diplomat posted to the German embassy in Paris. This set off two nights of “spontaneous” (but actually well-coordinated) attacks against the Jewish populations of Germany and Austria, the November pogroms that came to be called Kristallnacht, or Night of Broken Glass, for the shards of glass that filled the streets. The attacks were carried out principally by the SA (sometimes in uniform and sometimes dressed as civilians) as the police looked on. Shops, synagogues, and homes were looted and burned (95 synagogues in Vienna alone were torched), Jews were publicly humiliated, beaten up, incarcerated, raped, murdered. Foreign journalists based in Berlin and Vienna reported widely on the events as they unfolded. The brutality of the Nazi regime was finally fully revealed. For many in the West, this marked the turning point in their assessment of Hitler’s regime.14 Felicitas, though, was still prepared to offer some defense of it. On December 1, 1938, she wrote to Fritz, a letter that would be the last he would receive (or at least the last that survives) before the war began. After lamenting that she would not see him that coming Christmas (he told her he could not come) but would have to wait until sometime in the spring, she shared some news about relatives and about the gossip incident. Then she added: I am not that bullheaded that I would think there are no decent Jews; some you do feel sorry for, and certainly there are also exceptions, but it 12. That is, “Jewish owned.” There existed many such “unpopular banks” in Vienna. 13. Here Felicitas used a pun in order to hide the meaning from censorship: When she wrote “überspannter Professor,” she obviously was referring to Professor Othmar Spann. 14. For more on Grynszpan, see Koch 2019. For more on Kristallnacht in Vienna, see Botz 2018, 519–41.

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is simply difficult to draw the line. Recently, I spoke to old Frankfurter on the street, who only dared to point out in undertone what he has to go through due to the banishment of his children.15 After all, then you probably would have all stayed in your home country, if Austria wouldn’t have gone to the dogs in this way during the Systemzeit.16 Now I have to remain all by myself. But there is always something to do, I am also engaged with the Frauenwerk,17 but one works with a completely different level of devotion for the Winterhilfswerk.18 (Felicitas to Fritz, Dec 1, 1938)

It is impossible to read Felicitas’s words about “decent Jews” and the difficulty of knowing where to draw the line, especially given that these words were written three weeks after Kristallnacht and posted from Vienna, without wincing. The self-pity that is evident in the last few sentences also rankles, given what one knows was happening to her Jewish neighbors. It is a valuable document, though, because her last few sentences speak with great clarity about her views by the late 1930s. She had seen her three sons struggle to find suitable positions in Vienna and be forced instead to find work elsewhere: London, Rostock, Berlin, Shanghai, Würzburg. Had Austria only not gone to the dogs during the Systemzeit, none of this would have happened, and she would not now be alone, keeping busy doing “volunteer” work. She felt that she had lost everything of importance to her. We don’t know what the content of “the gossip” was or who was spreading it. But it does seem that Fritz was known to the authorities. In the Vienna city archive there is a Meldezettel (a residency certificate that anyone who changes residences, even if only temporarily, must fill out) that documents that Hayek visited his mother in Vienna, his third trip since the Anschluss, from March 24 to April 3, 1939. It has a stamp on it, noting Hayek’s British citizenship and the revocation of his Austrian/German citizenship. Significantly, attached to the Meldezettel of March 1939 there is a note by the German secret police (the Gestapo) requesting to be informed immediately whenever Hayek on the occasion of another visit should fill 15. Most probably this is Salomon Frankfurter, the colleague of Fritz’s father from the university mentioned in Fritz’s 1918 war diary (see chapter 5). 16. Systemzeit, or system time, was a pejorative expression used by the Nazis to denote Germany during the Weimar Republic (1918–33) (System = Weimar Republic) and Austria from 1933 to 1938, when the NSDAP was banned there. 17. Frauenwerk, a Nazi association for women created in 1933. 18. Winterhilfswerk, an annual drive for the National Socialist People’s Welfare Organization, to gather donations for poor German comrades in need.

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out another such certificate. There were good reasons for Hayek’s mother to be concerned.

Hella And what of Hella during this tense period? We get only intimations from her correspondence. When Fritz was visiting Heinz and Eri in Rostock in December 1933, she mentioned in a letter an uncomfortable episode at a dinner hosted by Iris Robbins’s brother Clive: “It was very nice but I got very angry with a Hungarian Jew, who was with his English wife there and obviously ranted terribly about Germany” (Hella to Fritz, postcard, Dec 1933). It would seem that here she is more upset with the disruption of an otherwise pleasant dinner than with anything else. When Hella went to Vienna to give birth to Lorenz, she ended up staying from early June 1934 through early August, remaining on the continent until the end of September. This was a tumultuous time politically, and she was eager to get a non-Viennese viewpoint on the events of the day. Soon after she arrived she began asking Fritz to send her a copy of the weekly edition of the London Times because “the local newspaper is terribly bad,” which he in fact began to do (Hella to Fritz, June 2, 9, and 25, July 7, 1934). After the Night of the Long Knives on June 30, with many of the killings taking place in Munich, Hella wanted to know what Fritz had heard about it, complaining that “One doesn’t hear much about Germany here, the newspapers do write reports, but they are mostly unconfirmed and get recalled later and the radio news is very reluctant to say anything” (Hella to Fritz, July 4, 1934).19 Two days later, after Fritz had sent her some newspaper clippings, she told him that she “had not imagined that things had been so bad” (July 6, 1934). Ludwig von Mises visited Hella when he returned from his trip to England. She asked him what he thought about the political situation and 19. As an aside, Hayek reported to Bartley that on the Sunday night when news of the killing of Röhm and the other SA leaders reached London, he was in the apartment of a Nazi sympathizer, a German professor named Schneider who was on a fellowship year in England. The man had invited Hayek for dinner in order to convince him that Hitler was not a monster, as Hayek had insisted in previous conversations. As they argued, further news of the slaughter came in over the wireless, so that in the end Hayek’s point had been made, and he was in the awkward position of having to console his host. Hayek added that he thought of Schneider as a tyrant toward his wife, ordering her to sit and wait for him while Robbins and Hayek took him on a tour of the LSE buildings when he first arrived at the School (Bartley interview, Feb 16, 1984).

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found him to be uniquely helpful: someone who had a lot of insightful things to say but who was not fanatical, someone who could talk about the situation with some objectivity. Hella contrasted Mises’s approach to the usual responses: “It is impossible to speak with people about politics without ending up in a fight or just complaining together about how bad things were. I have never seen Austria so political” (Hella to Fritz, July 19, 1934). A week after the failed Nazi putsch and the assassination of Dollfuß, Hella wrote to Fritz, “Here it is rather uncomfortable now. Everyone knows of some horror stories and I am often scared that we might not be able to get back home in time. Italy is standing at our border, why?20 What for? There is nothing in the newspapers; it is pretty bad. Sometimes I just want to pack up and go back home right away. What do you think?” (Aug 2, 1934). Hella, then, clearly had a strong negative reaction to the tense political atmosphere she encountered in Vienna (and at occasional dinner parties at home). She found especially distressing the agitated tone to be heard in the many political discussions that took place around her. She also worried that Fritz could get into trouble (or cause trouble for others) by broadcasting his own liberal views. During this period she once wrote that she was appalled by a note he had scribbled on the outside of the envelope of one of his letters to her (Hella to Fritz, July 19, 1934), and a few years later would again admonish him not to be so careless about writing about sensitive things on open postcards (Apr 13, 1936). Given that these warnings came in the period after the First Republic had been replaced by the authoritarian corporate state, one suspects that it had to do with politics. Hella was both intensely interested in the events that were taking place around her and upset by the hysteria that controversy engendered. She preferred to avoid confrontation, keep her head down, and simply soldier on. She maintained the exact same attitude when it came to family discord. Apart from politics, when Hella stayed in Vienna in 1934 for the birth of Lorenz, she also became acquainted with her sisters’ love stories and marriage matters. Hilda, whose daughter was the same age as Christine, was apparently happily married to a wealthy industrialist. Mariandl was the wife of the physician who had overseen the birth of Lorenz; her husband, Louis, twenty years her senior, died two years later, aged sixty-two. Finally, the oldest sister, Grete, had been widowed in the mid-1920s and in 1934 married for a second time. As her new husband had been divorced, the wedding took 20. Italian troops massed at the Austrian border to deter the Germans from invading. Had the Nazi putsch been successful, the new rulers would have invited German troops to intervene. For some days there was fear on Italy’s part that Germany would invade.

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advantage of a legal loophole that—even in Catholic Austria—permitted such a second marriage (Hella to Fritz, Apr 9, 1934). But the status of such marriages was open to challenge, and indeed in the following years Hella had to witness her sister’s legal battles with her husband’s sons from his first marriage (Felicitas to Fritz and Hella, Feb 2, 1937).21

Conclusion Hayek’s decision on July 18, 1938, to become naturalized as a British citizen can be viewed in retrospect as a dramatic move.22 Certainly it was done in part to protect his family, and also to establish his own bona fides, and in that it was successful—though he was excluded from government work once the war started, he was spared the degrading experience of internment. But it also formally defined his relationship with Austria and the Nazi regime and made clear to his family members there where he stood politically. It is telling that it happened the same year as the Anschluss, as well as the year that Heinz joined the Nazi party. Not all of the consequences of such an important decision could be foreseen in these tumultuous times: Did it make his visits abroad more secure? Did it cast a shadow of doubt on his family in Austria when their political reliability was judged by the regime? The entry on Hayek’s certificate of residence from one of his Vienna visits shows that eventually he became a person of interest to the authorities. But in the few documents on family members that have been preserved, Fritz went unmentioned. Of course, his family members did not know that. One wonders whether Felicitas, who clearly harbored anti-Semitic feelings and was a Hitler enthusiast, may have thought it prudent in letters to make such commitments all the more obvious, so as not to appear suspicious. We might note that his naturalization also had a more prosaic effect. When Hayek first came to England in 1931 he was registered as Friedrich von Hayek because that was what was on his birth certificate. That document was also used for naturalization purposes, so that in England, his official name was Friedrich von Hayek, while of course in Austria since 1919, use of the “von” had been prohibited (IB 114). But it was complicated. The 21. See Neschwara 2005 on the legal issues surrounding the so-called dispensation marriages. Normally both prior spouses would have to have died for two previously married Catholic people to get married. 22. The certificate of naturalization was issued on July 16, 1938, with the requisite oath of allegiance signed by Hayek on July 18. Hayek’s document also covered his two minor children, and Hella signed hers on July 19. The documents may be found in FAHP 181.3.

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Austrian law applied only to Austrian citizens, so that for a British citizen “von Hayek” was quite legitimate. And after 1919, it was permissible still to use it outside Austria, which Hayek occasionally did in the books and articles published in Germany and sometimes in England. Furthermore, after 1934 the corporate state regime relaxed the practice, so that even Austrian publications (see Hayek 1935c, 1936a, or 1937c) rendered the author’s name as “von Hayek.” Though in a later interview Hayek claimed to have been “a law-abiding citizen” as regards usage (Bartley interviews, 1987), it appears that he was less than consistent in his practices in these early years, especially when compared with someone like Gottfried Haberler, who never used his title in public after 1919. It is difficult not to wonder about how all of this may have affected the development of his own ideas. Certainly knowing the family history adds poignancy to the chapter in The Road to Serfdom titled “Why the Worst Get on Top”: he is describing there the sort of psychological propaganda that his mother and brother had so thoroughly absorbed. By the 1930s Hayek had twice witnessed some of the ill effects of the expansion of the franchise. In the monarchy it had led to the rise of mass parties whose policies he so detested. If that were not bad enough, the legal coming to power of Hitler surely further reinforced the idea that democracy unconstrained by the rule of law and constitutional limits could be exceedingly dangerous. The events of the 1930s also revealed the weaknesses of doctrines like Hans Kelsen’s legal positivism, which held that the law is whatever the legislature says it is. Hayek the great puzzler would puzzle over these ideas, and many others, in his next great project.

· Part V · Fighting the Spirit of the Age

As the decade of the 1930s progressed, the theoretical battles that Hayek had fought with Keynes and the market socialists began to fade in importance, with other concerns taking their place. It was not just that the world was heading toward war. As worrisome for Hayek was that liberalism, the philosophy he had come to embrace, was everywhere in eclipse. The arguments arrayed against liberalism came from many quarters and took different forms in different countries. Certain recurrent themes in the writings of the intelligentsia and the scientific elite of Western Europe, Britain, and the United States had begun to filter into the public discourse at large. A key assumption was that the failures of old-style liberalism were irreversible: that in a world of large-scale production, cartels, and monopoly capitalism, one could no longer depend on the forces of competition to constrain the power of big business; that in a world of cyclical crises of enduring length, the notion of self-stabilizing market forces was demonstrably false. This was everywhere taken to imply that planning of some sort was necessary to rationalize production and distribution decisions in the new age of plenty. It was also argued that our knowledge of social processes and phenomena had lagged far behind the sorts of knowledge produced in the natural sciences, with blame again placed at capitalism’s door. In the new epoch that was at hand, scientists and engineers would play an integral role, both in facilitating the transition to the new society and in providing the expertise to make it all work. This vision, of a scientifically planned future, Hayek took to be the spirit of his age. “The Spirit of the Age” had been the collective title of a series of portraits done by the essayist and literary critic William Hazlitt and published in book form in 1825, as well as that of essays written by John Stuart Mill for the Examiner in 1831. Mill’s essays were reprinted in a book of the same title in 1942, and Hayek provided an introductory essay for the volume, titled “John Stuart Mill at the Age of Twenty-Five” (Hayek 1942d). Hayek

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would first use the phrase in his inaugural address in 1933, then again in his notes for the project he would begin as the world went to war (FAHP 107.17). He would repeat the phrase again in an essay called “Scientism and the Study of Society,” where he would assert that the demand for the conscious control of social processes “expresses perhaps more clearly than any other of its clichés the peculiar spirit of the age” (Hayek 1991a [1933d], 33; 2010 [1942–44], 149). Hayek’s response was to embark on yet another big book project. In a two-volume work to be called “The Abuse and Decline of Reason,” he would trace the origins of these seductive ideas back to the French Revolution, then show how they spread to different countries, from Germany to England and the United States. Although people like Otto Neurath, the Webbs, and Wesley Clair Mitchell differed radically from one another politically, spanning the spectrum from Marxism to Fabian socialism to American progressivism, they could still all agree that planning was the best hope for constructing a world in which freedom and prosperity could coexist. No matter where they started from or where they hoped to go, “planning for freedom” and “freedom under planning” were the slogans of progressive intellectuals everywhere. The second volume would show the horrible consequences that these ideas had in the twentieth century. “The Abuse and Decline of Reason” would be Hayek’s war effort. He would not finish it, but it still bore many fruits. It led him to become, almost against his will, widely regarded as an expert on the work of John Stuart Mill. Two of his most famous essays, “Scientism” and “Individualism: True and False,” were by-products of the project. So too was his most famous book, The Road to Serfdom. In this part we will review the ideas of some of Hayek’s most formidable opponents, as well as some of his comrades in arms. We will show how he began the project in London, then toiled on it in Cambridge when LSE evacuated there once the real fighting began. We will show too how the grand intellectual project slowly morphed into a book—at one point he envisioned it as a “six pence Penguin volume”—aimed at a more popular audience. The reaction to that little volume was not what he expected and would cause still further alterations of his life’s course.

· 25 · Liberalism it s adversaries and alli es

If there were two propositions that nearly everyone, and certainly virtually all intellectuals, could agree on in England in the mid-1930s, they were that liberalism was well and truly dead and that some form of planning was needed to take its place. We discussed in an earlier chapter the many variants of socialist thought that existed then and showed how Hayek’s initial response was directed at the economists, some of them his LSE colleagues, who had proposed models of how planning might work in principle. Meanwhile, in the real world, not only Communist Russia but also Nazi Germany and fascist Italy provided apparent examples of successful planning within totalitarian regimes. Roosevelt’s New Deal, which was to some extent inspired by these models (see Schivelbusch 2006), exemplified what could be done in a liberal democracy. Hayek began to recognize that a more robust response was necessary. In this chapter we focus on three sets of arguments that he felt had to be answered. The first was that liberalism was a faux “philosophy,” born of class interests, that was necessarily and inevitably doomed to self-destruction, as the Great Depression and subsequent events on the continent foretold. A second was that capitalism was antagonistic to the advance of science and that its replacement by a scientifically planned society would produce untold benefits for all. The third was that if we were to avoid the sort of totalitarian planning that existed in places like the Soviet Union and Germany, we needed to embrace the scientific tools now at our disposal to create a new society. As it turns out, the first and third arguments were made by two of Hayek’s LSE colleagues, Harold Laski and Karl Mannheim. The second was made by a thought collective that Hayek, following their own preferred way of self-identification, began increasingly to refer to as the “men of science.” As the decade turned, this last group would play an ever-larger role in motivating Hayek’s critique of a doctrine that he would label “scientism.”

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That, though, would come only later. At the end of this chapter, we will document the first spring shoots of a response from the surviving though tiny community of liberal intellectuals. An unlikely friendly voice from America would help show the way, assisted by an entrepreneurial French academic and, bien sûr, Friedrich Hayek.

Adversaries hAroLd LAski’s disseCTion of LiBerALisM We remember that in 1933 Hayek wrote a memo to LSE Director William Beveridge that insisted that National Socialism was not, as some were claiming, the last gasp of capitalism, but rather itself a form of socialism. The view that Hayek was criticizing found full and eloquent statement in a book published in 1936 by Harold Laski. Though its title was The Rise of Liberalism, it was intended as a postmortem as well.1 By the 1930s Laski had become the quintessential public intellectual. His words were read and his influence felt everywhere. In addition to his frequent writings in newspapers and weeklies, to his public lectures and comments on the BBC, in 1936 he joined with Victor Gollancz and John Strachey to run the New Left Book Club. The organization chose a book to send to subscribers each month and provided members with their magazine, the Left Book News, that included a review of the chosen volume by Laski. By 1939 they had nearly 60,000 subscribers and 1,200 affiliated study and discussion groups, and huge rallies would be organized to bring together its readers and supporters. This was just one facet of his activities. He was a leading member of a 1937 Unity Campaign to bring together various fringe left-wing groups (the Communist Party of Great Britain, the Socialist League, and the Independent Labour Party), a move that nearly got him expelled from the Labour Party, and became a frequent contributor to the newspaper that came out of it, the Tribune, from which he would criticize Labour Party policy from the left and offer Marxian glosses on events like the Spanish Civil War. Ironically, in the same year he was elected to the National Executive Committee, the governing body of the Labour Party, as one of seven members elected by constituency members (Kramnick and Sheerman 1993, 364–77). Laski became increasingly radical as the 1930s progressed, and his scholarly work began to reflect these new commitments. In his portrayal 1. Parts of this “Adversaries” section draw on Caldwell 1997, section 5, and parts of it may be found in Caldwell 2020.

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of the rise and fall of liberalism, he acknowledged that the overriding goal of the liberals of the seventeenth and eighteenth centuries was to identify a system of fundamental rights that would place limits on the ability of the ecclesiastical, and later the political, authorities to intervene in the dayto-day lives of individuals. The movement variously embraced such things as parliamentary forms of government, constitutional constraints on political authority, religious tolerance, and freedom of conscience. In a bow to Marxist analysis Laski claimed that, though its advocates typically defended liberalism using the universalistic language of human rights, in actual operation the doctrine always worked most effectively in the narrow interests of property owners. Echoing Marx and Engels in the Communist Manifesto, he acknowledged that the emergence of commerce and of capitalism was associated with many benefits and improvements, in particular great increases in wealth and productive capacity, and advances in technology and in science. The benefits, however, were not distributed fairly; indeed, the great mass of people who had only their “labour-power” to sell did not share in them. In another Marxist move Laski (1997 [1936]) asserted that liberalism, “like all social philosophies . . . contained in its birth the conditions of its own destruction” (17). These inner contradictions of liberalism began to manifest themselves most clearly late in the nineteenth century. Some social amelioration followed, with progressive taxation to finance a “social service state” being the ransom paid by capitalists to maintain the essential principle of private ownership of the means of production. But all this came crumbling down following the Great War. The basic problem was that the system depended on continuing scientific advance and material progress in order to have the means to pay for the social services that had been introduced to placate the masses. When the supposedly “self-adjusting” system simply stopped working, disaster followed. What was to be done? In country after country the owners of property closed ranks. Echoing Beveridge (or was it Beveridge who had echoed him?), on the continent this resulted in Fascism: “Fascism, in its essentials, is the destruction of liberal ideas and institutions in the interest of those who own the instruments of economic power . . . What it has done, wherever it has gained power is, above all, to destroy the characteristic defenses of the working class—their political parties, their trade unions, their cooperative societies . . . Fascism, in short, emerges as the institutional technique of capitalism in its phase of contraction” (Laski 1997 [1936], 247–48). In the United States, the work was being done by the Supreme Court, which had recently ruled that some signature provisions of FDR’s recovery legislation were unconstitutional. (The subtitle of the American edition of Laski’s

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book was blunt about the reality underlying liberal thought: The Philosophy of a Business Civilization.) In short, in the interests of property, liberalism was betraying and, ultimately, destroying itself. In his final chapter, Laski significantly wrote of the doctrine using the past tense: given the nature of the liberal state, all questions had ultimately to be referred to the essential motive upon which the liberal state was built— the motive of profit-making . . . Even when the price exacted was the destruction of the liberal spirit, they did not hesitate to justify that sacrifice. They called it the common well-being, the maintenance of order, the preservation of civilized life . . . They could not believe—even with the evidence dramatically before their eyes—that mankind was ready for a new social order based on a new relationship of man to man. (260–61, 264)

The publication of Laski’s book was a significant event. His use of Marxian categories was particularly noteworthy, if for no other reason than that, though numerous varieties of socialist thought had found support in Britain, Marxism never took hold there. Laski would continue to hammer his message home once the war began. He would not labor alone: as the decade progressed there were plenty of other public intellectuals who were willing to follow his lead, calling for a transition to the new planned society of tomorrow. The “Men of sCienCe” Oddly enough, one of the most vocal was a group of natural scientists.2 One does not typically associate natural science with political passion. But it was different in the 1930s, especially in the ancient universities. As the decade wore on, a group of highly respected scientists were constantly in the public eye, insisting that the world had to change. They became so prominent that a later historian of the movement dubbed them collectively the Visible College (Werskey 1978). How did it all come about? A key moment, strangely enough, was a con2. The phrase “men of science” was used by the scientists themselves, all men. C. P. Snow, remembered today as the author of The Two Cultures (1959), was also the author of the “Lewis Eliot” series of novels on Cambridge college life and its academic (and other) politics in the 1930s and later. He offered the perfect caricature of this behavior in the character of Crawford, who would often preface any opinion he offered to his colleagues with the authoritative phrase, “Speaking as a man of science . . .” (Snow 1960, 241; cf. Snow 1951, 96, 190, 252).

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ference held in July 1931 at the Science Museum in London. It is strange because this was a history of science conference, more precisely, the Second International Congress of the History of Science and Technology. The meeting was organized by, among others, the irascible LSE social biologist Lancelot Hogben and the Cambridge biochemist and embryologist Joseph Needham. About a week before the meeting was to begin, the organizers were informed that a Soviet delegation would also be coming. The surprise guests participated actively in every session, offering Marxist interpretations of whatever historical episode was under discussion. The program became a road show to promote Soviet science and to advance a Marxist interpretation of the history of science. The latter held that past scientific discoveries and advances were not the results of the ideas of the Great Men but brought about by the economic and social conditions of the day: the spread of commerce had, for example, led to developments in fields like navigation, mechanics, and weaponry. Any adequate history had to employ the tools of dialectical materialism. If the scientific advances of the past were linked to the rise of capitalism, its current collapse (a development that of course Marx had foreseen) likewise had dire consequences for the prospects of science (Werskey 1978, 142–44). The Soviets were a bit ham-handed in their approach, but at least some of their arguments resonated with their British hosts. Stories of huge financial support by the Soviet government for all manner of scientific research evoked wonder if not envy among those for whom the depression had meant a slashing of research budgets. It made sense, too, that if the cyclical crises of capitalism were worsening, and each in its turn led to underinvestment in new research and technology, then science could no longer so effectively be harnessed to work for the social good. On the other hand, were science itself rationally managed and planned, as apparently was being done in the USSR, the crippling effects of capitalist organization could be avoided. Though the meeting was not widely reported, its longerterm impact on an influential subset of British natural scientists appears to have been substantial. Public opinion needed to be mobilized, and the first step was to get the public thinking about the role that science could play in transforming society. Just a few months after the London meeting Hyman Levy, an applied mathematician from Imperial College, London, began a series on the BBC titled “Science in a Changing World,” which was soon followed by an interview series titled “The Web of Thought and Action.” A gifted and engaging lecturer and interviewer as well as a committed social activist, Levy sought both to popularize science and to show its role as an agent of social change.

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Other popularizations followed. Two of the most influential were Lancelot Hogben’s Mathematics for the Million (1936) and Science for the Citizen (1938a), big books that were meant to demystify math and science. The first recounted the history of mathematics and was filled with applied examples. The second, dedicated to his (by then) former LSE colleague Harold Laski, explored the social background of scientific discovery. The books were wellwritten and found a large audience. Promoting greater public understanding of science was a laudatory goal in and of itself, of course, but the larger point was seldom far from the surface. There were also more wireless broadcasts, this in an age when everyone listened to the BBC. One of the more significant was the experimental physicist P. M. S. Blackett’s talk in March 1934 “The Frustration of Science.” Then at Birkbeck College, University of London, Blackett was the very model of the eminent natural scientist; he would win the Nobel Prize in Physics in 1948. Echoing themes from the Congress, Blackett argued that just as the successes of science so manifest in the past were intimately linked to the social and economic structure of society, the collapse of liberalism had dire consequences for the future progress of both science and society. Indeed, we were presently unable to take advantage of the great scientific advances that had already been made. Meanwhile, on the continent in country after country, an antiscientific doctrine (fascism) had arisen and taken hold. If that outcome was to be avoided in Britain, scientists themselves needed to become more politically engaged. In his peroration he offered a stark choice: “I believe that there are only two ways to go, and the way we now seem to be starting leads to fascism; with it comes restrictions of output, a lowering of the standard of life of the working classes, and a renunciation of scientific progress. I believe the only other way is complete Socialism. Socialism will want all the science it can get to produce the greatest possible wealth. Scientists have not perhaps very long to make up their minds on which side they stand” (Blackett, in Hall et al. 1935, 144). Blackett’s address became the title piece for the 1935 book The Frustration of Science, which contained essays by six other natural scientists and whose main theme was that scientific advance will continue to be frustrated so long as the capitalist system is maintained. As one of the authors summarized: “There can be no doubt that it lies within the immediate capacity of physical science to solve completely the material problems of human existence . . . The present direction of economic and political forces holds out no hope that physical science can realize its possibilities, or even escape from being used for the destruction of the world that it has helped to create. If science is to help humanity, it must find a new master” (Bernal, in Hall et al. 1935, 69, 78).

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The author of those lines was another leader of the movement, the Cambridge-trained physicist J. D. Bernal. He had been introduced to socialist ideas during his student days by H. D. Dickinson. In his popular book The Social Function of Science (1939), Bernal repeated the themes of his essay, first offering a bleak description of the way that science was being carried on, then providing a utopian vision of what a properly planned science could look like. For Bernal, the chief value of science was to aid man, and only socialist science could do so. He did not limit himself to writing. Bernal was “a model Popular Front intellectual, involving himself at one count in more than sixty committees devoted to peace, anti-fascism, civil liberties, Spanish aid, friendship with the USSR, etc., ad infinitum” (Werskey 1978, 167; cf. Howarth 1978, 188–91, 209–10). In his book Bernal also emphasized the “rapidly increasing advance” of support for science by the Soviet government, which he contrasted with the situation in the West (Bernal 1939, 32–33). Later in the book he detailed how science permeates all aspects of life there, so that “the stupendous gulf which, in this country, separates the scientist from his greengrocer, is rapidly disappearing in the USSR” (447). Bernal was not alone in his enthusiasm for Soviet science. Speaking of the “Cult of Science” that they found when they visited there, the Webbs reported of the administrators in the Kremlin, “No vested interests hinder them from basing their decisions and their policy on the best science they can obtain . . . The whole community is eager for new knowledge” (S. and B. Webb 1937, 1133). When it first came out in 1935 they titled their massive two-volume study Soviet Communism: A New Civilization?3 They dropped the question mark in the second edition of 1937. Two other men of science to whom Hayek would later refer may be briefly noted. Joseph Needham, who helped organize the 1931 congress, was another Cambridge man who had become close to Bernal when they were students together in the 1920s. His activities in the 1930s were more muted than those of some of his colleagues; as he himself admitted, he kept a low profile until after he was elected a fellow of the Royal Society in 1941. This was why, when he decided to write up a Marxist interpretation of the English civil war, published in 1939, he used the pseudonym Henry Holorenshaw (Werskey 1978, 169). The other noteworthy contributor was J. B. S. Haldane, son of an Oxford physicist and nephew of a well-known Lib-Lab politician, Richard Burdon Haldane. A polymath, he made his fame as a biochemist and geneticist. Haldane was a brilliant public speaker (by the mid-1930s he was averag3. For Hayek’s review of the first edition of the book, see Hayek 1997 [1936d], 239–42.

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ing over a hundred speeches a year) and became one of the most effective popular science writers of all time. He was also the chairman of the board of the Daily Worker, where he had a regular column. He served on the editorial boards of other Marxist and Communist journals, finally becoming a member of the Communist Party of Great Britain in 1942.4 This would put him in an uncomfortable position after the war during the Lysenko affair. Though he ultimately withdrew his party membership, his failure to directly criticize the party or defend modern genetics from the counterclaims of Soviet science eventually made him into a rather isolated figure in the Western scientific community (Werskey 1978, 300–303). But during the 1930s the men of science were riding high. In a period of uncertainty and angst, they offered rational assurances of better living in a better world. They spoke for and with the authority of science and had the credentials to back it up: with the exception of Levy, all had been elected fellows of the Royal Society. They were supremely self-confident, to a man articulate, witty, polished, urbane, equally brilliant at debate and at written exposition. Their sometimes idiosyncratic personal characteristics lent additional cachet. When Haldane was almost dismissed from a post at Cambridge in the mid-1920s for taking up with a woman who divorced her husband in order to marry him, it made the dailies. The scandal made him into a “cultural hero” to “mainly young people of ‘advanced’ views” during the period (Werskey 1978, 86). He became the model for not one but two characters in novels, one of them penned by his Oxford classmate Aldous Huxley. Though all of the men of science took for granted that liberalism was dead and that its cold hand was what was keeping society from reaching its full potential, few of them were prepared to say, exactly, how the economic institutions of society were to be remade. Indeed, most of them had little to nothing to say about economics. Their emphasis was on what was technically possible, once society was freed from the constraints of a profitmaking economy. The exception was Lancelot Hogben, who, it will be recalled, taught at LSE from 1930 to 1937. Hogben seemed to particularly despise the “pseudoscientific” ideas of his colleagues in economics. In a 1937 letter to Beveridge, Hogben described “the Hayek-Robbins circus” as “the last stronghold of the most ultra-individualist metaphysical nonsense masquerading as economic science west of Vienna” (quoted in Dahrendorf 1995, 262). He also ridiculed them in his more popular books: quoting a passage from 4. Notably, of those “men of science” Levy and Bernal had been members of the Communist Party in the 1930s, too.

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Robbins’s An Essay on the Nature and Significance of Economic Science in his own Science for the Citizen, he dryly opined, “This passage briefly summarizes every attitude to knowledge discarded by the natural sciences in reaching the prestige they now enjoy” (Hogben 1938a, 206). How would Hogben have done things differently? We get some idea from his 1936 Moncure Conway lecture, Retreat from Reason. Many men of science, including Levy, Haldane, and Needham, were invited to give the lecture, as were Laski and J. A. Hobson; significantly, Hogben was the only person ever to have been invited back a second time (in 1949). As one would expect in a talk labeled “retreat from reason,” he is critical of nearly everyone: of Marxists for their reliance on dialectical reasoning (though he also criticizes the “anarchy of Austrian dialectics,” meaning the economics of Hayek), of liberals for their infatuation with freedom of choice, and of academic economists, whom he mentions often, and sometimes by name (Robbins is his chief target), for their scientific pretensions: in his view, “economics, as it is studied in our universities, is the astrology of the machine age” (Hogben 1938b, 7; cf., e.g., 9, 14, 17, 40). A fundamental mistake that virtually all social theorists make is to think that if people are free to choose, they will choose what is good for them. He demurred, in the name of science: As the biologist sees it, this assumption is the major error in traditional social thought. People do not know what is a correct diet without a biochemist to tell them . . . We have no more reason to believe that people choose what is psychologically good for them without expert advice. Only the science of human nature can tell us what range of choice is compatible with the needs of human nature . . . As a biologist, I am in favor of planned production based on biotechnology, because I cannot conceive how planned consumption is possible without planned production, and I cannot conceive of any rational basis for human society, unless it implies planned consumption to ensure the maintenance of population. (Hogben 1938b, 41–42)

Hogben’s vision—experts planning production of those things deemed most important for humans to have, as decided by scientifically informed consumption experts—speaks for itself. But how would society need to be organized to accomplish this? He does not say. Still, the vision of a brave new future world, efficiently run by men of science, permeated the public mind in Britain and abroad. It could be seen on the screen in movies like Things to Come, which starred Raymond Massey as an airman representative of “Wings over the World,” a free-

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masonry of science that would employ the latest technology to refashion the world along more sensible lines. It was there in books like H. G. Wells’s The Fate of Homo Sapiens (1939) and The New World Order (1940). The publication of the former led Beatrice Webb to reflect on Wells in her diary entry of January 8, 1940, with these words: “His God is Science, served by countless public-spirited scientists . . . Wells’s description of human society as it exists today is devastatingly brilliant and serves to destroy faith in western civilization—that discordant triplet of the Christian faith, capitalist profit-making and political democracy!” (B. Webb 1985, 4: 446). Though these men of science were never representative of others in their fields (many scientists, even in the 1930s, just wanted to do their research and viewed it as separable from their politics), by the end of the thirties they were flowing with the tide rather than against it. And they certainly were influential in helping to shape public opinion. kArL MAnnheiM’s MAnifesTo for PLAnning: Man and society By 1940 another voice was heard that laid out in compelling and, in retrospect, harrowing detail what sorts of changes would be necessary if we were ever to reach a planned society. The author was one of Hayek’s underappreciated (at least in his own mind!) LSE colleagues, the Hungarian émigré Karl Mannheim. His book, Man and Society in an Age of Reconstruction, was based on an earlier German publication that he supplemented with materials taken from lectures he had given while in England. In his view the main cause of the “current maladjustment in modern society” was the clash between the principles of laissez-faire and the growth of unplanned regulation that had been introduced, however haphazardly, in an attempt to reduce some of the ill effects of that regime. The manifest failures of the old liberal order did not require further rehearsal. In Mannheim’s mind, planning was inevitable; the only question was, would it be good planning or bad planning? His contribution was to show how the tools of psychological sociology could be employed to build a successful planned society of tomorrow. What was needed was nothing less than the creation of “a new type of man who can see the right thing to do” and of new political structures that would enable him to do it (Mannheim 1940, 15). Mannheim outlined a variety of methods and techniques of social control, both direct and indirect, that would assist in the transformation of man and society. Direct controls ran from violent and nonviolent coercion to positive inducements like praise, flattery, and persuasion, the last having the advantage of creating

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an illusion of free choice (280). He also discussed managing expectations (for example, if a society cannot produce enough wealth, then it “can make a virtue of renunciation or create satisfaction in economy itself”) and various forms of education, including training people to develop “creative imagination” so that the society will not lack for innovation (281–85). Indirect methods are classified broadly into those that influence behavior of unorganized masses and those that operate via field-structures, situations, and social mechanisms (285–311). The basic premise is that all behavior is a product of the combined effects of these forces, so that the rational planner must understand how they interact to use them to reshape both man and society. In the new world that he envisaged, consumption will need to be planned to match production, so consumer choice will need to be guided (315). Yet, the “renunciation of absolute freedom of choice . . . should not weigh too heavily on the consumer” because only the rich are able to exercise such freedom of choice now, and in any case, the “unbridled craving for variety is not ingrained in human nature” (348). Planning of production and consumption will be facilitated by the creation of a “comparative uniformity of taste.” The planners will also need to control and guide the motives for work, so as better to channel people into socially useful occupations. When wealth has been more evenly distributed and the trade cycle has vanquished, there will be more time for leisure. But there are dangers even here, because “a higher position, larger income, and increased security do not necessarily lead to culture” (317). Leisure, then, would also need to be controlled, through education, persuasion, and the setting of proper examples by those who possess good taste. Mannheim realized that all this might sound rather like enslavement to those who value freedom. But this was why man as well as society requires reconstruction. People need to be reeducated to understand that planning is the means for coordination, for harmonization, and for the rational mastery of the irrational. A “real understanding of freedom” will reveal that it means acting in ways that will create a better society for all, and in such a fully planned society freedom can exist only within the plan: “At the highest stage freedom can only exist when it is secured by planning. It cannot consist in restricting the powers of the planner, but in a conception of planning which guarantees the existence of essential forms of freedom through the plan itself. For every restriction imposed by limited authorities would destroy the unity of the plan, so that society would regress to the former stage of competition and mutual control” (378). Early in his book Mannheim acknowledged the legitimacy of the question “Who will plan the planner?” The success of the whole project would

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depend on selecting the right people, those who “have, through gradual education, developed their rational and moral capacities so far that they can act not only for a limited group, but also for the whole of society, and bear the responsibility for it” (75). But given our knowledge of the principles of social control, perhaps this is not so utopian a dream. Furthermore, the onset of the war, the idea that we are all in it together, would ease the transition to a society in which social consciousness and cooperation can replace the ethos of selfish individualism and competition. Much was possible in this, the “age of reconstruction.” * * * The arguments confronting Hayek and others who had not given up hope for liberalism were multiple and daunting. There were the economic arguments that had been made by his socialist economist colleagues at LSE, by the likes of market socialists like Oskar Lange and democratic socialists like Evan Durbin. To these were added historical narratives like Laski’s that  portrayed liberalism as a social doctrine that had emerged under specific circumstances in the past and whose time had passed. The men of science added yet more arguments. At the very moment when science was at its most promising, when it could be used to produce unfathomable material wealth, it was being starved for resources, and its manifold benefits were being sacrificed if they interfered with profit-making. Science if unleashed from the irrational and failed capitalist system could show the way forward. The Soviet Union provided an example of a society where science was everywhere promoted. It could be done in the West too, if only we had the courage to make the necessary changes. Finally, Karl Mannheim showed that science could help there, too: his “psychological sociology” could be enlisted to reconstruct both society and man himself. Given the choice between irrational systems like fascism and failed systems like liberalism, what other options were there? Only one: utilizing the latest scientific advances to promote efficiency in production and a just distribution of goods, in a planned society in which everyone sought to contribute to the social good of all.

Reconstituting Liberalism I have come finally to see that such a social order [a directed economy] is not even theoretically conceivable . . . I realized that a directed society must be bellicose and poor. If it is not both bellicose and poor, it cannot be directed. I realized then that a prosperous and peaceable society must be free. If it is not free, it cannot be prosperous and peace-

Liberalism 449 able. It took me some time after that to understand that this was no new discovery, but the basic truth which the liberals of the eighteenth century taught at the beginning of the modern era. (Lippmann 1937, xii)

• Though he continued work on his theoretical projects, the year 1937 initiated a new phase in Hayek’s writings and activities, as he took up the task of answering the planners and the men of science. He was not wholly alone; others still held out some hope for reviving liberalism. There was Robbins and other like-minded colleagues at LSE, of course, as well as people with whom he corresponded from around the globe. At the University of Chicago Frank Knight was well known as an opponent of institutionalism and, later, of Keynesian economics. As early as 1934 Hayek began exchanging letters with another Chicago economist, Henry Simons, initially about the latter’s pamphlet A Positive Program for Laissez-Faire. It is perhaps an indicator of the diffuse nature of thought that was called “liberal” that Simons was considered an exemplary liberal even though in his pamphlet he advocated such things as the nationalization of railroads and a stiff tax on capital to even out the income distribution.5 But Simons, like himself, mostly wrote for other academics. Hayek knew that if liberalism however defined was to be successfully defended, it would need counterweights to the likes of Laski and the men of science, public intellectuals who wrote for a wide audience, who could capture and hold their attention. It thus was with considerable interest and growing enthusiasm that Hayek in late 1936 began to read in the Atlantic Monthly a serialization of the first half of a forthcoming book by the American newspaper columnist Walter Lippmann entitled The Good Society (Lippmann 1937). In what follows we will trace the origins of the Hayek-Lippmann relationship, one that sheds light on the varieties of liberal thought that then existed. We will show how this led to Hayek’s first efforts to identify and criticize “the spirit of the age.” 5. In a letter to Simons, Hayek praised the “general spirit” of the pamphlet but criticized both proposals, as well as Simons’s endorsement of a 100 percent reserve requirement; Hayek then preferred a return to gold (Hayek to Simons, Dec 1, 1934). In his reply, Simons admitted that his call for nationalization was a bit disingenuous, since his real target was the move toward more regulation that was being pressed by New Dealers. It was “a low, debating trick . . . I don’t like public ownership, but I dislike regulation even more” (Simons to Hayek, Dec 18, 1934).

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WALTer LiPPMAnn’s roAd To the Good society It was with considerable understatement that Walter Lippmann was identified above as a “newspaper columnist.” He was in fact an extraordinary individual, a media star of his time and, given the contours of his early history, an unlikely ally of Hayek. By the end of his career as an author, journalist, editor, and preeminent public intellectual, Lippmann had known and interacted with (and been consulted by) seemingly every important figure in twentieth-century America and beyond.6 Lippmann’s path to writing The Good Society was a winding one. After a marvelously successful college career at Harvard he soon published two influential books (Lippmann 1913, 1914) that trumpeted a more inventive and dynamic approach to the making of public policy, one that would be informed by recent advances in science.7 In his call for the use of contemporary science to better manage the political, social, and economic problems of the day, to move policy (as the title of one of his books put it) from drift to mastery, he reflected the American progressive movement as a whole and anticipated in many ways, both in his complaints and in his suggested ways forward, American institutionalism. Such approaches were plainly among those that Robbins and Hayek opposed and that the latter would later label “scientistic.” The books caught the prewar American intellectual zeitgeist perfectly, as well as the attention of the political elites: both Teddy Roosevelt and Woodrow Wilson were appreciative readers (Goodwin 2014, 17). Having served as an assistant to the Secretary of War, Lippmann attended the 1919 Versailles Peace Conference as part of the American delegation, where he met and began a lifelong friendship with John Maynard Keynes. He shared Keynes’s reaction—utter disgust—to what he witnessed in Versailles, and in his capacity as an editor at the New Republic magazine, serialized parts of Keynes’s damning response in Economic Consequences of the Peace. In the 1920s he continued to pursue his work in journalism 6. The correspondence sections of his archives at Yale fill 119 boxes, and the list of names contained therein is a virtual Who’s Who of the political, academic, and business worlds. 7. As an undergraduate at Harvard he impressed everyone he met—George Santayana chose him to be his teaching assistant; William James sought him out in his dormitory after reading one of his contributions to the Harvard Illustrated, a college magazine, and they subsequently had tea together on a weekly basis; Graham Wallas, who visited Harvard in spring 1910 and whose seminar Lippmann attended, dedicated his next book, The Great Society, to him (Steel 1980, 17, 20–21, 27–28).

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while publishing four more books.8 His views also began to change; he lost his youthful optimism about the prospects for policymaking by scientifically trained experts, but also worried about the decision-making ability of ordinary people in a new age of mass democracy, political propaganda, and Madison Avenue manipulation. By the 1932 presidential election he was writing a column for the conservative-leaning New York Herald Tribune, “Today and Tomorrow,” that was picked up in syndication by papers big and small across the country. No matter where you were, you could read what Lippmann thought, and what he thought mattered. Though he was initially unimpressed with Franklin Delano Roosevelt, as the “slump of 1930” morphed into the Great Depression he became a “reluctant convert” and supporter of both FDR and the New Deal, at least in its early stages (Steel 1980, chap. 24). A transformative moment in Lippmann’s thinking occurred in June 1933 when, in England to cover the International Monetary and Economic Conference, he enjoyed a leisurely lunch with Keynes at his London club. Keynes convinced him that loan-financed government spending could be used as a policy tool for combating a deep economic downturn (Steel 1980, 304–6). In the depths of the Great Depression, a method for controlling the business cycle had been identified. When he returned from England Lippmann began work on a series of lectures he would give at Harvard in May 1934. In them he would maintain that laissez-faire had patently failed, but Absolute Collectivism, which had been tried (with devastating consequences for liberty) in the Soviet Union and various fascist countries, was not an acceptable alternative. But instead of choosing the “middle way” of planning as so many others were then doing, Lippmann endorsed what he called, awkwardly, the Compensated Economy of Free Collectivism (so dubbed because it would ensure our collective security). Compensating for the defects of laissez-faire capitalism would require regulation of the normal sort, but also policies to combat the business cycle: low interest rates, public works to offset unemployment, and the use of the state’s taxing and spending power. Individuals would still make their own decisions, but the state would be obligated to provide a more stable economic environment. This was, as he put it, the “method of freedom,” which also provided the title for the Godkin lectures when they appeared in book form (Lippmann 1934). 8. In our chapter on Hayek’s time in New York we speculated about whether Hayek may have read his 1922 book Public Opinion, a volume that addressed the trustworthiness of newspaper accounts.

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There are two things to note about the lectures. First, Lippmann contrasted the methods he endorsed with some of the more direct forms of intervention that had been undertaken in the New Deal, like the National Industrial Recovery Administration (NRA), that involved the creation of cartels and the extensive imposition of price supports. He suggested that such reform initiatives had not been effective and may even have impeded the recovery (Lippmann 1934, 70–71). In May of the next year the Supreme Court would strike down the act that created the NRA (much to Harold Laski’s dismay, we may recall). In America, Lippmann’s lectures anticipated, if not contributed to, the disillusionment that people felt with some of the more heavy-handed of the New Deal policies. And second, though his name is nowhere mentioned, Keynes’s imprint is everywhere. Countercyclical policies in the form of loan-financed public works and low interest rates were, of course, Keynes’s own recommendations for recovery. Like Keynes, Lippmann distinguished between policies aimed at recovery and those aimed at reform, emphasizing that putative reform policies like the NRA could subvert the speed of recovery. Like Keynes (and indeed Hayek), he decried both laissez-faire and full-scale socialist planning. Both Keynes and Lippmann saw their missions as trying to save the capitalist order by counteracting its most pressing problems. Sometimes Lippmann even echoed Keynes’s phrasing. In arguing that expanding credit was insufficient to counter the cycle, Lippmann (1934) intoned that such policies “may work in the long run. But the long run is too long” (52–53). Again channeling Keynes, he titled a section of one of his lectures “The End of Laissez-Faire.” There is considerable merit in the revisionist suggestion that, though Keynes indeed came to America through Harvard, it was not with the dissemination there of the ideas of the General Theory in 1936 (a claim made by John Kenneth Galbraith), but rather through the lectures Lippmann delivered two years earlier (Goodwin 2014, 135–36). Lippmann decided to develop an expanded version of the argument. There were probably a number of reasons for this. The European situation was worsening monthly, providing manifold and ever direr examples of “absolute collectivist” action and its consequences. As the 1936 presidential elections loomed, he was increasingly worried that the worst of the New Deal reform policies were not simply stymying the recovery, but by creating state-sanctioned monopolies and other legal privileges, destroying individual liberty. His remarkable but unpublished “Draft of Declaration of Principles 1936” took both parties to task for this: in his view, Republican support of big business cartels of the 1920s had simply been replaced by New Deal policies that used different rhetoric but had the same

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effect.9 These criticisms would find fuller exposition in his new book. He discussed his project with Ellery Sedgwick at the Atlantic Monthly magazine, who agreed to publish the first eight chapters of the book over a sixmonth period from October 1936 through March 1937 (WLP 44.125). His monthly interventions contained a series of bombshells.10 Lippmann first attacked the thesis that technology and economies of scale necessitate the move to ever larger and more powerful corporations, and that such firms needed to be controlled by the state to avoid abuses of market power. Lippmann argued that large corporations had their origins not in technology but in changes in the law that allowed them to be created. Since they were creatures of the law, all that was needed to control them was a change in law. Another thesis he contested is that we could, with the right leaders and technical experts, control something as complex as a modern economy. He invoked the image of a planner whose ability to draw up plans for the direction of society requires that he eat a good breakfast, then showed the complex division of labor that is necessary for him to have that breakfast (coffee from Brazil, sugar from Cuba, utensils from Pennsylvania, mining for the steel, transportation, and so on)—an I, Pencil moment avant la lettre. So the move to socialist planning both is unjustified by the technological imperative and ignores the complexity of a worldwide economy. But much worse are the consequences of trying to put a planned society into effect. The first is that it paves the way for despots to take over. Advocates of socialism frequently argued that planning from the center had worked during the Great War and that the same could be done in peacetime. Lippmann countered that the success of wartime planning was conditioned on fighting with a single goal in mind: victory. In peacetime, when many individuals have different preferences, such a system cannot work without imposing severe restrictions on freedom of choice. Though he targeted American progressives, his arguments directly confronted the utopian visions of a Hogben or a Mannheim as well: The difficulty of planning production to satisfy many choices is the rock on which the whole conception founders . . . Mr. Mumford, Mr. Chase, and Mr. Soule . . . insist that the people have foolish and vulgar desires, which may be true enough, and that altogether better standards, sim9. The “Draft” was published for the first time in Goodwin 2014, 373–76. 10. Because the text of the book followed that of the magazine articles (with only a few exceptions) word for word, citations will be to the book.

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pler, more vital, more aesthetic, and more hygienic, ought to replace them. I agree. But I do not see how the purification of the public taste is to be worked out by a government commission. I can see how and why the general staff can decide how soldiers should live under martial conditions; but I cannot see how any group of officials can decide how a civilian population shall live nobly and abundantly. (Lippmann 1937, 97)

To undertake massive planning in peacetime, decisions would have to be made for people. Lippmann asks: What happens if the planners choose the wrong mix? Can the people change the plan? But every such change would require further changes elsewhere. If chaos is to be avoided, the planners must insist that it be left in the hands of the experts. But that way lies despotism. Planning also leads, gradually but inevitably, to impoverishment. For every group favored within a plan there is another whose interests are slighted, so a likely outcome is the formation of pressure groups whose goal is to secure benefits for their members. Lippmann then described in unflattering realpolitik terms various New Deal policies. One of the most pernicious outcomes of that experience was a sort of ratchet effect in which whenever one group gained some benefits, others claimed on equity grounds that they deserved some too, leading to an endless downward spiral (Lippmann 1937, 130). The only way to get more goods in such a world is to get them from somewhere else. This is Lippmann’s final accusation: that trying to make even a gradual collectivist society work has as its logical conclusion nationalism and a concurrent bellicosity toward one’s neighbors. That was why those countries that had deserted liberalism were now acting so aggressively, trying to wrest scarce resources from others. This was pretty grim stuff, and it absolutely outraged his more progressive readers.11 But Lippmann’s goal in the Atlantic Monthly series was to get his readers to see that socialist planning was not the solution, thereby opening the door to a reconsideration of a revitalized liberalism. He would sketch it in the second half of his book. There was one reader who would not only be heartened by what he read but also think that some of the arguments sounded familiar. Hayek had made many of these points, of course, in his essays in Collectivist Economic Planning (Hayek 1935a). Pleased to find an ally, he sent Lippmann the book and some other relevant material. Lippmann responded immedi11. Burgin (2012, 60–63) reviews the reactions to the book; the “extraordinary vituperation” expressed by Charles Beard in his private correspondence is especially notable.

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ately, saying he was well aware of Hayek’s book (as well as the contributions of Mises and Boris Brutzkus that were provided or referred to there) and that his reading of them helped him formulate his own arguments. Because his article was published in a magazine, he could not provide references, but he promised that he would do so in the book version. And that is how it came to be that on his acknowledgments page Walter Lippmann thanks his teacher, Graham Wallas, followed by Mises, Hayek, and J. M. Keynes. Strange bedfellows indeed from today’s perspective, but the extreme political and economic events of the 1930s are what created them: with the possible exception of Wallas, they were, in the end, all liberals. The hAyek-LiPPMAnn CorresP ondenCe There was a flurry of correspondence between Hayek and Lippmann following the initial exchange that is of some significance.12 In his next letter Hayek speculated about one of the causes of the enthusiasm for planning: “I am becoming more and more convinced that the whole trend towards planning is an effect of a misunderstanding of ‘scientific’ method and a result of an exuberance about the power of human reason caused by the scientific progress of the last hundred years. If people would only understand that reason is not a given thing but a process, and that its progress is the one thing that cannot be possibly planned. But I am afraid it won’t be long before we shall be able to write the history of the ‘Abuse and Decline of Reason’” (Hayek to Lippmann, Apr 6, 1937). Within a couple of years Hayek would embark on his “war effort,” a massive two-volume work that would carry the very title that he mentioned to Lippmann. This letter shows that he had the title in his mind well before the war had begun. He apparently had some of the arguments in mind, as well, as his references to the misunderstanding of the scientific method and the failure to realize that reasoning is a process indicate. Hayek closed his letter to Lippmann with the suggestion that some sort of closer cooperation among liberals in various countries might be worthwhile, in order “to make the intellectual reaction which is clearly already under way more articulate before it is too late” (Hayek to Lippmann, Apr 6, 1937). In subsequent exchanges Hayek identified the liberals he knew in England and Europe. These included colleagues from London (Robbins, Paish, Plant, Benham, and T. E. Gregory), his now dispersed collection of friends from Vienna (Mises, Haberler, Machlup), Rappard and Röpke in 12. For more on the Hayek-Lippmann correspondence and the relation of their ideas, see Jackson 2012.

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Geneva, Simons and Harry Gideonse in the States, and a handful of others. He observed the “interesting fact” that “in the countries which have gone fascist the people who were inclined towards liberalism seem to have found it easier to disassociate themselves wholeheartedly from all collectivist taint than in the more ‘progressive’ countries like Sweden whose very brilliant team of younger economists seem for the time being to be definitely lost to the liberal cause” (Hayek to Lippmann, June 11, 1937). Hayek also remarked that there were in England some “elderly men who still cling to the tradition, but mostly for bad reasons, and my experience with them is mostly ‘God beware us of our friends!’” (Hayek to Lippmann, June 11, 1937). From his side of the correspondence, Hayek makes clear that even if it might be hard to define liberalism, it was different from progressivism and conservatism. Hayek thought that the group he had identified, together with any people Lippmann might add, might collaborate in publishing an international journal “entirely devoted to the problems arising out of the rational construction of a ‘Good Society,’” that is, a society reconstructed on liberal principles (Hayek to Lippmann, June 11, 1937).13 He mentioned this idea in later correspondence, and by 1940 had even come up with a name for the journal: Common Affairs (Hayek to Michael Polanyi, Jan 28, 1939; cf. Polanyi to Hayek, Jan 31, 1940, Hayek to Polanyi, Feb 4, 1940).14 This project never found funding so never got off the ground. LiPPMAnn’s PosiTive PLAn In summer 1937 Lippmann sent Hayek the proofs to his book, which contained, in addition to the sections that he had already seen in the Atlantic Monthly, nine more chapters on the positive theme of how to reconstruct a liberal society. Lippmann began by noting yet another reason why collectivism in its various forms could not work—all of them failed to recognize what was “the most revolutionary experience in recorded history,” namely, the transformation from local self-sufficiency to a globally interdependent economy brought about by the extension of a worldwide division of 13. At this point, at least, it appears that Hayek was not averse to using the language of rational constructivism, though this is a bit deceiving: the framework he favored constructing was one that would allow the individuals within it to do all the choosing. This is evidently quite a different task from the one Mannheim envisaged in his own writings about our age of reconstruction. 14. The letter dated Jan 28, 1939 was actually written January 28, 1940, as the sequence of letters shows. The Hayek-Polanyi correspondence on this and other matters is discussed in Jacobs and Mullins 2016.

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labor (Lippmann 1937, 161–62). Liberalism itself was a response to this development; indeed, it is the philosophy of the division of labor. (Note the contrast to Laski’s vision of liberalism as the philosophy of a business civilization.) Unfortunately the first liberals, having correctly identified the power of the division of labor, by embracing a philosophy of laissez-faire and ignoring social abuses, unwittingly opened the door to collectivism. As a result today people “are asked to choose between the liberals who came to a dead stop—but stopped on the right road up to wealth and freedom and justice—and the collectivists who are in a furious movement—but on a road that leads down to the abyss of tyranny, impoverishment, and general war” (204). (Note the road metaphor!) Lippmann accordingly proposed an extensive new agenda for liberalism. It included eugenic and educational reforms, conservation of natural resources, greater capital mobility (which would engender several changes in the laws governing corporations), overcoming the business cycle, and eliminating inequality of bargaining power, monopoly, and other types of power that arise from the granting of legal privileges (Lippmann 1937, 212–32). A system of progressive taxation would also need to be instituted to pay for the new expenditures. The book, then, had something for everyone—for everyone to hate or like depending on one’s politics and which portions of the book one emphasized. Most people saw it correctly as an attack on the New Deal (Ciepley 2006, 156). Moderate progressives were horrified to read that their gradual collectivism would supposedly lead to squalor and tyranny. Though praising him for defending liberalism, economists like Frank Knight and Henry Simons chastised Lippmann for invoking both Keynes, whose recommendations for recovery they deemed dangerous, and the likes of Mises and Robbins, whom they identified with Manchesterism.15 Fascinatingly, Hayek’s name was not included along with his friends Mises and Robbins in the Chicago school economists’ critiques. Hayek was among the most laudatory of all of Lippmann’s readers.16 It is worth quoting at length from his letter: I knew from your articles in the Atlantic Monthly that I should be in complete agreement with the critical parts, but it was still a pleasant surprise that I found myself in almost equally complete agreement, even to points of detail, with the constructive section. Quite naturally I 15. Burgin (2012, 60–63) reviews the various responses to the book. 16. But as Jackson (2012) notes, Hayek’s five-page letter of praise was eclipsed by Robbins’s “exuberant twenty-page, hand-written critical commentary” (57).

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have been most interested in the chapter on the “Agenda of Liberalism” and the two following chapters. I have always regarded it as the fatal error of classical liberalism that it interpreted the rule that the state should only provide a semi-permanent framework most conducive to the efficient working of private initiative as meaning that the existing legal framework must be regarded as unalterable. Surely the concrete content of the law of property and contract is capable of considerable improvement, and it was always with a feeling of humiliation that I realized how little economists have so far contributed to this extremely important task. (Hayek to Lippmann, Aug 11, 1937)

Hayek concludes his letter with a call for a more systematic discussion among “the better economists” about the exact content of the new liberal state, floating again the idea of a journal. What exactly was going on here? Certainly Hayek was thrilled to find a prominent public intellectual who was willing not only to take up the unpopular cause of liberalism, but in doing so to echo Hayek’s own arguments about the unworkability of collectivism and the need to move beyond simple laissez-faire. But what of Hayek’s claim that his agreement with Lippmann’s “Agenda of Liberalism” was “almost equally complete”? Surely there were elements of flattery here, minimizing their differences to entice Lippmann to continue rallying to the cause. And probably on at least some of the details Hayek had simply not yet made up his mind. But the question remains: how many of these details were there? The question is not easily answered, but then it may also be the wrong question. What comes through in Hayek’s letters is the desire to get a systematic discussion underway among thoughtful people who still saw a place for a renewed liberalism in the world and could oppose the chorus of collectivist voices. The details could be ironed out later; the point was to get a discussion going. We must not neglect the remarkable final section of Lippmann’s book, where he examined the political principles of liberalism. Here Lippmann (1937) advocated using the common law, “in which abuses are regulated and public policy is made effective by altering the private rights that are enforceable in the courts” (269), rather than regulating by command. Regarding the form that democracy should take, he lauded the American founders for setting up a system of representative government, with adequate checks and balances and a bill of rights, and warned about the dangers of assuming that the views held by some transient majority reveal the will of the people. Recalling recent “cynical plebiscites conducted by dictators,” he emphasized the foresight of the founders: “James Madison would

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not have been astonished by Hitler” (255–56). Lippmann summed up how this fit in with the earlier parts of his book in a single sentence: what he had demonstrated was “that the division of labor, democracy, and the method of the common law are organically related and must stand or fall together, because they are different aspects of the same way of life” (374). The sentence could as easily have been written by Hayek, circa 1960. If Hayek influenced Lippmann in the latter’s treatment of collectivism in The Good Society, it is equally clear that what Lippmann had to say in the last part of his book laid out both a research agenda, and indeed a number of substantive commitments, that Hayek would later develop and enunciate.17 The clearest evidence of influence is in Hayek’s 1960 book, The Constitution of Liberty, as Hayek himself acknowledged in the letter that he sent to Lippmann accompanying the book, which he described as “the final outcome of many years of thought which may be said to have started twenty-two years ago when I read The Good Society” (Hayek to Lippmann, Dec 18, 1959).18 The CoLLoqUe LiPPMAnn The rest of the story may be quickly sketched.19 In the summer of 1937 the French philosopher Louis Rougier posted a letter to Lippmann, informing him of a new publishing house that he was setting up in Paris. The Librairie de Médicis would publish texts that promoted the ideas of political and economic liberalism, and Rougier wanted to include a French translation of Lippmann’s forthcoming book in the series. Hayek had been the one to alert Rougier about the book. Lippmann replied that he would be “most delighted” to accept the offer (Rougier to Lippmann, July 8, 1937; Lippmann to Rougier, July 12, 1937). Lippmann’s acceptance of Rougier’s offer led over time to the proposal of a conference to celebrate publication of the translation, to be held in Paris at the end of the summer of 1938. 17. Jackson 2012 argues this explicitly, but perhaps somewhat more strongly than we would. 18. Lippmann’s reply was telling. The dangers of the corporate form were a theme that Lippmann had held to since his youth. Hayek’s relative neglect of the topic in Constitution of Liberty gave Lippmann considerable pause: “can it be that you think that the corporation and its problems rate less than one page in a treatise of this kind?” (Lippmann to Hayek, Jan 2, 1960). 19. See Burgin 2012, chap. 2, for more on Rougier’s background and a more detailed account of the lead-up to the conference. For a recent translation of the transcript of the sessions, together with a substantive editors’ introduction, see Reinhoudt and Audier 2018.

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Possibly inspired by Lippmann’s successes, and certainly drawing on some of the same themes (Jackson 2012, 59), in the interim Hayek tried his own hand at writing something more popular. The result was a little piece entitled “Freedom and the Economic System,” published in the April 1938 issue of the British monthly Contemporary Review. The main theme of the article was the incompatibility of planning and democracy. “The main point is very simple. It is that the central economic planning . . . presupposes a much more complete agreement on the relative importance of the different ends than actually exists, and that, in consequence, in order to be able to plan, the planning authority must impose upon the people that detailed code of values which is lacking” (Hayek 1997 [1938b], 182). The article is noteworthy as one of Hayek’s first forays into the popular press (aside from letters to the editor or book reviews) and one of the first statements of the central theme of The Road to Serfdom. The Paris meeting began on Friday, August 26, with addresses by Rougier and Lippmann on the causes of the decline of liberalism, and ran through the afternoon of Tuesday, August 30, with a morning and afternoon session each day. Each session began with a presentation on a listed theme, which was followed by general discussion. There is a complete transcript of the opening addresses, but the ones that cover the subsequent presentations and general discussion are not complete. Whoever was taking notes apparently understood French and German but not English, and unfortunately, Hayek spoke in English, so there is very little from him in the record. Half of the twenty-six participants were from France, among them economists, industrialists, and civil servants. Besides two Americans (Lippmann and a Mr. B. Hopper), the rest were from Europe. Notables included Hayek and Michael Polanyi from Great Britain, Jacques Rueff and Etienne Mantoux from France, Schütz from Austria, Rüstow from Turkey, and Mises and Röpke, both of whom were identified not by their birth country (both were by then in Geneva) but by “Ecole Autrichienne.” Robbins had been invited but could not come, and, as noted earlier, Walter Eucken had been invited but was prevented from traveling by the Nazi authorities. The questions addressed were multiple: Is the decline of liberalism inevitable, as the Marxists but also others who worry about the growth of monopoly and economic concentration, have claimed? Can liberalism satisfy the social demands of the masses for job security and a reasonable standard of living? Can liberalism be maintained even when a nation is preparing for or fighting a war? (The meeting had as its backdrop Hitler’s increasingly aggressive stance toward the Czechoslovakian government over the Sudetenland, so the question was anything but hypothetical.) Next the group inquired into the true causes—psychological, sociological, political,

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and ideological—of the decline of liberalism. Finally, they explored what an appropriate Agenda for Liberalism might look like. As might be expected, though most there considered themselves liberals, there was considerable disagreement about what that entailed. Indeed, they even had a hard time figuring out what to call themselves. Some wanted to keep the word liberal; Mises appears to have been in that camp. Others thought that it had been so identified with Manchesterism and laissez-faire that it would do them harm: “Liberalism, for many, is the laissez faire, laissez passer, and one adds the let suffer (laissez souffrir)” (Louis Baudin, in Reinhoudt and Audier 2018, 111). Some preferred individualism, others freedom, others talked of constructive liberalism or neocapitalism. In his preface to the published report, Rougier suggested the term “neo-liberalism.” Few used this term afterward, until it was revived by critics of liberalism later in the century. Everyone there agreed that the system they favored was a free market system that was constrained by a legal framework. But this sort of “agreement” was susceptible to exactly the same criticism that had been so effectively used against planning: all might agree on a plan, but what about its contents? All might agree that the abuses of liberalism needed to be corrected by provisions within the legal framework, but what corrections were necessary? And indeed, it appears that each of the participants had a different idea of what a revived liberalism should look like.20

Conclusion So what came out of the meeting? Certainly not agreement, except on the idea that further discussion was necessary. This would supposedly take place at the Centre International d’Études pour la Rénovation du Libéralisme, in Paris. The Centre was indeed created but did not survive the start of the war. As noted earlier, neither did Hayek’s fondest idea, a journal that would discuss liberal ideas. Wilhelm Röpke in one of his own letters to Lippmann mentioned that he had “some years ago . . . launched the idea of assembling the dozen of Enlightened Liberals in a solitary hotel high up in the Alps 20. In addition to Reinhoudt and Audier 2018, one might consult Audier 2012, 212– 19 for a review of the variety of positions taken by the French participants in the colloquium, or Burgin 2012, 71–76 for a summary of major points of discussion. We may note that Horn et al., eds., 2019, is a special issue of Journal of Contextual Economics—Schmollers Jahrbuch titled “Liberalism in the 21st Century: Lessons from the Colloque Walter Lippmann.”

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and to cross-fertilize their ideas for a week” (Sept 14, 1937, quoted in Burgin 2012, 67). This would indeed happen one decade later, but we get ahead of the story. Perhaps the most important result of the meeting is that it brought together face-to-face that small group of European intellectuals who might still be willing to explore the possibility of a revived liberalism. Lippmann’s presence also may have strengthened in Hayek the idea that one must go beyond academic discussions in defending liberalism. Over the course of the next year, as he finally finished up The Pure Theory of Capital, he also expanded “Freedom and the Economic System” into a more detailed piece that was published as a Public Policy Pamphlet in a series edited by Harry Gideonse (Hayek 1997 [1939i]). We may note in passing that this second version contains one of his first allusions to the deleterious effects of the interventions of “men of science”: “It would be interesting, but it is not possible within the space available, to show how this belief [i.e., the demand for planning] is largely due to the intrusion into the discussion of social problems of the preconceptions of the pure scientist and the engineer, which have dominated the outlook of the educated man during the past hundred years” (197). His piece elicited a somewhat prophetic letter of appreciation from Henry Simons. Thanking Hayek for a contribution that was aimed at an American audience, he contrasted the climate of opinion in England and America and concluded that though things were bad in the States, they seemed hopeless in England. Indeed, England could be saved only “by the example of a wise and successful liberal program in the United States. So, I welcome your contribution to discussion here and, hoping that you will again write for American readers, I suggest that this may be the most useful contribution you can make toward the cause of liberalism in England and elsewhere” (Simons to Hayek, Apr 14, 1939). But Hayek had a grander ambition by 1939 than to write more public policy pamphlets. He would instead begin work on the project that he had mentioned in his letter to Lippmann in 1937. In it he would formulate a magisterial answer to Laski, the planners, and the men of science. As we will see in the next chapter, it was as the world turned to war that he began the Abuse and Decline of Reason project. One of the many fruits of his efforts would be a small book entitled The Road to Serfdom. A final point before we close. Both Hayek and Lippmann worried about mass democracy, and both would end up being severely criticized by those on the left for their positions. Lippmann would distance himself from Hayek as the war wore on, and afterward (Jackson 2012, 66–67). He declined to write a foreword for Road to Serfdom, a job that ultimately was

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taken up by another newspaperman, John Chamberlain. Yet in the most critical response to Hayek’s book, Herman Finer’s scabrous The Road to Reaction (Finer 1945), Lippmann came in for as much criticism as did Hayek. Teasing out the relationship between liberalism and democracy, two of his long-standing ideals that could also come into conflict, would be a recurring issue for Hayek in the years to come.

· 26 · Hayek and London Go to War t h e ab Us e an d d ecline oF r ea son War Preparations It was quickly apparent that the Munich Accord would not deliver “peace for our time,” but it did manage to buy some to prepare for the inevitable conflict ahead. Though rearmament had been a part of British government policy from the mid-1930s, things had moved relatively slowly. Preparations for war began in earnest during the Sudetenland crisis of September 1938 and continued apace afterward. Windows were blackened. Sandbags were filled, so many of them that vast pits appeared in Hyde Park and on Hampstead Heath where geologists had determined that sandy soil could be excavated. London was transformed (Todman 2016, 94–100; Ziegler 1995, 29–30). The greatest fear was a sustained aerial attack against civilian population centers. During the First World War London had been bombed, albeit sporadically, by the Germans; by that war’s end 670 had been killed and many more injured (Ziegler 1995, 9). In their worst-case planning scenario, the British Air Staff and Ministry of Health estimated that the first six months of bombardment would result in 600,000 British deaths, with twice as many wounded. And it was expected that the attack would begin immediately after a declaration of war, in the attempt to deliver a knockout blow. As it turned out, the estimates of the strength of German air power and of their strategy were badly flawed, but the prospects were nonetheless horrific to contemplate. Further heightening alarm, the Italians had used mustard gas against the Ethiopian army in 1936, a violation of the 1925 Geneva Protocol. Total war was anticipated (Price 2000, 2–3; Smart 1997, 34–36). In preparation, even before Chamberlain had uttered his hopeful words, a million linear feet of zigzag trenches had been dug in public parks across the city, for people to dive into in case of an attack. They soon filled kneehigh with water, and worse. During the Sudetenland machinations the government began distributing millions of gas masks, most of them given

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out for free. By October 1938 approximately 90 percent of London’s populace had gotten one; people were supposed to carry the little boxes with them whenever they went out. Also free were thousands of Anderson air raid shelters, which consisted of two sections of corrugated steel bolted together with an accompanying steel shield to serve as a door, to be installed in back gardens and covered with earth. An evacuation plan for children, the elderly, disabled, and infirm had become a part of public policy since the bombing experience of the First World War. An initial round of evacuation (4,300 infants and disabled children) began even before Chamberlain’s return, but that was the end of it until the next year. Meanwhile, air defenses were prepared. The production of planes and antiaircraft guns and the training of pilots accelerated. Barrage balloons that could reach as high as five thousand feet (as was true of antiaircraft fire, their purpose was to force German bombers to fly at higher altitudes, and thereby to be less accurate) soon filled the skies (Ziegler 1995, 16–17, 19, 25, 31). Robbins and Hayek also prepared for war. Robbins had an air raid trench dug in his own garden (like the others it soon filled with water) but also took the more important step of renting a cottage in the countryside. He and his family spent the Easter break at Tor Cottage, at Lacey Green in the Chilterns, northwest of London in Buckinghamshire, just as the breakup of Czechoslovakia was finalized (Howson 2011, 325). They would spend the summer of 1939 there, and it was there that they heard Chamberlain’s broadcast declaring war on Sunday morning, September 3. It would become their family home for the duration. As for Hayek, he had no funds for a rental, having just bought a house. It was a good time to make a purchase: there was plenty of inventory and house prices were falling as tens of thousands cleared out of London. But he had also been given notice. As luck would have it, one came available on Turner Close. As noted earlier, in order to be able to afford the down payment, that spring Hayek sold to the Bank for International Settlements, via its director, Per Jacobsson, six hundred or so volumes on money and banking published before 1900, mostly in English, which he had collected in the late 1920s for the never-completed big volume on money. They were in their new home by August (Bartley interviews, Nov 2, 1983; IB 94). LSE was also preparing for war. In early July 1939 the Ministry of Works announced that if war seemed imminent it would need to take over the Houghton Street buildings. Alexander Carr-Saunders, Beveridge’s successor as director of the School, sought a place outside of London where classes could be held. By late July the governing body of Peterhouse, Cambridge, had agreed to provide space at the college if evacuation became necessary. When the Ministry of Works acted on its prerogative on September 1,

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LSE was ready. Its administration and part of its lending library moved to a building at Peterhouse; other parts of the library remained at LSE. In Cambridge the School also rented Grove Lodge for additional library, classroom, and common room space. Students were housed principally in private lodgings. Finally, because the School decided to continue to offer night classes in London, it rented space in Canterbury Hall, in Cartwright Gardens near Euston Station (Dahrendorf 1995, 341–43). In anticipation of the outbreak of hostilities, the number of students enrolling or returning dropped from around 3,000 in 1937/38 to 620 in Cambridge and 359 evening students in London in 1939/40. The teaching staff in economics and commerce was reduced to eleven: in addition to Hayek, these were Robbins, Benham, Coase, Durbin, Kaldor, Paish, Plant, Schwartz, Thomas, and Ronald Edwards. Academic leaves were rescinded, including one for Hayek to go to America.1 Michaelmas term started late, and some courses were not offered, but once things finally began, they ran without further interruption (Dahrendorf 1995, 341–43; Howson 2011, 342–43). During the coming academic year, Robbins would spend the week in Cambridge, living at a house the School had rented for faculty at 17 Clarkson Road. This became known as Beales’s house because the economic historian Lance Beales and his wife, also resident there the first year, would stay on, renting it as the war progressed and their other colleagues were called into government service. Hayek and his family would remain in London, but he would occasionally spend nights in Cambridge, also at Beales’s house. Though much had changed, there was at least some semblance of the old days: in that first year, Hayek and Robbins would run their joint Seminar in Economic Theory, now meeting at 2 p.m. on Thursdays (Howson 2011, 342–43). As was noted in chapter 23, Hayek had a final task to complete before the war began. He took a last trip to Austria, in August 1939, not to see his family, but to spend four days in a quiet mountain valley with Lenerl (Hayek 1994, 137; Hayek to Machlup, Aug 27, 1939; Hayek’s datebook has entries for Zurich and the Carinthian town Spittal). He had just bought a house in London, which perhaps needed to be explained. But who knows what else they might have discussed? Plans, perhaps promises, for the postwar?

1. Hayek had planned a four-week trip for 1939/40 with visits to Harvard, Washington, the American Economic Association meeting in Philadelphia, Chicago, and Minneapolis (see letter to Machlup, Aug 28, 1939).

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Hayek’s Activities during the Phoney War The week before war was declared, Hayek wrote again to Machlup, who was then teaching at the University of Buffalo in upstate New York. In it, Hayek imagined the contours of his next big book project: “A series of case studies should come first, that would have as its starting point certain problems of methodology and especially the relationship between scientific method and social problems, leading to the fundamental scientific principles of economic policy and ultimately to the consequences of socialism. The series should form the basis of a systematic intellectual historical investigation of the fundamental principles of the social development of the last hundred years (from Saint-Simon to Hitler)” (Aug 27, 1939). The war put further consideration of the project on hold, at least for a while. Within a week of England’s declaration Hayek had drafted a letter to the director general of the British Ministry of Information offering his services. Describing himself as an “ex-Austrian,” a university professor, and someone who had “for some time” been a British subject (he had in fact been naturalized only a little over a year), he obviously wanted to make crystal clear both his credentials and his allegiances. For further reinforcement, at the bottom of the letter he included as references the names of Lord Stamp, Sir William Beveridge, A. M. Carr-Saunders, R. G. Hawtrey of the Treasury, and F. W. Ogilvie of the BBC. Though in retrospect this may seem like a preemptive overdose of caution, it was not. Nonnaturalized aliens from Germany and Austria would be interned once the real fighting started the next year, and not released until they had been vetted.2 Accompanying the letter was a memo, “Some Notes on Propaganda in Germany,” that contained a variety of suggestions about how to launch an effective propaganda campaign in the German-speaking countries (Hayek 2010 [1939j]).3 It is a fascinating document. The goal of the propaganda effort, Hayek began, must be to explain and defend liberal democracy. The most effective way to do so would be to remind the German people that the principles of liberal democracy now being extolled by England and France had also once been embraced by some of the great German poets and writers of the past, a fact that had been 2. Ludwig Lachmann was among those detained, even though he held a Leon Fellowship at University College London (Lachmann, Shehadi interviews, 6). Others included the art historian and former Geistkreis member Johannes Wilde, as well as Keynes’s Italian friend Piero Sraffa, once Italy joined the war. 3. The memo may be found in FAHP 61.4–5; it is reprinted in Hayek 2010.

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effectively written out of German history since Bismarck’s time. The claim that Germany’s separate path was begun by Bismarck rather than Hitler is of course one that Hayek had been advocating since 1933. Hints of it in his inaugural address were made explicit in his memo to Beveridge, and the claim also appeared in his “Freedom and the Economic System” articles. He would repeat it again in The Road to Serfdom. The poets Hayek had in mind included Goethe and Schiller, “whose names are still sacred in Germany although their relevant writings are largely unknown” (Hayek 2010 [1939j], 306)—these were, of course, poets whose works Hayek’s father would read, or recite from memory, at the dinner table when Fritz was a child. He offered as an illustration Schiller’s appraisal of the relative values of the civilization of Athens and Sparta, “The Laws of Lycurgus and Solon,” which had analogs in the present-day clash of ideologies.4 To correct the current German version of history, Hayek recommended that a handbook of facts be compiled, using whenever possible Germanlanguage sources, which could be consulted whenever propaganda claims were made. This would evidently be a large undertaking, requiring many hands. Native German speakers who had an intimate understanding of German psychology would need to be recruited. He warned that because “there has existed in Germany for a long time a certain gulf which separated the Jewish and socialist intelligentsia from the rest of the community,” the “typical refugee may not be the most reliable guide on these matters” (Hayek 2010 [1939j], 305). Germans would naturally be suspicious of foreign news sources purporting to construct a revised version of German history or to report on recent atrocities perpetrated by the regime. That was why it was essential that the task be taken up by “a small committee consisting largely of (non-Jewish) German scholars” that might also even include some people from neutral countries who had pro-German leanings, to establish the objectivity of the analysis produced. The target audience should be not the masses but leading groups outside of the Nazi camp in the army and among industrialists and civil servants. Hayek was convinced that a sober, dispassionate account of the facts would have the best chance of changing some German minds about the nature of the Nazi regime. As he put it, “I know from experience that if one can prove how history has been deliberately falsified this 4. Hayek would later take an English translation of the closing paragraphs of Schiller’s piece and, advising his readers to insert “Hitler” for “Lycurgus” and “Germany” for “Sparta,” publish it under the title “Schiller on Hitler” in the British weekly Time and Tide (Hayek 1945, Apr 7).

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does more than almost anything else to make German minds disposed to listen to the truth” (Hayek 2010 [1939j], 309). Was Hayek perhaps referring to his own experience when reading about the causes of the Great War in the New York Public Library the decade before? In any event his proposal complemented his idea from that earlier period of an “International Newspaper Page” that would counteract the parochial bias of national news accounts. Hayek would wait until the end of December for his answer from the Minister of Information, or rather, from one of his subordinates, a Major Anthony Gishford. Hayek was thanked for his memorandum, but as for his recommendation that a committee be formed, “it is felt that the machinery involved in its creation would necessarily be disproportionate to the results that might be achieved” (Gishford to Hayek, Dec 30, 1939). Hayek immediately sent back a two-page letter of protest, noting his disagreement, but it was not to be (Hayek to Gishford, Jan 3, 1940). Apparently he next briefly considered volunteering for military service, as part of the Royal Artillery, but friends convinced him that “as an alien I would not be able to deal with British soldiers” (IB 93). Instead of working for the government as a propagandist or serving in the military, Hayek would begin what was to become his war project. It would be the book that he had described to Machlup, echoes of which were to be discerned in his “Notes on Propaganda” and the title for which (The Abuse and Decline of Reason) first appeared in his letter to Walter Lippmann some two and a half years earlier (Hayek to Lippmann, Apr 6, 1937). Hayek engaged in some smaller tasks as well. Like many others, in the run-up to war he wrote a few popular pieces on issues directly relating to the economics of war. In January 1939 he gave a talk at the Royal Institute of International Affairs, and from his notes it appears that he predicted that were war to come, Germany would require both iron and fats to achieve its goals, and would take them forcefully from the Scandinavian countries. In Hayek’s view, Denmark was the key (FAHP 105.25). It was not a bad forecast: Hitler would invade Denmark to get to Norway a month prior to his attacks on Belgium and the Netherlands and, in its turn, France. Another much-discussed issue was how to transition from a peacetime economy to war footing. Full mobilization requires that resources be shifted from the production of consumption goods and peacetime capital equipment to the production of war materials and capital. As the government draws resources away for the war effort, fewer are available to produce consumer goods. If there is no further intervention, the prices of such goods rise dramatically. This has several adverse effects. A general inflation heightens uncertainty, undermines the war effort as workers see the pur-

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chasing power of their incomes plummet, encourages spending and hoarding while reducing the incentive to save and invest, and makes it harder for the government to borrow for the war. Some called for simply making such inflation illegal, by fixing prices at existing levels. But if that occurred, there would be too few consumer goods relative to demand. Shortages, queues, and black markets would result. To have an equitable distribution of the few goods produced among the many who want them, price-fixing would need to be accompanied by some sort of rationing scheme. It was hard to tell which of the two unattractive alternatives (inflation, or pricefixing plus rationing) was worse. Hayek joined the discussion with two pieces that were published in a British monthly, the Banker, appearing in the September and October 1939 issues (Hayek 1939f, g). In them, he opposed the arguments of those who thought that a war economy required extensive economic planning and, in particular, price-fixing. His message was simple: in war as in peace, if we wish to produce with maximum efficiency, prices must be allowed to fluctuate to reveal relative scarcities. He applied this basic economic reasoning to the prices of inputs into the productive process in his first essay, and to the intertemporal price of the interest rate in the second. Hayek recognized in a footnote in his first piece that a general rise in prices, or inflation, is what people most feared when they argued that extensive government control was necessary in times of war. He noted that the government would have to set a limit on total monetary demand for both civil and military purchases to avoid inflation, but crucially, did not say how to do so. He promised to talk about the question of government finance, as well as equity concerns, in a later, third article, but it never appeared. It is a pity that he did not publish it, because it would have addressed the truly pressing questions. It must be added that the two that did come out resembled dry textbook presentations of how changing relative prices in a competitive market promote the equalization of marginal rates of substitution (at one point he actually used this terminology). This was deadly, uninspiring stuff. Given what he had seen so far from Hayek, the editor of the Banker may simply have decided to cut his losses. The next month Keynes would come to the rescue. In two pieces titled “Paying for the War” published in The Times of London in November 1939, he accomplished exactly what Hayek had not done: to provide a concrete plan for war finance. Like Hayek, Keynes thought that the “solutions” of either inflation or price-fixing plus rationing were undesirable. A third possibility was to raise taxes, which could be used both to pay for war expenditures and to reduce demand for consumption goods. Keynes pointed out that if this alternative were chosen, the tax would need to extend to

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the working class, because taxing the rich would neither produce enough funds nor reduce consumption expenditure enough. To make the tax on workers palatable, Keynes proposed a “compulsory savings” scheme. A progressively increasing percentage of all incomes would be paid to the government, some as taxes, the rest in the form of mandatory savings, which would be paid into individual accounts at a Post Office Savings Bank. This sum would earn interest and be made available for spending after the war. By taxing and borrowing, the war could be financed and both inflation and price-fixing avoided (Keynes 1978 [1939], 41–51). It was a brilliant plan, one that Hayek in an article published in the Spectator on November 24 praised as “ingenious.” His only real disagreement was with Keynes’s proposal to release the saved income in installments timed to counteract a postwar slump. Hayek questioned whether such policies would actually work, but also worried that the decision about when the funds should be released could become something of a political football, akin to the “soldier’s bonus” problem that followed the First World War but of greater dimensions. He briefly floated a somewhat different plan of finance: a capital levy on “old wealth” rather than a mandatory savings scheme. Those who deferred consumption during the war would receive, instead of a cash claim against the government, equity in the industrial capital of the country (Hayek 1939, Nov 24). Keynes’s proposal was not well received by the Labour Party, the left press, or the unions; indeed, he privately characterized the initial reaction of the Labour politicians as “frivolous and unthinking” (Keynes 1978 [1939], 82). To mollify them, in a revised pamphlet version, now titled How to Pay for the War and released in February 1940, Keynes added a family allowance as well as an “iron ration,” a minimum ration of consumption goods made available at a low price. He also incorporated Hayek’s idea of a levy but would have used the funds from it to finance his own cash payments scheme (Keynes 1940). In a review of the pamphlet in the pages of the Economic Journal, Hayek pointed out the near unanimity among economists in support of Keynes’s proposal, even among those who (like himself) disagreed with Keynes’s approach to macroeconomic issues (Hayek 1997 [1940b], 168). The episode reveals the closeness in views of Keynes and Hayek about what was necessary during war or, more generally, when the economy was experiencing an Age of Scarcity (full employment) rather than an Age of Plenty (when there are slack resources). In such times, choices have to be made. Interestingly, Hayek derided those who criticized Keynes for the compulsory nature of his initial proposal, suggesting that to make the scheme voluntary would have about the same chances of success as making

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taxation voluntary. Times of national emergency call for shared sacrifice and the abandonment of certain liberties. Despite near universal approbation from economists, Keynes’s proposal did not get very far. Though a modest deferred pay scheme was added to the 1941 British government budget, in the end the war was financed by a hodgepodge of measures: increases in various taxes, government borrowing, and capital, interest rate, and exchange controls. Demand was controlled by price-fixing for certain goods, an elaborate scheme of rationing of (accompanied by subsidies for) many basic goods, and simple lack of availability (Broadberry and Howlett 1998; Capie and Wood 1993). As is so often the case, muddling through became national policy. The outbreak of hostilities brought to a halt some of Hayek’s planned projects. He had been working with the publisher William Hodge to do a series of translations of books from German into English. Proposed volumes included, among others, Max Weber’s posthumous work, Wirtschaft und Gesellschaft (which was ultimately completed in 1947 for another press by A. M. Henderson and Talcott Parsons); Ludwig von Mises’s newly completed big book (titled Nationalökonomie; though never translated, it would serve as the basis for Mises’s 1949 tome, Human Action); and, as was mentioned in an earlier chapter, Karl Popper’s Logik der Forschung (Popper would bring out an English edition, much transformed with footnotes and appendixes, in 1959 under the title The Logic of Scientific Discovery) (IB 93; six letters from Hayek to Popper, Dec 7, 1936, through Mar 12, 1938). The war brought on paper rationing, so that many publishing projects had to be delayed or abandoned, but perhaps especially those that involved translating German-language writers into English, no matter what their politics. We can mention in passing that September 1939 saw the publication of his collection of essays, Profits, Interest, and Investment, and of course he was still trying to finish up the ever-languishing Pure Theory of Capital. Hayek also participated in an ongoing discussion on the possibilities of forming a European federation. Lionel Robbins had touted the benefits of federation in both Economic Planning and International Order (1937) and The Economic Causes of War (1939). At the same time, the American Charles Streit’s book Union Now (1939) called for a federal union comprising the United States and the European democracies that bordered on the Atlantic. The British Federal Union organization was set up, and a meeting of its research department on economic aspects of federation was held in October 1939 in Oxford. Sir William Beveridge hosted it, and in attendance were Hayek, Robbins, and such noted socialist economists as H. D. Dickinson, Barbara Wootton, and Evan Durbin. Though on other matters they

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evidently differed, at this point many (at least academic) British socialists and free market advocates favored some sort of federation for defensive purposes (Howson 2011, 345–48). Robbins thought that a federal union on the Streit model was perhaps plausible as a long-term goal but that the more immediate concern was an Anglo-French union. Hayek touted a lowering of trade barriers between the two countries in a November 17 letter to the Spectator, then wrote another one defending Robbins’s more ambitious proposals in December (Hayek 1939, Nov 17, Dec 15). He also published a longer piece, concluding that the basic economic conditions for a successful interstate federation consisted in the guarantee of free, unregulated movement of goods, people, and capital within the federation (Hayek 1939h). In April 1940 they both attended an economics conference in Paris to discuss a report prepared by Robbins on federation. Though the meeting was inconclusive, the threat of real war (the conference took place on April 10, two days after the Germans had begun their invasion of Denmark and Norway) gave a certain urgency to the affair. As Robbins later confided to his sister, “drastic reconstruction is no longer an academic question over here . . . changes which seemed out of the question before become well within the range of probability” (quoted in Howson 2011, 352). Robbins even had plans for a book, with Hayek contributing a chapter on the monetary consequences of federation (Howson 2011, 350). The plans were soon rendered superfluous; two months after the conference, the Germans marched into Paris, and the French government under Marshal Pétain quickly sought an  armistice with Germany, an agreement concluded on June 22, 1940. As noted earlier, in the May 1940 issue of Economica Hayek published his third contribution to the socialist calculation debate, his extended critical review of two books, one by H. D. Dickinson, the other that contained reprints of articles by Oskar Lange and Fred M. Taylor, both defending forms of market socialism (Hayek 1940a). Though the review has an important place in the development of Hayek’s thought, one suspects that with what was happening in the world, few people took much notice of it.

Real War The events of May and June 1940 caught everyone by surprise. The so-called Phoney War (the period from September 1939 to May 1940) had changed people’s lives in countless ways, what with rationing, blackouts, disruption of family life due to evacuations, the ever-present air wardens, and the like, but it felt more like an endless game of patience than war. From September

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1939 onward London air raid sirens had signaled people to take cover, but as far as actual air raids went, there were virtually none: the first British death as a result of an air attack did not occur until March 16, 1940 (Price 2000, 27). As one historian summarized, “As it turned out, the outbreak of  war was the greatest anticlimax in modern British history” (Todman 2016, 199). The biggest danger during the Phoney War was not bombs but the unintended consequences of the blackout, particularly during the long winter nights, when it became dark well before the time that many people had begun to return home from work. Streetlights were extinguished and cars were only allowed to use their sidelights, a recipe for motor accidents. Even though there were many fewer cars being driven, the number of road deaths increased by about a third from a year earlier, to four thousand. December 1940 was particularly dangerous in London, where pedestrian deaths increased eightfold compared with earlier years. There were more and more children back in London, even though many schools remained closed; by late spring 1940, virtually all of those who had evacuated in September had returned. People who still brought their gas masks with them to work could become objects of scorn and ridicule when spotted on the streets by bored, less than well-behaved children (Price 2000, 17; Ziegler 1995, 56–68, 102). The Phoney War evidently inconvenienced the LSE professors who had to camp out at Beales’s house, but in that case, the forced comradery had its upside, as colleagues who did not know each other well gained new information and insights. As Lance Beales was to recall: “I remember how we used to open the piano and clear the chairs out of the way, and people were dancing around the room. It was very comic. Hayek for example would take off his shoes and join in just as though he was a human being!” (Shehadi interviews, 17). It was at Beales’s house that Hayek came to know his colleague R.  H. Tawney better (IB 83). A leading socialist thinker and activist, known for his scruffy, unkempt appearance, Tawney was both self-effacing and self-possessed, a person who “preserved throughout his life the outward manners—not only the tone of voice, but also the façon d’agir—of an Edwardian and even Victorian gentleman” (Michael Postan, quoted in Goldman 2013, 16). Educated at Rugby, he went on to Balliol College, Oxford, where he befriended William Beveridge, whose sister, Jeanette, he later married. (As Ralf Dahrendorf [1995, 239] recounted, compared with her husband, Jeanette was a bit of a spendthrift, leading Kingsley Martin to quip that Tawney wrote The Acquisitive Society and Jeanette illustrated it.) After university he spent time as the secretary of the Children’s Country Holiday Fund, gaining personal experience about urban poverty that

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turned him into a socialist. Although a lifelong advocate of equalizing access to education across class lines, Tawney did not romanticize the working class; he found the men he encountered in the East End “a subservient lot,” who looked only for assistance. For them it was already too late; capitalism had crushed them.5 His ideal were the sorts he had met in Lancashire, skilled workman who demanded not relief but simply a fair chance to lead an independent life by their own toil. His emphasis on equality, on creating a system in which reward was tied to function, not ownership, derived from these observations (Goldman 2013, 29–30). Tawney’s very English “outward manners” doubtless appealed to Hayek, and perhaps also the fact that he, “like so many men of his era and education, was more comfortable with men than with women” (Goldman 2013, 20). Both smoked pipes and both liked to dance. But it went deeper than that. Hayek genuinely respected Tawney for his insights and humility, for his humanity and integrity: “I differed from him, but he was a sort of socialist saint . . . a man who was only concerned with doing good—my Fabian socialist prototype—and a very wise man” (Hayek 1983a, 113). He was less taken with Tawney’s historical thesis in Religion and the Rise of Capitalism that the rise of Puritanism in the Tudor period ushered in capitalism, destroying bonds of social solidarity that existed in the period that preceded, a variant of the Weberian thesis applied to Britain (Hayek, Shehadi interviews, 15). Tawney was also doubtless one of the historians whose work impressed on Hayek the importance of offering alternative historical accounts to those being produced by those on the left. The Phoney War was sufficiently moribund that the Ministry of Economic Warfare, which had moved into the LSE buildings on Houghton Street, decided to move out in March 1940. The timing was less than optimal; Germany invaded Denmark and Norway in April. Things heated up quickly. The changing environment led to a 10 shilling wager between Hayek and Robbins, recorded in Hayek’s datebook on April 24, 1940: “Lionel 10 s. that in a year’s time food prices will be up 75 per cent over Sept 1, 1939.” Hayek did not report who took which side of the bet. On May 10 Nazi troops marched and panzer tanks clanked into Belgium and the Netherlands, and three days later they attacked France from the north, bypassing the Maginot Line. By May 21 the French forces were divided in two. Along with the French in the north was the bulk of the British Expeditionary Force. Cut off and facing annihilation or capture, most of the Allied forces moved toward the wide sandy beaches of Dunkirk, 5. This may account for Hayek’s rather curious, and unexplained, remark that he found Tawney “somewhat bigoted but very knowledgeable” (IB 83).

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where a massive evacuation took place between May 27 and June 4. In the end, 338,226 soldiers were rescued, but this “Miracle at Dunkirk” was tempered by the huge losses that were sustained in tanks, other vehicles, munitions, foodstuffs, equipment, fuel, and, not least, the 68,000 British soldiers who were killed (3,500), wounded (13,053), captured, or missing. Hayek, Robbins, Honor Croome, and Nicholas Kaldor listened to news of the evacuation on the wireless at 17 Clarkson Road. Croome later remembered the incident: “Fritz wondering whether he oughtn’t to join up and go to Norway? And Nicky joining the ‘parashots’?” (Croome to Robbins, June 28/29, 1943). England, always isolated, was now the sole remaining democracy among the major European powers. With newly acquired airbases in France, Belgium, and the Netherlands, the German war machine and its bombers were suddenly much closer. Hitler was hoping to negotiate a peace with the British as he had with the French, but Winston Churchill, prime minister only since May 10, the very day the invasion began, was immovable. His “We shall fight on the beaches” speech before the House of Commons on June 4, 1940, made clear that negotiation was not in the cards. Real war had begun. Hayek’s first concern was getting Hella and the children out of London to a relatively safer place. Christine remembers vaguely that she and Larry may have been sent for a “very short time” to stay with the Carr-Saunders family in Oxford (Christine interviews, Oct 16, 2012). But by mid-June they had been packed off with Hella to stay with the Robbins family at Tor Cottage. This was meant to be a temporary arrangement. Meanwhile, Hayek explored a number of possibilities for a more permanent solution. One of these involved sending Hella and the children either to the States or to one of the Dominions. But there were obstacles: one could not send money out of the country, they did not really know anyone in the Dominions, and US immigration regulations made relocating to that country difficult. Hayek asked Machlup and Jacob Viner to see if it might be possible to get some sort of “pro forma invitation” on the basis of which he might get a visa for the whole family “if the worst came” (Hayek to Machlup, June 21, 1940). In another letter other wrinkles were revealed. As more and more colleagues were called into government service, Hayek realized that his departure would leave the School in the lurch. As for Hella and the children going without him, he told Machlup that she steadfastly refused to consider the idea (Hayek to Machlup, Aug 1, 1940). The final decision was that they would look for a place in the country near the Robbins cottage. In the meantime, the family would stay in the country with the Robbinses most of the time, and Hella would come to London to see Fritz on weekends (Hayek to Mises, July 23, 1940).

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The Viennese emigres in the States were also concerned about their friends overseas. Some of the intensity of the moment is revealed in a letter sent by Haberler to Morgenstern that summer: I received a very depressing letter from Hayek. I had cabled him last week and asked if I could do something for his children. He replied that at the moment his children are in the countryside and that transport now would be perhaps too dangerous, as Hitler might soon mobilize his submarines. However, later he’d like to send his children to the U.S. He himself does not intend to leave, but possibly he may be forced to revise his decision. The hatred of foreigners increases appallingly and, of course, it extends to naturalized foreigners, too. Hayek asks therefore to look for a position at a university for him . . . It is a pity that Hayek is so unpopular. Nevertheless, it should be possible to find a university that is interested . . . Here, scarcely anything can be done. Fellner, Mises, Röpke are almost more than “the traffic can bear” [English in the original] . . . The news from Europe becomes ever more horrible. I regard the situation of England as completely hopeless. (July 6, 1940)

Hayek did receive an RF-financed offer from the New School for the term beginning September 1940, but he declined it. In a letter to Machlup (Jan 2, 1941) he confessed that he had felt some “indignation” because he had been offered “a nondescript job at about a fourth of his personal salary.” Machlup tried to placate him by pointing out that this had been the standard offer sent to “some 150 scholars . . . without consideration of their previous work or income” (Mar 14, 1941). As intimated above, things were changing fast at the School, too. From the moment that the German offensive began, Robbins was champing at the bit to join the war effort; he later recalled that at the time “academic life became almost unendurable” (Robbins 1971, 168). When in early June he was invited to join the Office of the War Cabinet as an economic assistant, he immediately accepted, beginning work there on June 10. He would later become the director of the Economic Section (Howson 2011, 353–54, 387). Hayek took over marking Robbins’s students’ exams as well as his own, relating to Machlup that “I am immersed in examination scripts . . . we are trying to get it over before bombing starts in earnest” (Hayek to Machlup, June 21, 1940). Hayek was working at home in London, where he would remain all summer while his family was in the country. Hayek’s next pressing concern was to find out the fate of his friends and colleagues on the continent, in particular Ludwig von Mises. Mises had been a frequent correspondent as well as subject of discussion among

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others before then. Some of this involved trying to find a publisher for his big book or getting his library moved,6 but it also involved trying to find him a position so that he could get out of Geneva. Mises was not particularly helpful in this effort, at least from Fritz Machlup’s perspective. In March and April Machlup had tried to arrange a visiting position for him at UCLA for the next year. Mises initially rejected the offer, then decided he might take it after all. Unfortunately, he posted the letter expressing his change of heart by surface mail, so that it did not arrive in time (Machlup to Hayek, Apr 17, 1940; Hülsmann 2007, 748–49). As a result he had no job to go to if he had to depart. It was not until the end of May that Mises would write Hayek to tell him that finally he planned to leave Geneva (Mises to Hayek, May 22, 1940). In June 1940, as things became worse, Hayek’s concern for his mentor, from whom he had heard nothing more, was palpable: “My main anxiety at the moment is whether Mises and Röpke got away from Geneva in time . . . I have done my best through my French friend to secure him a French transit visa but I fear this will have come too late and the only hope is that he and R. got out by the Locarno-Barcelona airline before it was stopped” (Hayek to Machlup, June 21, 1940).7 In fact Mises and his wife Margit had not made the last plane out, which departed on May 28. They were forced instead to take a bus to Spain that departed from Geneva the evening of July 4. It was a harrowing passage. The bus was filled mostly with Jews of various nationalities. The route taken as they traversed the “Free Zone” of Vichy France was circuitous, with the driver frequently stopping to consult with the locals, then crisscrossing and backtracking as necessary to avoid any recently established control posts. They finally made it to the border at mid-afternoon the next day, there to discover that only French, American, and British citizens would be permitted to cross. After a few days of fruitless negotiation, Mises cabled Rougier, who was by then working in the Vichy government, and he paved the way for Mises to obtain the necessary documents. After crossing the border, Ludwig and Margit made their way to Lisbon and on July 25 sailed for New York. They were lucky to get out of Europe alive (M. Mises 1984, 51–56; Hülsmann 2007, 726–27, 753– 6. After the Anschluss, at the end of March 1938, Mises’s Vienna apartment was looted by the Gestapo, who took away all his possessions—including his books and papers—in twenty-one boxes. Mises turned to a Viennese lawyer and asked Hayek to intervene but from the start had no hope of regaining his library. See various letters in FAHP 38.24, and Hülsmann 2007, 727. 7. As noted earlier, Röpke ended up staying in Geneva through the war. The “French friend” was Louis Rougier.

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57). Hayek would not find out that Mises had escaped Geneva until July 22, when a letter that Mises had posted from Lisbon arrived, and not until the end of August that he and Margit had made it safely to New York.

The Abuse and Decline of Reason Hayek began the writing phase of his new project in June 1940. He worked at home, and though an imminent Nazi invasion was widely feared, again everyday life had changed little. In a June letter to Machlup, he was stoically existential: “Although things look pretty grim life here still goes on in its normal course . . . Of the first raids of the last few days we have here noticed nothing and in the peace of one’s house and garden it is still difficult to believe how near the war has now come. One looks of course with a certain amount of ‘Wehmut’ [melancholy] on one’s things and books which may go at any moment. But in the meantime one just carries on with one’s work, hoping that there will soon be an opportunity to do something more immediately useful” (June 21, 1940). In the same letter Hayek described his progress thus far on his war effort. I am already at work on my new book, a history of the influence of scientific and technological development on social thought and policy (to be called The Abuse and Decline of Reason) and I have in the course of the last year already worked out a fairly definite plan and done a good deal of preliminary reading. It is a great subject and one could make a great book of it. I believe indeed I have found a new approach to the subject through which one could exercise some real influence. But whether I shall ever be able to write it depends of course not only on whether one survives this but also on the outcome of it all. If things go really badly I shall certainly not be able to continue it here and since I believe it is really important and the best I can do for the future of mankind, I shall then have to transfer my activities elsewhere.

These are uncharacteristic lines for Hayek, who was not normally given to hyperbole. He was worried about what was to come and which side would win and, given that he could not participate directly by engaging in government work, was convinced that this project was the best contribution he could make. Because his own survival was not assured, he sent Machlup a copy of the chapter outline for the book (he did the same for both Walter Lippmann and Jacob Viner), and promised to send the actual chapters along as they were completed. He also included a table of contents for a future book, to be titled Knowledge and Necessity, that would collect ar-

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ticles that he had written. Such a book would indeed appear after the war, but with a different title (Individualism and Economic Order) and a different set of articles (only two of those he listed would be included). Impetus for work on the project was provided not only by the course of war but also by the response of Hayek’s constant nemeses, British natural scientists, to the Nazi aggression. Their calls for planning, strong before the war started, continued apace as the Phoney War turned real. A ubiquitous and authoritative source was the scientific weekly Nature. It was not simply the articles that it chose to publish; the unsigned leader page also repeatedly emphasized that scientific expertise was needed, and needed urgently, to direct the war effort. Soon after the narrow escape at Dunkirk, the leader writer offered his opinion as to the proper lessons to be learned from the near-disaster: “It has become a matter of life and death that the habits and customs of a laisser-faire society should be abandoned, and the economic and social implications of modern warfare be fully recognized” (Nature, July 13, 1940, 40). War demanded planning. Two weeks later, under the title “Men of Science and the War,” the intrepid writer urged his fellow scientists to use their knowledge to correct the errors committed by others in decision-making authority. The arrogance is palpable: “Until now (and this is still the case), planning has been the task of our political and industrial leaders and of the Civil Service alone. There is no need for us to dwell on the results of their efforts. As men of science our responsibility today is to see that things get done, not to blame others if they have not been done” (Nature, July 27, 1940, 107). A final entry, this one from October 1940, even looked forward to the contributions that science could make to organizing society after the war was done. “The work must not cease with the end of the War . . . the immediate concern of science in formulating policy and in other ways exerting a direct and sufficient influence on the course of government is one to which we must hold fast. Science must seize the opportunity to show that it can lead mankind onward to a better form of society” (Nature, Oct 12, 1940, 470). Though his chosen topic was historical, Hayek’s target was clear. The subtitle of the book, as well as the title of part 1, reveal the main theme: that the abuse and decline of reason was caused by hubris, by man’s overweening pride in the power of his own reason. This had been bolstered by the rapid advance and many successes of the natural sciences, which led to “scientism,” the idea that to make the social sciences truly scientific, all that was necessary was to apply within them the already proven methods of the natural sciences. Those infected by the scientistic prejudice believed that were the recipe followed, the scientific reengineering of society along more rational and just lines could begin. Hayek would show the

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historical development of this optimistic, widely accepted, and apparently benign (but in his view quite dangerous) doctrine, as it spread (always taking slightly different forms) from France through Germany to England and America. Then he would show its disastrous consequences in the twentieth century. * * * Hayek saw scientism as arising from the intermingling of positivist and socialist ideas that themselves had their origins in eighteenth- and early nineteenth-century France. He began his account with a brief and laudatory listing of the accomplishments of French Enlightenment scientists and mathematicians. In addition to making scientific discoveries, these thinkers made methodological advances, in particular the elimination of anthropomorphic concepts for the interpretation of relations among physical phenomena. Though this was an important step forward, their epigones would err by applying similar methods to the study of society, an evident mistake, given that societies are composed of acting human beings. Hayek also highlighted changes in the French system of education instituted under Napoleon that eliminated the old system of colleges and universities and replaced them with more technically oriented schools. A new type of “educated man” was thereby made possible: “For the first time in history that new type appeared . . . the technical specialist who was regarded as educated because he had passed through difficult schools but who had little or no knowledge of society, its life, growth, problems, and values, which only the study of history, literature, and languages can give” (Hayek 2010 [1941b], 176). The most influential of the new schools was the Ecole Polytechnique, which emphasized the practical application of scientific knowledge: “the very type of the engineer with his characteristic outlook, ambitions, and limitations was here created” (180). Hayek’s succeeding chapters focus on two main protagonists, men who must rank among the most bizarre characters in the history of the social sciences, the Comte Henri de Saint-Simon (1760–1825) and Auguste Comte (1798–1857). Hayek clearly relished recounting the colorful early history of Saint-Simon, who lived the life of an adventurer, soldier, speculator, and projector. The good count lived extravagantly on other people’s money. Only when his main benefactor and partner found out and cut off his funds did he decide, at age thirty-eight, to become a philosopher. He moved opposite the Ecole Polytechnique, took a wife who could set a good table, and spent the next three years and most of his money hosting dinner parties to which he invited the best minds of the Ecole. He dumped his wife when

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his three-year education and funds were at an end, hoping to marry one of the most famous figures of his day, Madame de Staël, whom he accordingly called on at her villa, Le Coppet. He thought the match would be obvious— “the first man of the world ought to be married to the first woman”—but Madame de Staël demurred (Hayek 2010 [1941b], 187–90). Only then did Saint-Simon begin his writing career. His early efforts were unimpressive (they formed, according to Hayek, an “incoherent and rambling jumble . . . the outpouring of a megalomaniac visionary who sprouts half-digested ideas” [193]), attracting little attention. His exposition improved only after he started employing younger men of talent as secretaries, first Augustin Thierry, and later none other than Auguste Comte. Toward the end of his life Saint-Simon would lose the services of Comte, who broke with him, but he was able to attract a new set of followers who would transform his ideas into a more authoritarian form of socialism and ultimately into a new creed: “the religion of the engineers,” as Hayek put it (217). Far more influential than Saint-Simon’s own writings were those of these followers, whose ideas could be found in a series of lectures they gave at the Ecole and then published in 1829 and 1830 as the Doctrine de Saint-Simon, Exposition. Hayek felt that they had made many more contributions to socialist thought than they had typically been given credit for, especially by such dismissive critics as Marx. insofar as that general socialism which today is common property is concerned, little had to be added to Saint-Simonian thought . . . “Individualism,” “industrialist,” “positivism,” and the “organization of labour” all occur first in the Exposition. The concept of the class struggle and the contrast between the bourgeoisie and the proletariat in the special technical sense of the terms are Saint-Simonian creations. The word socialism itself, although it does not yet appear in the Exposition (which uses “association” in very much the same sense), appears in its modern meaning for the first time a little later in the Saint-Simonian Globe. (229)

Hayek contended that the Saint-Simonian influence across Europe was pervasive. Through Carlyle and John Stuart Mill their ideas entered England, and after the July Revolution of 1830, a “veritable flood” of SaintSimonian writings appeared in Germany. Traces of their thought could also be found in Italy, Spain, Sweden, Russia, even South America (239–45). As important, their influence extended far beyond socialist thought. Their ideas on how to organize the banking system “did much to give continental

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capitalism its peculiar form; ‘monopoly capitalism,’ or ‘finance capitalism,’ growing up through the intimate connection between banking and industry (the banks organizing industrial concerns as the largest shareholders of the component firms), the rapid development of joint-stock enterprises and the large railway combines are largely Saint-Simonian creations” (251– 52). Even the halls of political power felt their influence. Napoleon III was a committed Saint-Simonian, and (anticipating arguments Hayek planned to make in the next section of the book; see 256n2) their ideas also affected Bismarck, who got them secondhand from the writings of Ferdinand Lassalle. If Saint-Simon had been a megalomaniacal verkannte Genie (196), at least he had enough personal charm to attract a following. In comparison Hayek’s second protagonist, Auguste Comte, a founder both of socialism (through his collaboration with Saint-Simon) and, in his own writings, of positivism, was a “singularly unattractive” individual. Grandiose, pompous, ever confident of his own brilliance (early in life he decided he had read enough, and thereafter practiced a “cerebral hygiene,” refusing to read anything new), he felt he had discovered laws governing the development of the human race that were “as definite as those determining the fall of a stone” (258, 269). He was prolix: his first work, the Cours de philosophie positive, took over a dozen years to complete and ran to six volumes, while his second, the Système de politique positive, took up four. Only his death prevented the world from receiving a planned third set of volumes. His work, perhaps unsurprisingly, was almost completely ignored in his own country during his lifetime. Hayek is mercifully brief in laying out some of the essential Comtean ideas: the three stages (theological, metaphysical, and positive) through which all scientific thought must pass; the abandonment in the positive stage of all anthropomorphism and its replacement by general laws describing the interrelationships among variables; the necessity of doing away with psychology (which Comte dubbed “the last transformation of theology”) in the study of social phenomena and in its place relying on “observed facts”; the “evolution of the human mind as a manifestation of the ‘collective organism’ which mankind as a whole constitutes”; the transformation of history into a science capable of making predictions (258–69). Though some of these ideas sound strange today, others will be quite familiar to social scientists. If everyone ignored him, how did they spread so widely? As Hayek showed, it was not by people studying Comte directly, but by the efforts of a small but influential group of scholars who discussed and promoted his ideas, so that in the end they became common currency, eventually even finding their way back to France. Among the advocates in

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England were the early John Stuart Mill (in the sixth book of his Logic), George Lewes, George Eliot, Harriet Martineau in her later years, Herbert Spencer, and Henry Thomas Buckle. These men were read by scholars in Germany, who in turn were read by Frenchmen like Alfred Victor Espinas, Lucien Lévy-Bruhl, Emile Durkheim, and François Simiand, who went on to establish sociology in their own country (277–81). Both Saint-Simon and Comte, though not natural scientists themselves, had visions of what constituted proper scientific practice and were confident that by applying it society could be reorganized along scientific lines. Both harbored authoritarian tendencies: Saint-Simon said that those who defied the orders of the central planning body should be treated as harshly as one would treat recalcitrant four-legged beasts; Comte’s vision for his ideal society was so hierarchical that Thomas Huxley acidly dubbed it “Catholicism minus Christianity” (Hayek 2010 [1941b], 193, 275). Neither they nor their followers had much knowledge of the existing “social science” of their day, but that mattered little to them, because they had a shared contempt for it. The Saint-Simonians in an early publication referred to such concepts as value, price, and production as “irrelevant details”; and as for Comte, he took pains “to denounce political economy at some length, and here his severity stands in a strange contrast to his exceedingly slender knowledge of the object of his abuse” (221, 272). Given that Hayek’s ultimate targets were similar beliefs held by the men of science of his own day, documenting the bizarre historical origins of their ideas, that mix of scientism and socialism that was so popular in the 1930s, was positively irresistible. That Laski in his book on liberalism had touted Saint-Simon as a visionary thinker was simply icing on the cake. * * * Hayek had written short historical pieces before—his obituary notice for Wieser, his 1934 essay on Menger, his introductions to the editions of Gossen, Cantillon, and Thornton come to mind—and had done a considerable amount of research for the never-written big book on money, but he had never completed anything of the magnitude of these early chapters of his grand project. What are we to make of this, Hayek’s first extended foray into serious intellectual history? Hayek was evidently thorough in his research. His footnotes indicate that he read nearly everything that was then available in the secondary literature in French, German, and English (there was very little in English) about Saint-Simon, Comte, and their followers. His primary sources were the forty volumes of the collected works of Saint-Simon and Enfantin

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(1865–78), and the ten that Comte executed (1830–42, 1851–54). Regarding Comte, it is a testimony to Hayek’s scholarly discipline and fortitude that he was willing to slog through the material. Indeed after all that toil, he  might be forgiven his final sentence of “Counter-Revolution” on the spread of Comte’s influence: “Why this influence of Comte should so frequently have been much more effective in an indirect manner, those who have attempted to study his work will have no difficulty in understanding” (Hayek 2010 [1941b], 281). Much of what Hayek wrote reflected information that was wellestablished in the secondary literature. The mutual rise and interpenetration of socialism and positivism had been established by Hayek’s Senior Common Room companion Elie Halévy in articles he first published in 1907 and 1908, and reiterated by Durkheim (Halévy 1966 [1938], 21–104; Durkheim 1928). Sometimes, though, Hayek broke new ground, as with his suggestion that the impact of the ideas of the Saint-Simonians on the Young Hegelians was an underexamined area that was ripe for further study. Hayek decided to publish what he had finished so far under the title “The Counter-Revolution of Science” in installments in three successive issues of Economica in February, May, and August 1941. The somewhat ambiguous title refers to the self-image of the nineteenth-century social engineers, who sought to counter the forces of revolution and reaction by offering a means for the scientific reconstruction of society. If scientism, positivism, and socialism constituted the counterrevolution, Hayek by opposing them was taking on the role of the counter counterrevolutionary. For those who did not regularly read French and German sources, which included at least a (perhaps sizable) subset of his Economica readers, he was providing a service not unlike that of his earlier book, Collectivist Economic Planning. At least one discriminating contemporary reader who had a thorough command of foreign languages thought quite highly of what Hayek had accomplished.8 The eminent economic theorist and historian of thought Jacob Viner wrote to Hayek, “I have just finished reading your ‘The Counter-Revolution of Science’ and want to tell you how much I enjoyed it. Most of the contents were wholly new to me, and you have handled a great mass of difficult material in masterly manner.” Viner went on to ask for an offprint to give to a colleague who was working on the history of ideas: “I am lending him my copy to read, but he would very much like one to keep” (Dec 7, 1941). Mises’s reaction was also enthusiastic: “Your plan to investigate the impact of positivism is excellent. There is hardly a more urgent task than that” (letter to Hayek, Jan 26, 1940), or “Your essays on the C. R. 8. Paul Samuelson (1989, 126) described his former teacher Viner as “hyper-critical.”

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of Science are the most valuable contribution to the history of  decay of Western Civilization” (Dec 16, 1941).9 Viner’s letter led to an extended correspondence with Hayek concerning their joint disappointment over the wide dispersion of the correspondence of John Stuart Mill. Hayek’s interest in Mill was sparked by the role that Mill had played in conveying Saint-Simonian and Comtean ideas to England. This ultimately led him to begin the “huge” (the adjective is Viner’s) task of collecting copies of the letters for their ultimate publication. Viner assisted in locating letters in America, and Hayek took out an advertisement in the Times Literary Supplement of February 13, 1943, identifying known collections and asking for help in finding additional unpublished letters. By this innocuous sequence of events, Hayek soon became known as a leading Mill scholar.10 Hayek’s decision to begin his account with the transformations that took place in reaction to the French Revolution would have made sense to his readers.11 The jarring economic, social, political, juridical, and cultural transformations that the French Revolution, Napoleonic Empire, and Restoration brought with them in quick succession created the desire to reestablish a new order. Saint-Simon gave voice to this in 1814: “The eighteenth century has done nothing but destroy; we shall not go on with its work: on the contrary, what we will do is to lay the foundations of a new edifice” (quoted in Halévy 1966 [1938], 32). World War I and its aftermath, the communist and fascist revolutions, and the Great Depression had had a similar effect on Hayek’s own generation. In search of a new way forward, advocates of liberalism and of a nascent socialism (both of whom opposed the royalist and Catholic reactions) had contended with each other in France and elsewhere in the 1820s and 1830s, just as now liberals like Hayek sought to compete with the socialists of his day to provide a path that would avoid the horrors of communism and fascism, of nationalism and racism. 9. In contrast, his Austrian colleague Haberler regretted Hayek’s turning away from economic theory to intellectual history (letter to Machlup, Apr 18, 1940). 10. The Viner-Hayek correspondence is reproduced as an appendix in Hayek 2015b, and Sandra Peart’s volume introduction provides details of the evolution of Hayek into a Mill scholar, and where it led him. Hayek (1994) would later remark, “the work on the Saint Simonians in particular led unexpectedly to my devoting a great deal of time to John Stuart Mill, who in fact never particularly appealed to me, though I achieved unintentionally the reputation of being one of the foremost experts on him” (128). 11. As Laski had put it in his own dissection of the collapse of liberalism, “To understand our own epoch, in short, we must think ourselves back either to the epoch of the Reformation or to the period of the French Revolution” (Laski [1936] 1997, 246–47).

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There were other similarities. Otto Neurath’s plan for an encyclopedia of “unified science” mirrored Saint-Simon’s proposal for an encyclopedia of scientific knowledge. The Soviet Union’s doctrine of socialist realism echoed the Saint-Simonian theory of art, which Léon Halévy (Elie Halévy’s grandfather!) among others had developed. But perhaps most fundamentally, Hayek claimed to see certain similarities in attitude when he compared the words and personal descriptions of the earlier writers with the writings and behavior of some of his peers. In one interview he said, “The Saint-Simonians seemed to me such a beautiful illustration of the kind of attitude I found in the Vienna Circle . . . the similarity between Carnap and some of these people was amazing” (Bartley interviews, Mar 28, 1984). In another he acknowledged that J. D. Bernal “became to me representative of a new view, which I tried to analyze in ‘The Counter-Revolution of Science,’ and that was so dominating” in Cambridge (Bartley interviews, summer 1984). Hayek offered explicit comparisons in “Counter-Revolution” when commenting on Saint-Simon’s second major work, Introduction aux travaux scientifiques du dix-neuvième siècle: It combines, for the first time, nearly all the characteristics of the modern scientistic organizer. The enthusiasm for physicism (it is now called physicalism) and the use of “physical language,” the attempt to “unify science” and to make it the basis of morals, the contempt for all “theological,” that is, anthropomorphic, reasoning. The desire to organize the work of others, particularly by editing a great encyclopaedia, and the wish to plan life in general on scientific lines are all present. One can sometimes believe that one is reading a contemporary work of an H. G. Wells, a Lewis Mumford, or an Otto Neurath. (Hayek 2010 [1941b], 195)

Hayek wanted to show that a distinct “spirit of the age” existed in both periods; as he put it in notes he made while working on the project, he would be “describing the spirit of an epoch by the examples of particular persons” (FAHP 107.17). The phrase itself was meant to bring the reader back to an earlier time. It was this Geist in its current manifestation that Hayek, the counter counterrevolutionary, was intent on combating.12 Accordingly Hayek wrote a very specific type of historical account. In the first instance it was intellectual history, which he knew was out of fashion but for which he made no apologies. How out of fashion was everywhere 12. Laski invoked the phrase in his own “war effort,” Reflections on the Revolution of Our Time (1943), choosing it as the title of his first chapter. Was he responding to Hayek?

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apparent. For Harold Laski, the ideas invoked by defenders of liberalism were, in the end, reflections of the class interests of those who owned and controlled property. For Karl Mannheim, founder of the sociology of knowledge, ideas or mental structures were reflections of and conditioned by the social structures in which they arose. For Wesley Clair Mitchell, or Gustav Schmoller before him, changes in economic reasoning simply reflected and rationalized changes in the technological, cultural, economic, social, juridical, and class institutions of society. Hayek would have none of that. His goal was to locate the origins of certain fundamental ideas and to make the argument that the gradual spread and acceptance of these ideas helped to bring about the horrible mess that the world now found itself in. It is telling that many liberals of his day reacted in a similar way, by reasserting the paramount importance of ideas. Lippmann had done so in The Good Society, and Keynes had done so in the final pages of the General Theory. Everyone remembers Keynes’s quip about “madmen in authority” being influenced by some “academic scribbler.” But his next sentence is where the importance of ideas was invoked: “I am sure that the power of vested interests is vastly exaggerated compared with the gradual encroachment of ideas” (Keynes 1973a [1936], 383). Hayek would have agreed completely. Like Laski’s, Hayek’s was history with a point. Hayek’s approach was echoed by the liberal historian Elie Halévy, a person whom Hayek cited frequently, not only in “Counter-Revolution” but also in The Road to Serfdom. R. K. Webb, who translated Halévy’s 1938 book into English as The Era of Tyrannies, said in his preface that “Halévy’s work is conclusive justification for the centrality of thesis and argument in historical writing” (Halévy 1966, xiii). Just so, too, for Hayek. And R. H. Tawney had endorsed a similar approach to history in his inaugural address at LSE, given on October 12, 1932, and so probably attended by Hayek, in which he averred that “the historian’s business is to substitute more significant connections for chronology” (Tawney 1933, 9).13 In approach Hayek may have been out of step with certain then popular approaches, but he was not unique in this. “The Counter-Revolution of Science” provided examples of ideas about which Hayek would generalize in his forthcoming “Scientism” essay. It also began his long fascination with the figure of John Stuart Mill. As the comments from Jacob Viner, who was then at the University of Chicago, attest,

13. In his address Tawney (1933) also gently teased economists, noting that “The law of diminishing utility is, doubtless, illustrated by the savage, who, having eaten one missionary, finds his appetite for a second temporarily jaded . . .” (17).

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it also established his bona fides in the history of ideas, an area in which he had been teaching for the past few years.

The London Blitz Hayek finished up the six chapters on the French origins of scientism, socialism, and positivism sometime in October 1940. Though the air war over London (the so-called Battle of Britain) began in July, the bombing offensive, or Blitz, began in earnest with a dramatic daytime raid on Saturday, September 7, followed by another that evening that lasted until 4:30 the next morning. By dawn 430 Londoners were dead, over 1,600 wounded, and there was extensive destruction of property due to fires (Price 2000, 101). The assault on London would continue, mostly at night, for fifty-seven consecutive days, and though the cloud cover of winter skies gave a bit of a reprieve, there would be additional regular attacks through early May 1941. Over 20,000 civilians in London would by then be dead, and 300,000 houses damaged or destroyed (Ziegler 1995, 161). The raids did not, however, affect all parts of London equally, as was evident from Hayek’s October letter to Machlup: Life here in London is amazingly unchanged. Some night [sic] have been unpleasant, and once or twice even we out here have had bombs uncomfortably close. But on the whole, the effects of the German attacks are—at least in the parts of London which I regularly see— extraordinarily small. I think any visitor who did not know would think that London had been bombed for one night rather than for one month . . . One gets used to sleeping in a basement or, as in our case, a strengthened ground floor room and just hopes for the best. It is of course by no means excluded that things may get worse—in which case I shall probably also change my present habits. But so far the advantage of being able to continue my work in my own study and among my own books still seems to outweigh the slight danger attaching to it. (Oct 13, 1940; the letter is reproduced in its entirety in Hayek 2010, 314–15)

Hayek underestimated the physical destruction that befell London during the Blitz. In the first six weeks (contemporaneous with Hayek’s first letter), 16,000 houses were destroyed and 60,000 seriously damaged. The areas that were hit first, hardest, and longest, though, were in the East End, where industry and docks were located, and where Hayek would have had no reason to go. It was nearly a week before bombs began to fall in the tonier West End. He may also have been taken in by the constant refrain,

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meant to reassure the populace, in the official BBC bulletins: “The material damage is slight, and casualties few.” Finally, throughout the war, Sir Warren Fisher’s Pioneer Corps became expert at quickly cleaning up the debris (Ziegler 1995, 121–24, 153–54, 182). Hayek’s comment was an accurate reflection of what he saw, but his view was limited. In any event, Hayek was ready for the next stage of his project. As the outline indicated, he planned next to trace the movement of ideas from France to Germany, England, and America, and he had made rough notes for a chapter comparing Comte and Hegel. But before continuing with the history, he decided to do what was listed as chapter 1, which would cover “Scientism.” There he would contrast the faux scientistic approach with what he viewed as the proper methods for the social sciences. That chapter would grow into an essay and take much longer to complete than had the six he had just written.

Tor Cottage, Tintagel, and Anger over Isolationism The housing arrangement that the Hayek and Robbins families had made was supposed to be temporary. It turned out to be a bit more than that. As the war geared up, Lionel spent almost all of his time in London, coming to Tor Cottage only on occasional weekends. Once the autumn 1940 school term began, the two Robbins children were around less as well. Anne, then aged fifteen, was a weekly boarder at the Farmhouse School in Wendover (“some sort of strange school where they tended farm animals” was how Christine Hayek remembered it), and Richard, aged thirteen, was packed off to the New College School in Oxford (Howson 2011, 354; Christine interviews, Oct 14, 2012). Most of the time it was just the two mothers, Iris and Hella, with the two Hayek children, Christine and Laurence, who attended the local school. This situation lasted through the 1940–41 academic year, except for vacations at Christmas and Easter. Over the summer the Hayek family finally cleared out. Over school vacations they went to Cornwall on the west coast, to the town of Tintagel. Keynes had vacationed there as a child, so perhaps he had recommended it (Skidelsky 1983, 52, 73). The town itself is rather grim and  gray, especially in winter, but the coastline is stunning (“one of the most beautiful parts of the country” are Hayek’s words: Hayek to Machlup, Jan 2, 1941) and perhaps magical: it was the legendary home of King Arthur. As was their custom, the Hayeks took rooms in a private home. The meal routine was straightforward: Hella would buy the food, and the landlord’s wife would cook it. The Hayek family had their own separate sitting room and dining table, with a fireplace, and Christine recalls her father

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sitting by the hearth, the coals sizzling, reading Morte d’Arthur. She also remembers climbing on the sea rocks, exploring inlets and caves and the like, “messing around” with Laurence, the first time really that they played much together (Christine interviews, Oct 14, 2012). They would return for almost three weeks in April 1941 and for much of the month of August. It was from Tintagel, on January 2, 1941, that Hayek completed a letter to Fritz Machlup that he had begun in Cambridge in December. From it we find out that sometime during the Michaelmas 1940 term, Hayek was offered rooms (by the good graces of Keynes, we now know) in King’s College. As befits a new year’s letter, he talked about his future plans. This is the first time that he mentioned the possibility that he might try altering his big project somewhat: “at the moment I am mainly concerned with an enlarged and somewhat more popular exposition of the theme of my Freedom and the Economic System which, if I finish it, may come out as a sixpence Penguin volume.” The letter also contains extensive, and vitriolic, comments on America’s continued flirtation with isolationism and (perhaps inevitably, given Hayek’s sustained interest in the topic) the inaccurate reporting of its newspapers. Supported by the Northeastern internationalist wing of the Republican party, the former Democrat and New Deal critic Wendell Wilkie had gained the Republican nomination for the presidency over the more isolationist wing, people like Robert Taft and Thomas Dewey. When confronting Roosevelt in the general election, however, he switched positions, saying that if elected he would not send troops to Europe, this as bombs were falling on London. Roosevelt’s election victory was decisive, but he did not take it as a mandate, still facing an isolationist Congress. All these political machinations infuriated Hayek: That before the collapse of France the Americans may have felt that the Allies will win without them is of course partly the fault of people over here. That immediately after they may have felt that it was too late I can understand—although it is difficult enough to understand it over here. But that now, when nobody can have any illusions about what a victory of Hitler would mean for America and when it is so clear that every day may be decisive, and with the elections out of the way, things should still move no faster, is incomprehensible to me. I say this even after Roosevelt’s last speech and in full knowledge of the “political difficulties.” It is the blindness of the American isolationists which I cannot understand. Compared with them Baldwin and Chamberlain were marvels of foresight. It would be too long to discuss all this more fully—but in what I see of current American discussions I find hardly a sentence

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which does not prove that people are yet completely unaware of what is at stake now—and how irrevocable the days lost are. (Hayek to Machlup, Jan 2, 1941; for the entire letter, see Hayek 2010, 316–18)

Hayek’s response delighted Machlup, who showed the letter to friends and ultimately reproduced parts of it to send off to others: “In every group we find some isolationists—and such a fine letter from England is the best answer to their arguments” (Machlup to Hayek, Mar 14, 1941). Mises would also later complain that though Americans were starting to wake up to the fact that they did not live on Mars, there were “still many stubborn isolationists” in the States (Mises to Hayek, Jan 27, 1941). As we will see, Hayek’s announcement about his possible change in research plans would have further repercussions regarding his relationship to the United States, a place he had once visited and, incongruously given his reaction to the visit, he would one day live. But again, we get ahead of the story.

· 27 · Cambridge

“Strange Birds” During the spring of 1941, while Hella, Christine, and Laurence were living at Tor Cottage with the Robbins family, Hayek was (according to Christine) “living in great style in King’s. And that must have been through Keynes, because the college [School] had no connection with King’s, they were at Peterhouse. I think Keynes wanted (pause), probably father would be an ornament for the high table, if you follow me, as an intelligent chap on his own, not exactly on his own wavelength, but somebody interesting; I think, despite everything, I think they were quite good friends” (Christine interviews, Oct 12, 2012). We do not know the exact reason why Keynes intervened on Hayek’s behalf to get him rooms at King’s. Hayek had taken on a disproportionate share of the economics teaching and was having to spend at least some time in London, which was under nightly aerial attack, so there may have been both pragmatic and humanitarian motives at play. The rooms were in any event nicely located: he was housed in the Gibbs Building, with a view of the River Cam. He would retain his high table privileges throughout the war, even when his family moved to Cambridge and they let a house. Like London, King’s had experienced some physical transformations owing to the war. Early on one of the ubiquitous zigzag trenches had been dug outside Choir School, and by the end of 1941 all of the ancient stained glass windows of King’s Chapel had been replaced with sheets of tar paper, with strips of plain glass at the bottom to let some light in. Only the West Window of 1879 remained intact. The new look made the chapel even colder than it had been before in winter, and noisier, as the tar paper “rattled thunderously in the wind” (Wilkinson 1980, 103). Cambridge colleges were famously insular, so aside from encounters, usually over lunch, with Peterhouse scholars (IB 98), most of the people Hayek saw were Kingsmen. Among them were not a few “strange birds,” Hella’s name for denizens of Cambridge. First among these, of course, was Keynes himself.

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We know much more about Hayek’s reaction to Keynes than vice versa for the simple reason that Hayek lived until 1992, whereas Keynes died in 1946. Hayek witnessed both the rise and the decline of Keynesian economics, and was often asked to comment on it, while Keynes was dead before the revolution that bore his name had properly begun. What follows are all retrospective accounts, Hayek reflecting on Keynes for later generations. Many reminiscences had to do with their time in Cambridge. As the author of The Economic Consequences of the Peace Keynes had been a hero to residents of Central Europe after the Great War, and Hayek came to know him a little better through his interactions at the London and Cambridge Economic Service and during their great battle in the journals in the early 1930s. But it was only when they lived in closer proximity during the war years that Hayek was able to take a fuller measure of the man. Keynes would spend the week in London doing war work but come home to Cambridge on weekends. In a private interview, Hayek said that they became “great friends” during this time, and that he got to know Keynes’s wife, Lydia, then as well (Bartley interviews, Feb 10, 1983). Most of Hayek’s reminiscences were public ones, however, and as one might expect given the context, there was always a certain ambivalence in his statements. On the positive side, Hayek wrote that Keynes was “one of the most remarkable men I have ever known,” observing “the amazing richness of his mind” and “the magnetism of the brilliant conversationalist with his wide range of interests and bewitching voice” (Hayek 1995a [1966], 240; 1983, June 11, 247, 253; cf. Bartley interviews, Feb 10, 1983). When asked to name people with whom he would most want to spend an evening in conversation again, he answered, Keynes and Schumpeter (Hayek 1994, 94). In their interactions in Cambridge, what seemed to impress Hayek most was the immense breadth of Keynes’s interests and his capacity to engage in them even as he was deeply immersed in war work. Indeed, “the interests and activities he still actively pursued besides his official duties would have taxed the whole strength of most other men” (Hayek 1995a [1966], 244–45). For Hayek, though, Keynes was always more of an aesthete than a scientist (an important distinction to make for a man whose own self-image was that of a scientist), and someone with great confidence in his own powers to influence public opinion: “He was, by gift and temperament, more an artist and a politician than a scholar or student. Though endowed with supreme mental powers, his thinking was as much influenced by aesthetic and intuitive as by purely rational factors. Knowledge came easily to him and he possessed a remarkable memory” (Hayek 1995a [1966], 244). As an example of the last characteristic, Hayek recalled an occasion in which he

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was at coffee in the Combination Room discussing with an astronomer a magazine article on Copernicus that Keynes had sent him some weeks before. Keynes, who was sitting nearby engaged in another conversation but also apparently listening in on Hayek’s, “suddenly interrupted me in the rendering of a complicated detail with ‘You are wrong, Hayek.’ He then gave a much fuller and more accurate account of the circumstances, although it must have been two or three weeks since he had seen what I had read a few hours before” (Hayek 1995a [1983, June 11], 253–54). There was frequently a moral lesson lurking just below the surface in Hayek’s accounts, usually having to do with Keynes’s overweening selfconfidence and the dangers of hubris. His retelling of their final conversation is illustrative. Hayek had asked Keynes whether he was at all concerned about the uses to which his disciples were putting his theories, and in particular, whether a theory that had made sense in “the age of plenty” of the 1930s might not stimulate inflation as the economy neared full employment. Keynes assured Hayek that were his theories ever to become harmful, he could turn public opinion against them like that, and snapped his fingers. Unfortunately, as Hayek concluded, “six weeks later he was dead” (Hayek 1994, 92; cf. 1995a [1966], 243–44; 1995a [1983, June 11], 248). Perhaps the most famous of their interactions from the Cambridge period may well not have happened at all. This is their having served together as air wardens. Though the story is oft repeated (e.g., Wapshott 2011, xi), the most dramatic account comes at the beginning of the PBS series on economics in the twentieth century, The Commanding Heights. The opening scene has two figures, their shadows outlined against the night sky as the air raid siren sounds. The narrator intones: During the blitz, the two most important economists of the age shared air warden duty on the roof of King’s College, an English gentleman and an Austrian exile—personal friends but intellectual rivals. How their battle of ideas still shapes our life and society is our story. (http://www .pbs.org/wgbh/commandingheights/shared/minitext/tr_show01.html)

The origin of the tale appears to have been members of the Hayek family, and in particular Laurence’s widow, Esca, who recounted it many times after Hayek’s death, including in her own husband’s obituary in the Independent.1 And it may well be true. But the problem is that in his reminiscences 1. For the obituary see “Laurence Hayek: Microbiologist and keeper of his Nobel laureate father’s flame,” The Independent, Sept 7, 2004. This may be due to the fact that,

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about Keynes, Hayek never mentioned having done air raid duty with him. And on the two occasions that Hayek did speak of doing air warden duty, he reported that he did it with the then vice-provost of King’s and fellow mountaineering enthusiast, Sir John Clapham. Hayek remembered him as “the only real paternal friend, with whom, as college air raid wardens, I spent long nights in the cellar of the Gibbs Building” (IB 97), and “to whom I probably owe my election to the British Academy and (what I valued almost more) the Alpine Club” (IB 95).2 Surely, had Keynes and he done air warden duty together, would not Hayek have at least mentioned it? Some may wonder how one looks for planes in the basement of a university building. In the basement was a telephone that connected to the person on the roof who was doing the actual watching. It was Hayek and Clapham’s job to relay any warnings onward should enemy planes be spotted. Christine Hayek found the whole situation rather amusing, as well as revelatory of her father’s skills at figuring out how to turn a potentially unpleasant situation into a more manageable one: He started—I don’t know with whom, whether it was with Keynes—but he started firewatching on the Chapel roof, but, I gather, and this is actually his own account of it, that he very soon found himself more comfortably installed with a telephone somewhere either in a basement or (pause), but indoors whereas I gather on the chapel roof they were actually sort of more or less out there . . . Icy winds straight from Russia, east winds up there would be quite something on the Chapel roof, I suspect it was bitterly cold in winter. I can’t think at the moment of any other particular occasion, but he had the pattern of falling on his feet, or of eventually finding himself on his feet in a more comfortable position. (Christine interviews, Oct 14, 2012)

Hayek’s air warden friend Clapham does not come across as a very sympathetic character in accounts by Cambridge contemporaries: one termed him “imposing and ponderous” (Howarth 1978, 200); another thought that the nickname bestowed on him (Honest John) fit well: “Of Yorkshire yeoman stock and Wesleyan upbringing, he had the virtues of the breed . . . He in contrast with the more matter-of-fact attitudes of his two children, Laurence and Christine, Esca’s adulation of her father-in-law was rather complete. 2. Clapham was president of the British Academy from 1940 until 1946, and Hayek was elected a fellow of the Academy in 1944. His election preceded the publication of The Road to Serfdom, and Hayek later expressed doubts that it would have been possible afterward (IB 110–11).

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took his religion seriously and stuck to his moral principles, which were on the narrow side” (Wilkinson 1980, 78). These remarks tell us more about those who write about Cambridge from the inside than they do about Sir John. Whatever his personal attributes might have been, he was a formidable scholar. He had been brought back from Leeds in 1908 to take over History for the soon to be departing and most fabled of the King’s Fellows, Oscar Browning, the notorious “O. B.” Clapham and his wife knew Eileen Power from her days as a student and later Director of Studies of History at Girton; she later collaborated with him in the creation of the Cambridge Economic History, a multivolume multi-authored work (Berg 1996, 84–85, 212–13). But one suspects that Clapham did not fit in well at King’s. Keynes’s friend, the literary scholar Dadie Rylands, described College members as “free spirits: artistic and literary and romantic” (quoted in Fletcher 2008, 32). The homoerotic ethos that had long been a feature of King’s3 was increasingly on display under the tutelage of Rylands and Donald Beves during the war, which would not have been to Clapham’s tastes—or for that matter, to Hayek’s, though Hayek later said that he did not realize at the time that parts of Keynes’s circle were homosexuals (Cubitt 2006, 43)— nor would the glib banter for which Keynes and his Apostle associates were famous. Clapham doubtless saw traces of a kindred soul in the younger man. Unfortunately, the friendship was not to last: Honest John died in March 1946. Aside from Clapham and the classical historian Frank Adcock, Hayek did not find many companions at King’s. Keynes’s circle did not extend a welcome: indeed, he felt “rather shunned” by Rylands and Beves, and about Richard Kahn said that he “clearly avoided me, which I did not regret” (IB 97).4 He came to know the philosopher of science Richard Braithwaite fairly well through his Moral Sciences Club, but Braithwaite’s “confession that he had had a sudden religious conversion,” which led to an increasing interest in the discussion of religious topics, put Hayek off. He had a better time with A. C. Pigou, whom he had met when he attended a conference marking the Centenary of Malthus’s death at Cambridge in 1934. 3. Speaking about recruitment efforts for the Apostles before the Great War, a historian of King’s said, “Not without opposition from Trevelyan and others, the idealistic attitude towards homosexual love gave way, under the influence of Strachey and Keynes, to a more sensual pursuit of beautiful young men, even to the point of jockeying to procure their election to the Society” (Wilkinson 1980, 51). The same author also highlighted the role of O. B. (18–19). See also H. G. Johnson 1978, 92. 4. At another point, however, Hayek says that Beves at least was friendly toward him, but he never pursued the relationship (IB 97).

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Pigou provided him rooms in King’s, but the event did not go well for Pigou, “who fortified himself for the ordeal of having to deliver the main oration by a strenuous hour of squash immediately preceding it and then blamed the heart attack immediately following it wholly on the lecture” (IB 84). Once Hayek had settled in Cambridge he played chess on occasion with Pigou and once visited him at his cottage Buttermere in the Lake District where he did some rock climbing, apparently in a pouring rain. He had been warned not to try to talk economics with Pigou (the story he had been told was that when someone once asked Pigou about something he had written, his reply was “I am not in the habit of reading my own books”) and complied (IB 97–98). Hayek occasionally engaged with people from outside the college. At Peterhouse he came to know Herbert Butterfield, of The Whig Interpretation of History fame, with whom he discussed the ideas of Lord Acton.5 Hayek was sufficiently inspired to begin working for a time in the Acton papers in the library, but “their very volume soon discouraged me as they seem to have done most others who tried” (IB 101). One wonders about their conversations: it was during this period that Acton became something of a hero for Hayek, while for Butterfield he was the chief exemplar of a modern Whig historian so criticized in the book.6 Hayek also had a friendly relationship with “the curious” Piero Sraffa of Trinity College, a fellow book collector who shared Hayek’s interest in the history of economics. They also found themselves collaborating on a treasure hunt of sorts. As noted earlier, Hayek had become known, rather inadvertently, as a scholar of John Stuart Mill and as someone who was trying to locate Mill letters for an eventual correspondence volume. Hayek was contacted by George O’Brien, professor of political economy at University College, Dublin, who informed him that a box of letters had recently been discovered containing correspondence between Mill and the Irish economist John Elliot Cairnes. Hayek encouraged O’Brien to prepare a paper discussing the correspondence for publication in Economica, which he did (G. O’Brien 1943). The box also contained a packet, which on further inspection was found to hold a set of letters between John Stuart Mill’s father, James Mill, and David Ricardo that had long been assumed lost. As it turns out, during the war (as well as before and after—the first volume was not to appear until 1951) Sraffa was working on editing The Works and 5. “I often remember with delight the talks that we had in the old days, especially about Acton,” Butterfield to Hayek, Oct 11, 1956. 6. See, e.g., Hayek’s letter to Karl Popper of December 4, 1943, where he quotes a passage from Acton, saying he had become “a great admirer” of his work.

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Correspondence of David Ricardo. When Sraffa was informed of the discovery, he was over the moon, writing to Keynes, “This is the most sensational news there has ever been about Ricardo. His letters to Mill have been found!” (July 5, 1943). Hayek would bring the box of materials back with him after his visit to Dublin to give the Finlay lecture in December 1945.7 Finally, there was Dennis Robertson, who had left Cambridge to take a job at LSE that began in January 1939 but soon thereafter had to leave for war service. When he finished his government work in 1944 he returned again to Cambridge to take Pigou’s chair, and Hayek tried a few times to engage him, but he was so shy and modest that their conversation often ran out. At the end of his stay Hayek told Clapham that he had seen the inside of only five other colleges. Consoling him, Clapham replied that he had been there for thirty years and seen only seven (IB 98).8 We save for last his distant cousin, Ludwig Wittgenstein. Richard Braithwaite’s rooms were directly below those of Hayek in the Gibbs Building. After a while Braithwaite invited Hayek to attend meetings of the Moral Sciences Club. Meetings took place once a week in term, and a list of speakers and their topics would be sent out to those who regularly attended. Each term there was a president of the Club, a presiding chair, and then hosts for particular meetings, which would take place in their rooms—among those listed as hosts around this time were Braithwaite, G. E. Moore, Susan Stebbing, and C. D. Broad, a distinguished group. The fifth meeting of the 1942 Michaelmas term took place on November 19, and in it Hayek presented his paper “The Facts of the Social Sciences.” During that term Wittgenstein was the designated chair, but the minutes indicate that the meeting was held in Braithwaite’s rooms and that Braithwaite was also in

7. In Meenan 1980, a biography of O’Brien prepared from autobiographical notes, it is reported that Sraffa came to Dublin to inspect the papers (188–89). But copies of letters from Sraffa to Keynes in the Hayek archives suggest that Sraffa was unable to make the trip (FAHP 44.3). Ingrao and Ranchetti (2005, 394) note that contemporaneous correspondence suggests that Hayek was the one who brought the materials back for him. 8. H. G. Johnson (1978, 90) confirms Hayek’s sense that one rarely had contact with faculty members outside of one’s college, explaining it by noting that one’s lectures outside of the college were “in buildings intended for lecturing and not for loitering,” so that, aside from meeting people on university committees or examining boards, there were very few opportunities for interaction. Other contributing factors were the general absence of phones, a device that “was feared and shunned by the older generation,” and the fact that “casual dropping in on or by colleagues was unwelcome on the one side and known to be presumptuous on the other” (93).

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the chair, so presumably Wittgenstein did not attend his cousin’s talk (Min. IX.44, Minutes 1935–52). But there was another meeting that Hayek vividly remembers attending when Wittgenstein was present.9 Here is his account: It was at the end of one of these meetings that Wittgenstein quite suddenly and rather dramatically emerged. It concerned a paper which had not particularly interested me and of the subject of which I have no recollection. Suddenly Wittgenstein leapt to his feet, poker in hand, indignant in the highest degree, and he proceeded to demonstrate with the implement how simple and obvious the matter really was. Seeing this rampant man in the middle of the room swinging a poker was certainly rather alarming, and one felt inclined to escape into a safe corner. Frankly, my impression at that time was that he had gone mad! (Hayek 1992a [1977a], 179)

The scene is very reminiscent of the incident that took place when Karl Popper presented his paper “Methods in Philosophy”—which was a direct attack on Cambridge (read Wittgensteinian) philosophizing—before the Club on October 25, 1946, a meeting that Hayek did not attend. Hayek had written his description of his own “poker incident” before having become aware of the one described by Popper in his autobiography, Unended Quest, and later made famous in Wittgenstein’s Poker (Popper [1976] 2002, 141).10 The implication is that unless Hayek is misremembering, Wittgenstein used a poker to make his points at the Moral Sciences Club more than once,  which may explain why different people remembered the incident with Popper so differently (for more on this see Hayek 1992a [1977a], 179n5). Anyway, later in the war years Hayek would visit his cousin at his apartment two or three times, and though their conversations were pleasant enough (they avoided talking philosophy, because Wittgenstein disliked doing so, and politics, because they knew they disagreed), from

9. In a letter to Karl Popper of October 28, 1944, Hayek reported that two days earlier he had attended a meeting of the Club in which Moore, Russell, and Wittgenstein— “who had all been away for years”—were present. But there may have been other meetings as well when both cousins were there. 10. In the book of the same title by Edmonds and Eidinow (2001), many people who claimed to have been present at a famous Moral Sciences Club meeting in which Wittgenstein purportedly swung around a fireplace poker in a threatening manner provided dramatically differing accounts, and were unable to agree on even the most basic details of the incident.

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Hayek’s perspective they were not very interesting, so he stopped coming by (Hayek 1992a [1977a], 179–80).

LSE in Cambridge When the war started the teaching staff of LSE had already shrunk to ninety; by July 1941 it was down to thirty-seven. As his colleagues kept disappearing into government work or elsewhere, Hayek’s teaching duties at Cambridge increased, though to compensate there were fewer students and at least some of the lecture assignments were shared with Cambridge faculty (Hayek 1994, 97; IB 94; Hayek to Machlup, Apr 7, 1941). One of the LSE faculty who accompanied Hayek to Cambridge was W.  Arthur Lewis. Lewis had come to LSE from the Caribbean island of Saint Lucia, earning a BCom with first-class honors under Arnold Plant. Plant recommended that he continue on to get a PhD, and failing to obtain employment with either the Colonial Office or the private sector (the Economist magazine turned him down because he would have to interview people, and they worried that some would refuse to be interviewed by a Black man), he acceded. In 1938, while still working on his thesis, Lewis was invited to join the faculty as a one-year assistant in economics. Hayek recalled that he and Robbins had to fight for the appointment; some of the conservative law professors were worried that parents would object if their daughters were in a room alone with “such a person” during tutorial sessions. Lewis was so successful at his job that at year’s end he was offered a four-year contract as an assistant lecturer (Tignor 2006, 15–21; Bartley interviews, Feb 11, 1983). He proved himself an invaluable colleague to Hayek in Cambridge. In June 1941 Hayek wrote to Carr-Saunders, urging him to offer Lewis “an exceptional promotion” or at least a “teaching citation,” as he was performing the tasks of senior members of the department, was doing so “with conspicuous success,” and was “one of our best teachers” (Tignor 2006, 22). Lewis taught at LSE until moving to Manchester in 1947. He was knighted in 1963, the same year he moved to Princeton University, where he taught for two more decades. A pioneer in development economics, he was awarded the Nobel Prize in 1979. Another LSE member of staff who went to Cambridge was Nicholas Kaldor, and proximity appears to have made Hayek’s already uneasy relationship with him only worse. Some of the ill will may have been generated by an episode in which Hayek was only a bystander. When the School moved to Peterhouse Keynes insisted that Kaldor, alone among the LSE teaching staff, be appointed and paid an additional amount as a Cambridge lecturer.

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Though Robbins opposed the special deal, Keynes got it approved by Cambridge and had the funds sent to LSE Director Carr-Saunders. Left with a fait accompli, the director ended up simply adding the money to Kaldor’s paycheck, and the payments continued for the rest of the period that the School was located at Peterhouse. Robbins was furious, and Kaldor later recounted his thwarting of his senior colleague’s wishes with considerable relish (Shehadi interviews, 13). It should be recalled that among remaining LSE staff, Kaldor was the one most devoted to Keynesian ideas. A second episode was never mentioned by either Kaldor or Hayek but can be traced through extant correspondence. In December 1941 Kaldor, unhappy that he had not been asked by Hayek to participate in examining students for the BSc (Econ) final examinations, approached Harold Laski, who was chairman of the Board of Studies, to make inquiries. Laski got a response from Hayek and, ever ready to stir the pot, let Kaldor know that Hayek’s reason was dissatisfaction with how Kaldor was performing his teaching duties. This led to a rather heated exchange of claim and counterclaim between Hayek and Kaldor in late January 1942, culminating in a letter from Kaldor to the director explaining his side of the story. It is impossible at this distance to assess who had the better side of the argument, but the extended back and forth indicates how truly bad things had gotten. There seems to have been a complete lack of trust between them.11 It is not inconceivable that behind Hayek’s opposition to having Kaldor examine undergraduate students was a fear that he would insist on questions that represented Keynesian ideas. Certainly, there was a precedent at Cambridge for such debates. Even in the early 1930s Joan Robinson’s dogged adherence to Keynesian ideas had caused consternation among other members of the staff. Matters became worse when she began offering lectures to second-year students in which she dismissed as rubbish the very ideas that the same students would hear from Dennis Robertson in the third year. The tense environment was one reason why Hicks decamped to Manchester in 1938, and why Robertson left Cambridge for LSE in 1939. In June 1940 Pigou wrote to Keynes that “the parrot-like treatment of your stuff” by students on their Tripos papers was due to Robinson, who “propounds the Truth with an enormous T and with such Prussian efficiency that the wretched men become identical sausages without any minds of their own!”—a rather intense metaphor to use only a few weeks after Dunkirk (Pigou, in Moggridge 1992, 599, cf. 597–603; Aslanbeigui and Oakes 2009, 175–78, 191–201; H. G. Johnson 1978, 91). Such considerations 11. The letters are mentioned in Ingrao and Ranchetti 2005, 395. Susan Howson shared copies of the letters with Caldwell.

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never came up in any of the correspondence between Kaldor, Hayek, Laski, and the director, of course, but they doubtless lurked in the background. It seems probable though that personal antagonism was also in play. Kaldor was one of those people who delight in embarrassing others, and by then Hayek had become a favorite target. Kaldor admitted as much in a later interview: “when I discovered he was so silly I sort of teased him, made him look ridiculous, contradicted him in seminars. I remember one occasion here in Cambridge when I had an argument with Hayek. I said, ‘Professor Hayek, this is intermediate economics.’ And Hayek got redder and redder . . .” The punchline to Kaldor’s joke was that when Hayek complained to his colleagues in the Combination Room that Kaldor had said, “This is intermediate economics, and you ought to know it,” Kaldor replied, “I protest. I never said you ought to know it” (Kaldor, Shehadi interviews, 25). Everyone present burst out laughing. Hayek knew well enough by then that he was not going to be able to keep pace with the profession’s mathematical direction, or with the likes of Kaldor. Understandably, Hayek, who told so many stories over the years, never told the one about the Combination Room incident. But in the privacy of his own home, he did, apparently, talk about Kaldor’s behavior. In 1961 Hayek’s then-grown daughter Christine was describing in a letter to her father a play she had seen recently: “There is a play on now in London—‘The Affair’ by C. P. Snow—quite fascinating. I’ve met some of those men in Cambridge, and all the fuss about the very unattractive left-wing red-brick young scientist reminded me very forcibly about your comments about Nicolas [sic] Kaldor (I think his name was)—that he simply wasn’t the kind of person one wanted in the Combination Room” (Dec 22, 1961). Hayek’s secretary once remarked that Kaldor was a person Hayek “particularly detested” (Cubitt 2006, 27). That about sums it up.

Life in the Old Oast House Though the life of a Cambridge don was certainly to Hayek’s taste, the situation for the rest of his family was not sustainable. He was probably getting more work done separated from them (that was certainly the case in the summer of 1940 when he was in London and they were at Tor Cottage). Separation may also have reduced marital tensions. But there were a number of reasons it could not go on. They were, in the first instance, evidently imposing on the hospitality of the Robbins family. The children were not getting much of an education out in the countryside. School vacations required the Hayek family to vacate the Robbins premises, which was disruptive of the children’s life, of their

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father’s research, and an added expense. Much of Hayek’s library was still back in London at their house on Turner Close and could not be used. It was also in danger from bombing attacks, which picked up again in London that spring. As Hayek noted in a letter to Mises, if a firebomb hit the house and someone was there, the fire typically could be put out rather easily, but if no one was there, it would just burn (Jan 12, 1941; Ziegler 1995, 148–50). A more permanent solution was needed. Help finally came from Joan Robinson, a rather unlikely source, since as Hayek admitted, “We probably disagreed on everything intellectually” (IB 95). We recall that Robinson had been instrumental in turning Lerner and others at LSE toward Keynes, and had subsequently kept up her efforts, even penning a “told to the children version of The General Theory” to introduce Keynes’s ideas to students (Marcuzzo and Sardoni 2005, 177; Robinson 1937). Regarding Hayek, one of her early publications was a dissection of the Keynes-Hayek debate that defended Keynes’s position (Robinson 1933). There was also in February and March 1941 a bout of correspondence between Hayek and Robinson, induced by Hayek’s Profits book. The main discussion focused on the questions whether a steady increase in the money supply must eventually give rise to inflation, and whether and how a monetarily induced increase in investment will crowd out consumption. As both argued within their own preferred framework, most of the time they talked past each other. In the end, Hayek despaired: “It would be easier to clear up differences if you could believe that one could differ from you without being a complete fool. But I have read too much monetary controversy to be either surprised or offended.”12 But it appears for all that that she and Hayek got along reasonably well. She attended his seminar at least once, when Pigou’s Economics of Welfare was being discussed. She reported to Richard Kahn that she “tried to have some fun saying it was socialist propaganda” (quoted in Ingrao and Ranchetti 2005, 409).13 The place that Robinson found for them was the Old Oast House, a long, 12. Hayek to J. Robinson, Mar 24, 1941; cf. Ingrao and Ranchetti 2005, 402–6. For more on Robinson in Cambridge, see Aslanbeigui and Oakes 2009. 13. John Blundell once reported to Caldwell that he had heard, secondhand, that Hayek and Robinson had had an affair in Cambridge, presumably before Hayek’s family arrived. Though possible this seems extremely unlikely. It is true that by 1939, when Hayek first started spending time in Cambridge, Robinson was estranged from her husband, Austin Robinson (divorce would have been professionally and socially ruinous). In late 1938 she suffered a mental breakdown that resulted in hospitalization for a few months, after which she apparently solidified her long-term relationship with Kahn (Aslanbeigui and Oakes 2009, 51–87). The Robinsons’ estrangement

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barnlike structure that was directly behind (and connected to) a rather grand-looking structure known as the Malting House. The Malting House fronts Newnham Road across from the Mill Pond; the Old Oast House is entered directly from Malting Lane, which one walks up to approach the gates of Newnham College. After spending August in Tintagel, the Hayek family moved into their new home in September 1941. For a time in the 1920s the Malting House had housed an experimental nursery school set up by the wealthy eccentric Geoffrey Pyke in what was then his family home. The Malting House Garden School attracted a distinguished clientele but was short-lived; the school closed in 1929 after Pyke lost his fortune (Isaacs 1933; Cameron 2006). By the time the Hayek family came along, the property was owned by a distinctly different sort of person, a rather proper woman named Mrs. Gordon, while the back part— the Old Oast House—had been rented out to a somewhat less conventional couple named Drew. “Mrs. Gordon was very much a wealthy Scottish lady; she had a quarrel with the people who were living in this part of the house at the time, from whom we rented it. He taught music upstairs [pointing] here, and she taught fencing downstairs . . . Mrs. Gordon didn’t approve of them at all, and only communicated through her solicitor in Scotland, but she thought my parents were wonderful, and they used to dine occasionally with Mrs. Gordon” (Christine interviews, Oct 19, 2012). The Old Oast House consisted of a large open room that ran nearly the length of the building (this had been the children’s classroom when it was a school) and that had a little raised area, a stage, at the end. The large room became, in a sense, Hayek’s library, as it had bookshelves lining both sides. The bedrooms were accessed by a gallery behind the stage; Christine and Laurence shared a bedroom. Down a short flight of stairs was a basement that was used as a kitchen and a storage area for the rest of the Drews’ furniture. The Hayek family took their meals down there, and there was also was sufficiently well known that Hayek said to Fritz Machlup with regard to his review of Austin’s book on monopoly for the May 1942 issue of Economica: We all felt that your playful allusion to the firm of Robinson & Robinson, which in normal circumstances would be perfectly appropriate, might give pain in view of the somewhat doubtful happiness of the partnership. We have no definite knowledge, but the general feeling was that it was the part of wisdom to leave out any allusion to a relationship which is at least delicate. (Hayek to Machlup, May 19, 1942) When Caldwell asked Blundell’s supposed source about the story, the person denied any knowledge of it.

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a Morrison table, a steel table that had wire mesh down the sides and that could be used as a shelter in the event of a bombing attack. Behind the house was a large yard that had apple trees and a vegetable garden. Hella also kept chickens, characteristically building the coop for them herself. The house was conveniently located. It was an easy walk to King’s across the backs. Sometimes, though, Hayek rode his bicycle, which gave rise to another Hayek family story: “He rode the most frightful old bicycle . . . As a matter of course one locked one’s bike up in Cambridge, but I don’t think Pa ever did, perhaps he didn’t know he had to, it was constantly getting stolen but it was never far away. He always recognized it and simply took it back” (Christine interviews, Oct 19, 2012). It was a happy time for Christine. Though it was wartime and there was rationing, Christine remembers no deprivation. Fruit and vegetables were plentiful. Her father often dined at King’s (this “saved in the food department”) but not every night. One gets a sense of tranquil family life, at least through her adolescent memories: In the evening we sat on the stage, there was a settee and Pa’s armchair and that little table on which he had his tea . . . we had tea and biscuits and we all sat together . . . we sat on the stage bit because it had a lower roof because it had a gallery above it and the way it was lit made it just look like a room, the study was out there in the darkness you might say. And the luxury, we had central heating in that house! . . . He would sit and read . . . I would read or draw or whatever or do my homework, and mother would probably sew or knit, and that’s in fact how evenings were spent at Turner Close too. Occasionally he’d play chess against himself . . . It was a quiet life. (Christine interviews, Oct 14 and 19, 2012)

It makes sense that Christine should have such pleasant familial recollections of Cambridge. As a small child she rarely saw “the prof in the study.” But in Cambridge they were together more of the time, living an uncomplicated life in a relatively peaceful environment. Hayek too seems to have enjoyed his time in Cambridge. In letters to Machlup he repeatedly mentioned that life there, though quiet, was agreeable, and in many ways better than living in London even were there no war on. When it looked in early 1944 that the School might move back that coming fall (in fact that did not happen until a year later), he reported that “the family continues to be happy here and rather dreads the idea of a return to London” (May 19 and Aug 8, 1942, Jan 30, 1944). There was one wartime inconvenience though that Hayek saw fit to mention in letters to Machlup and Alfred Schütz: “To break a watch or a

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fountain pen is a serious affair—I treasure the latter as if it were my most precious possession and am already quite good in judging the time from the sund [sic] and the state of my stomach—though when one has to be punctual for lectures it is rather akward [sic] if one can do it only within a quarter of an hour” (Hayek to Schütz, Sept 26, 1943). Machlup marshaled Schütz, Haberler, and Felix Kaufmann to go in with him to buy Hayek a new wristwatch. In response to the letter announcing its pending arrival Hayek admitted to blushing, for, as he put it, “I cannot deny that I had dropped various broad hints” (Hayek to Machlup, Feb 26, 1944). When it finally arrived, safely transported by a visitor from America, Hayek received it “with a pleasure of a kind I have not known since I was a boy” (Hayek to Machlup, Mar 20, 1944). It was only with the knowledge that came with adulthood that Christine modified slightly her own account. Though her father seemed to Christine to have been contented during their time in Cambridge, she later added another possible dimension: “I suppose Pa had sort of got used to the idea he wasn’t going to see her again for a bit, and I got the impression that . . . we seemed to be a perfectly happy family, insofar as one thought about it that way” (Christine interviews, Oct 19, 2012). “Her” of course refers to Lenerl. Christine attended the Perse School for Girls; she was twelve years old when school began in mid-September 1941. Laurence, aged seven, was enrolled in the King’s College Choir School but was not a chorister; they took other boys as well. Though it was common practice (“it was just this calm assumption”) at the time for English academic families to send their sons to prestigious public schools but not the daughters, it was something that Christine later came to resent.14 Still, she took some pleasure in the fact that, in her opinion, she had better peers and had gotten the better education at the Perse School: “A lot of the women who taught us were in fact women who hadn’t married because their husbands or (I don’t think any of them were married) would-be husbands, were killed during the war . . . In the First War . . . These ladies were by then in their late 40s . . . They were the cream of their kind because they lived in Cambridge . . . And the girls they had all came . . . mostly from academic families, well-mannered, I suppose reasonably eager to learn” (Christine interviews, Oct 16, 2012). Though after the war ended Laurence would become a day student at Westminster School in London, Christine would continue at the Perse School, staying during term time with the Welbourne family, whose daughter Anna was her closest friend, and traveling home by train on the weekends. 14. Thus in both the Robbins and Welbourne families the sons went to public schools but the daughters did not (Christine interviews, Oct 14, 2012).

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Anna’s father, Edward Welbourne, was a historian who was then the senior tutor (in 1951 he became master) of Emmanuel College. A later description as “warm-hearted, tactless, ingenious, and absurd” (Brooke and Highfield 1988, 296) might allow one to categorize him as yet another one of Hella’s strange birds. At the time the colleges were not coeducational (Girton and Newnham were the original women’s colleges; some undergraduate men’s colleges began admitting women only in 1972), but beginning in 1926, university lectures had become open to female students. This did not sit well with Edward Welbourne, whose opinions reflected (from our current perspective) the institutional misogyny for which Cambridge in the early part of the twentieth century has become renowned: “he was the nicest man to know but for some reason he didn’t like women in his lectures. Very odd . . . I have no idea, that was just him . . . Anna and I were laughing because in fact the present, now, master of Emmanuel is a woman! What he must be thinking, I shudder to think! His spirit must be very angry, I think, oh dear. He was utterly devoted to his college, he had rooms there . . . They lived only about four miles, five miles outside of Cambridge, but he often stayed there overnight” (Christine interviews, Oct 16, 2012).15 Christine would stay at the Perse School for two more years, then move back to London in 1947 to complete her final year of studies. She did not realize at the time that one of the reasons she was needed at home was that things between Hella and Fritz had begun to deteriorate. Her mother doubtless wanted another neutral party in the house to serve as a buffer.

Professional Duties As the war progressed, so did Hayek’s responsibilities. By May 1942 he told Machlup that “the running of the department as well as of Economica rests now entirely on me” (Hayek to Machlup, May 19, 1942). The departure of Freddie Benham meant that Hayek would be taking over the “Principles of Economic Analysis” course in the Michaelmas 1942 term. This was the upper-level theory course that Robbins had taught in the 1930s. Given the 15. For more on this aspect of Cambridge life, see McWilliams Tullberg 1998, Deslandes 2005, and Aslanbeigui and Oakes 2009, 25–30. Muriel Bradbook, at Girton during the interwar years, recalled that neither the Union Society (the student debate society) nor the Marlowe Society (the student dramatic society) was open to women, so she would watch Dadie Rylands playing the women’s roles in the latter (Bradbrook, in Hayman, ed. 1977, 43). According to Abba Lerner, in the Monday night meetings of Keynes’s Political Economy Club, only men were invited, except for Joan Robinson, and she was invited only when giving a paper (Lerner 1996, 92).

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relative weakness of his mathematical skills, Hayek was dreading the experience. His class notes survive.16 The topics Hayek covered would appear customary to anyone who has taught or taken introductory or intermediate microeconomics. In the first term, he handled the theory of production and consumer choice; in the second, market exchange and market structures; and in the third, the theory of distribution. Many of the diagrams found in his notes would also be recognizable (though some of the diagrams and terminology decidedly would not be). Despite their familiarity today, the mathematical representation and treatment of many of these topics had basically been created only in the decade before, in the “years of high theory.” This was in fact cutting-edge stuff. As he admitted to the students in his opening lecture, his decision to present the theory of production before consumer choice theory was “rather unusual.” In discussing his preferred approach, Hayek introduced the term “the economic calculus,” which might also be called “the pure logic of choice” (the phrase that he had used in his 1937 essay “Economics and Knowledge”) or “the theory of simple economy.”17 He explained that the economic calculus is used to analyze the actions that follow from a single coherent plan. The plan may be that of an individual, a firm, a community, a nation, and so on. When employing the economic calculus one can deduce, logically, what will happen in a given choice situation because of the key assumption that “all the data are always facts that are given to the individual.” He presented production theory before the theory of consumer choice because in that application, choices about the best means (factors of production) to obtain a given end (output) present a more concrete example of a specific means-ends structure. Another way of thinking about the economic calculus is that it analyzes the various ways that means-ends relationships may be structured: “In a way all the economic calculus is concerned with is the classification of goods according to their economically relevant characteristics; not concerned with their physical characteristics but with position in the means16. See FAHP 138.10. The following discussion of Hayek’s “Principles” course draws on Caldwell 2016. 17. We might mention that all these terms, in particular “economic calculus,” the literal equivalent of “Wirtschaftsrechnung,” derive from Wieser, for whom the results of “pure economic theory” provided the point of departure for his ventures into “social economics.” One might also point to the 1939 publication of Hicks’s Value and Capital, the basis of which was formed by such a “static theory,” and Hayek’s lifelong esteem for what Hicks had thereby accomplished: e.g., an “absolutely first-class work in his time . . . the final formulation of the theory of value” (Hayek 1983a, 183).

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end order.” At one point Hayek promised that the classification system would be an exhaustive one.18 Hayek drew some diagrams that were meant to reveal the “General structure of means-ends relationship”—a topic, one recalls, that he had dealt with in his Vienna dissertation. He drew up situations in which there were many ends and one means; one end and multiple possible means; multiple means and ends; means that were substitutes and complements; means that could be used only for a particular purpose; ends that themselves were means to another choice situation, and so on. These diagrams represent the way that Hayek himself thought of the intricate and interconnected web of choice decisions that are made in various economic settings.19 But once he had introduced them, he did not revisit them. He devoted the rest of the Michaelmas term to explicating the theories of production and consumer choice, for the most part using, if not always standard, at least recognizable diagrams. In his opening lecture for the Lent term, Hayek made clear how the topics in the economic calculus that had been explored in the first term were going to fit in with what was to come, the study of “multiple economy,” in which the plans of many individuals interact. His introductory remarks are worth quoting at length: In describing the decisions of an individual from the desires and the knowledge presumed to be possessed by him we were merely making explicit a conclusion implied in our assumptions. We were playing at pure logic—that is why I called it the Logic of Choice . . . or the Economic Calculus. No questions of cause and effect arose in this sphere; the relations with which we dealt were all of that “tautological” character which mathematics or logic have, and had nothing to do with the way in which events follow each other in time and affect each other. Now we shall, of course, still be using this technique insofar as we have to deal with any of the separate plans of the different individuals. But as these plans are separate and not necessarily known to the other individuals, as soon as the people begin to act upon them, a new and different problem arises. In a multiple economy dealings with other people will necessarily 18. “In brief the purpose of this economic calculus is no more than to provide an exhaustive classification of the objects of economic activity according to their economically relevant attributes.” FAHP 138.10. 19. Caldwell (2016, 159) reproduces the page from Hayek’s notes in which the “general structure of the means-ends framework” is discussed and on which his diagrams may be seen.

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form part of the plans of each individual. But he will not know beforehand what the other people intend to do, and will learn this only as time goes on. Every such experience he will have, if it is not precisely what he has expected, is a new datum to him. Once we assume he has learnt a new fact, we can then derive his reaction from the new datum (to him) and all the other facts. But with his learning about new facts which may possibly lead him to alter his plan, we meet for the first time a true cause bringing about a change. If he learns the new fact, the rest just follows from our assumptions. But in assuming he does learn about it we bring in a new empirical assumption.

In discussing interaction in situations in which there are multiple agents, then, we must take into account the learning that takes place. Hayek spoke next of the confusion that results from using an equilibrium approach, as is the case with the theory of perfect competition, for describing that process: “It is important that from the beginning we look at competition not as a state of affairs in which everybody knows everything but as a process by which knowledge is dispersed and acquired—how effectively this happens under different conditions we shall gradually see.” What are we to make of Hayek’s lecture notes and his methodological musings? The introductory lectures with which Hayek began the Michaelmas and Lent terms were methodological clarifications of how he viewed the theoretical structures that were about to be presented. Hayek sought nothing less than to integrate some of the distinctions that he had developed in “Economics and Knowledge” into his classroom presentation. He even referred to that paper, saying it was “the only original contribution to economics I have in my own opinion ever made, although even there, of course, I have done no more than to make explicit what was implicit in other people’s reasoning.” Intriguingly, this statement is crossed through in the notes, so we do not know if he ever said it. The economic calculus is that part of standard microeconomics that deals with the optimal allocation of resources. It is constructed on the assumption that a plan exists and that the decision maker has all the information necessary to pursue the plan. Given these assumptions, the derivations that follow are simply exercises in logic. This is contrasted with the market process, which plays a causal role in Hayek’s vision of how a market economy works: it continually generates new information, which causes people to adjust their actions, which provides new information to others, who adjust their actions, and so on. Crucially, the theory of perfect competition, with its focus on equilibrium end states, obscures this vital role. It was for this reason that Hayek

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asked in “Economics and Knowledge” that we “restore to its rightful place” a theory of market process (Hayek 2014a [1937b], 59). “Restore” is the right word, and a significant one: members of the classical school and indeed even Alfred Marshall offered verbal descriptions of the competitive market process quite similar to the vision that Hayek enunciated, one that was quite different from the theory of perfect competition that emerged later and is taught, even today, in economics classes.20 However, though the distinction was there, there was no theory of the market process in his notes. One wonders what his students made of Hayek’s methodological remarks. They probably found the course quite difficult. Hayek did not provide much intuition for the models he put up, and the diagrams found in his notes were not models of clarity: axes were not always labeled, for example. Of course, lectures were not mandatory, and students could always go to the readings to try to decipher what was going on. But the contrast between Hayek’s notes and those of Robbins (2018), which are now available, is rather stark. Some other classes that he taught were the history of economic thought (called “The Development of Economics”) as well as a Special Classes course (topics for this changed each term) and his seminar. The seminar was, however, not the highlight of the teaching week; fairly early on Hayek complained to Mises that of the eighteen postgraduates there was “not one Englishman among them: Chinese, Indians, Siamese, and various European refugees make up the lot. Not very inspiring” (Hayek to Mises, Oct 24, 1941; cf. Hayek to Röpke, Aug 17, 1941). Joan Robinson, writing to Richard Kahn, expressed the same opinion about the quality of the students, without the implied ethnic disparagement: “I went to Hayek’s seminar today, found it much diminished. They have got no one who is any good” (quoted in Ingrao and Ranchetti 2005, 409n4). * * * As noted earlier, Hayek also took over more and more of the editorial duties at Economica. The masthead of the journal indicates that just prior to the start of the war, Economica was run by an editorial board of eight members, with Robbins and Eileen Power serving as acting editors and Frank Paish as the assistant editor. The evacuation to Cambridge caused many headaches—shipping and finding storage for the journal’s records (many of these got lost) and for books in the Scarce Reprints series, trying 20. See, e.g., Kirzner [1960] 1976, chap. 4; Machovec 1995; Marshall [1890] 1990, 288–89.

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to ensure an adequate supply of paper for future issues, figuring out what to do about overseas subscriptions, and the like. Even getting the editorial board together became problematical once the real fighting began: to get the group of Carr-Saunders, Hayek, Paish, Plant, Power, and Robbins together for the July 1940 meeting, many telegrams were sent. They finally met in Power’s house at 20 Mecklenburgh Square. At the meeting Robbins resigned “in consequence of the pressure of his government duties.” A month later Power, only fifty-one, collapsed in the street from a heart attack and died, and Hayek was named acting editor in her place (LSEA 122/25/D Economica 1937–44; Berg 1996, 244; cf. Hayek to Mises, Aug 17, 1940). By March 1941 only four were coming to the editorial board meetings, and by December of that year it was down to Hayek, Benham, and Director Carr-Saunders, though later P. B. Whale, a reader in Economics, was called into service. As early as January 1941 Hayek reported to Machlup that he was “practically solely responsible” for editing the journal (Hayek to Machlup, Jan 2, 1941). In the same letter Hayek mentioned that his most difficult task was getting manuscripts, given that so many people were busy with war work. Hayek’s solution was, at least in part, to draw on people he knew. Some were outside of the country: these included Machlup, Mises, Viner, Schütz, W. H. Hutt, Friedrich Lutz, and Karl Popper. He also of course published the work of former LSE students and colleagues: Lachmann, Shackle, and S. C. Tsiang were in the first group; and Benham, Kaldor, W. Arthur Lewis, and himself in the latter. As the war progressed, another problem arose: a paper shortage. Though the journal continued to produce four volumes a year, they began to use a smaller type size to economize. Sometime before the end of the war, Hayek either volunteered for or was roped into another duty. The Professorial Council minutes for February 9, 1944, report on a meeting of the Committee on the History of the School (LSEA Minutes, 7/1/9). Founded in 1895, the institution would mark its jubilee year in 1945, and accordingly a School history was contemplated. Unfortunately, many essential papers vital for documenting the early history were in storage in Wales, so plans to compose a full account that could appear in 1945 had to be shelved. At subsequent meetings an alternative was agreed upon: a shorter piece that could appear in Economica. Hayek’s brief article (it ran only 31 pages) hit all the highlights—the founding of the School, its growth over time in terms of subject areas covered, physical location, and enrollments—though most of it was devoted to providing thumbnail sketches of key personnel among both staff and administration. He doubtless slaved to get the article out in 1945, but just missed; it appeared in the February 1946 issue (Hayek 1946b). Hayek would continue

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as an acting editor of Economica through 1949, with the economic historian T. S. Ashton joining him in 1946. For the first two issues of 1950 there was no masthead, and when it reappeared in August 1950 his name, like Hayek himself, was gone. In the May 1945 issue there was another subtle change: his name on the masthead went from F. A. v. Hayek to F. A. Hayek. As we will see, this was about the time that some on the left in Britain began referring to him as Professor Friedrich August von Hayek, with an emphasis on the “von,” in order to underline his Central European (and hence suspect) origins.

Hayek in Cambridge Despite (or because of!) all of the “strange birds” he encountered, and the difficulties he sometimes had in breaking into the exclusive club that was Cambridge, Hayek enjoyed his time there immensely. “Life at Cambridge during those war years was to me particularly congenial, and it completed the process of thorough absorption in English life which, from the beginning, I had found very easy . . . And of all the forms of life, that at one of the colleges of the old universities—at least as it then was at Cambridge; Oxford I never knew well—still seems to me the most attractive. The evenings at the High Table and the Combination Room at King’s are among the pleasantest recollections of my life, and some of the older men I came then to know well, especially J. H. Clapham, remained, while they lived, dear friends” (Hayek 1994, 98). If Hayek felt most at home in England, as he so often stated, Cambridge was the corner of England that he liked best. He loved the pure intellectual stimulation and clever conversation, on a diversity of topics (one never knew whom one would be sitting next to at high table), in an almost exclusively male environment, among people of the right breeding, with good food and spirits, all in the most congenial and verdant of surroundings. Given who he was, how could Hayek want for more? In response to the question of whether her father was an “absentminded professor” type of person, Christine contrasted his persona at home with his professional persona: “the picture I got from other people, who said that he was friendly and outgoing and all the rest of it (which is not, as it were . . . he wasn’t our friend) . . . I think he was a different chap there” (Christine interviews, Oct 14, 2012). But just as England had changed—it was no longer the bastion of nineteenth-century liberalism that Fritz had read and dreamed about in the New York Public Library—Cambridge too was changing. The Cambridge of the 1920s, it is said, was still infused with an ethic of “liberal ci-

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vility,” in which there was an “unsparing frankness in debate and an absolute distinction between ideas and persons. Intellectual positions but not their advocates were open to criticism” (Aslanbeigui and Oakes 2009, 8; cf. 174). Attacks ad hominem were seen as intellectually shallow and vulgar. But the response to Keynes’s new ideas, by both proponents and critics, was causing relationships among economists to fray. Dennis Robertson and Keynes, Joan Robinson and Robertson, Hayek and Kaldor, and later, indeed, Kaldor and Joan Robinson: each pair had an unpleasant story, or stories, associated with it. Members of the old guard lamented the change in manners; things had indeed become, in Robertson’s perfect phrase, “un-Cambridge-y” (quoted in Moggridge 1992, 600). The political turmoil that was felt everywhere also took its toll in the ancient university town, as C. P. Snow’s novels in the Lewis Eliot series revealed.21 Being Hayek, he came away from his Cambridge experience with a plan to re-create its best aspects in a new environment. But once again, we get ahead. For now, we shall examine the two main intellectual projects that occupied him while he was in Cambridge: The Road to Serfdom and the “methodological chapter” of the Abuse of Reason project, what would become the lengthy essay “Scientism and the Study of Society.” Executing them required, for not the first or last time for Hayek, a change in plans.

21. In The Masters, Snow tells the story of a slowly dying master of a Cambridge college, and the movements by two factions within the College to replace him. The narrator is Lewis Eliot, a lawyer and fellow of the College. He describes Pilbrow, one of the other fellows, like this: “the only grumble I had ever heard him make about his young friends of the left was that, though he was sure there was some good reason for it, he could not for the life of him understand why they found it necessary to be so rude” (Snow 1951, 272).

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1941—Hayek Changes Course We recall that in his 1941 new year’s missive to Fritz Machlup Hayek raised the possibility of a change of course in his research plans. The next step in the Abuse of Reason project should have been a continuation of the historical narrative, in which he would trace the gradual movement of scientistic ideas from France to Germany. The alternative plan floated in the letter was to begin work on a revised version of the second volume, one he would aim at a more popular audience, possibly in the form of a “sixpence Penguin volume” (Hayek to Machlup, Jan 2, 1941). One reason to make the switch was that he was not looking forward to the work ahead. As he explained in a later interview: “the next historical chapter would have had to deal with Hegel and Marx, and I couldn’t stand then once more diving into that dreadful stuff [laughter]” (Hayek 1983a, 279). This accords with a comment made in a roughly contemporaneous letter to Mises: “The next section, which is to deal with Hegel, Marx, the Historical School etc. is much more difficult and I am making only slow progress. And the necessity of reading Troeltsch, Dilthey etc. does not make it more pleasant” (Jan 12, 1941). In the end he did decide to delay his work on the historical narrative, and the suspension turned out to be permanent. Besides “The Counter-Revolution of Science,” the only additional contribution to this historical part of the project was the essay “Comte and Hegel,” which he completed later from notes made in this period and which he would use as his inaugural lecture when he took a job at the University of Chicago (Hayek 1952c; IB 95). Of course, there was still another alternative: Hayek could have interrupted the history but turned to another part of the project, the critique of scientism. After all, that promised to be the more scholarly contribution, and might accordingly have taken precedence. For a number of reasons, though, he decided to work instead on The Road to Serfdom. One reason

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was that work on “Scientism” was itself proceeding painfully slowly. As he explained (and complained) to his correspondents, there were several obstacles: the material was refractory, his training in philosophy was “exceedingly meagre,” and in wartime Cambridge he had a hard time getting the requisite books (Hayek to Machlup, Apr 7, 1941; cf. Hayek to Popper, Jan 29, 1944). All of this meant that it would be a long, hard slog. In addition, when finally completed it would be a substantive piece of scholarship, something suitable for the readers of Economica, which is in fact where it was first ultimately published. But the article would have had a small readership and limited impact. And this comes to the nub of it: Hayek was convinced that it was more important to challenge his many opponents with a work intended for general audiences. His impetus was the steady drumbeat in virtually all public discussions in favor of planning, and his reaction can be seen both in his correspondence and in his fledgling attempts to write for a broader readership. As for public proposals for more planning, as early as the summer of 1940, when the real war began, the editorial page of The Times came under the sway of two leader writers, Robert Barrington-Ward and E. H. Carr, who sought to make the advance of socialism a necessary component for the successful prosecution of the war (Todman 2016, 412). Others looked further ahead: in January 1941, just as Hayek was contemplating his change of direction, the popular magazine Picture Post came out with a special issue, “A Plan for Britain,” in which various expert contributors laid out a vision for postwar Britain, one that included a universal welfare system, extensive town planning, and a planned economy. The owner of the magazine, Edward Hulton, also set up the “1941 Committee,” a group of journalists and intellectuals whose goal was to press more progressive policies on the government. It was chaired by the English writer and political commentator J. B. Priestley and included the British MP Sir Richard Acland. Carr, Priestley, and Acland would all be mentioned by name in Hayek’s coming book (Kynaston 2007, 20; Todman 2016, 640–45; Hayek 2007a [1944a], 204). In March, Hayek’s omnipresent colleague Harold Laski published in the American magazine The Nation an article titled “Revolution by Consent,” in which he repeated that fascism arose when inherent contradictions caused capitalism to collapse, and if we simply returned to the same sort of economy in Britain after the war, we would risk the same fate. Laski called for removing from the hazards of the profit-making motive a number of sectors vital to national life: national credit, coal and electric power, transport, and the ownership of land. He also called for free secondary education for all, a comprehensive public health system, a rehousing program,

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and planning to avoid any return to mass unemployment. He ominously warned that if this revolution by consent was not undertaken, revolution by violence was what we had to look forward to (Laski 1941, Mar 22). Hayek was receiving troubling news from his Viennese friends in America as well, especially from Mises, with whom he had many reasons to correspond. We recall that Mises and his wife Margit had arrived in New York in August 1940. Though they were finally safe, much remained to be done. Prior to the outbreak of hostilities, Margit’s nineteen-year-old daughter Gitta Sereny had been living in France with the family of Louis Rougier’s stepson. In Mises’s letter to Hayek from Lisbon, Margit wrote an addendum pleading for Hayek’s assistance in locating her, but despite repeated efforts, he was unable to help. It was months before they finally reached her, and a year before she could depart France to join them in New York (M. Mises 1984, 69–70; Mises to Hayek, July 14, 1940, Apr 18, 1941; cf. Sereny 2001). They also corresponded about finances. Mises had a bank account in England, but he could not access it in America, and it was illegal for Hayek to send him pounds. Luckily he and Hayek, the latter always an avid book collector, came up with a scheme in which Hayek would buy books in England and ship them to Mises, who could then sell them in the States. Wartime exigencies allowed for some marvelous purchases—during the Blitz Hayek was able to secure a first edition of The Wealth of Nations at a price he described as “ridiculously cheap” (Hayek to Mises, Oct 24, 1941). As he later told George Stigler, the auction took place during an air raid warning, and was so lightly attended that he was able to secure the book with a bid of £15 (Stigler to Lord Rees-Mogg, Apr 2, 1991). As for employment, nothing permanent could be found; Machlup lamented that his efforts to place Mises were fruitless, describing him at one point as “my problem child” (Machlup to Hayek, Dec 11, 1940). Hayek worried in return about the “extremely laconic” tone of Mises’s letters (Hayek to Machlup, Oct 13, 1940). Mises was in fact deeply depressed, by the world situation and his own lack of prospects in a strange new country (Hülsmann 2007, 792). He poured out his frustrations in an autobiographical piece, published posthumously by his wife as Notes and Recollections, a document fascinating for its often bitter appraisals of the people he had come to know and their role in bringing calumny on the world, and for its at times idiosyncratic interpretations of Austrian history (Mises 1978a, b).1 1. Both Ludwig Lachmann and Herbert Furth expressed their misgivings about the publication of the book to Hayek, Furth in particularly harsh terms, writing, “I deem it wrong that Margit Mises agreed to publish this book: it has the same frustration, arrogance and intolerance as Voegelin’s, and in addition coupled with megalomania

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Mises never received a tenured appointment, though finally, sometime in 1944, he would accept a job as a visiting professor at the Graduate School of Business Administration at NYU, his salary paid from private funds. He would stay there for over twenty years (Hülsmann 2007, 846–47). In one of his first real letters after settling in New York, Mises teased Hayek about his move to Keynes’s Cambridge, then offered a perhaps predictable assessment of the intellectual climate he had entered: Keynes and Marx were the “idols of the youth” there, along with Laski and Bertrand Russell: “Is it not dreadful?” (Mises to Hayek, Dec 22, 1940). In his reply Hayek assured Mises that he had not become a Keynesian, but acknowledged the truth of Mises’s dismal assessment of “the horrible state of economic thinking here and in the U.S.A.” (Hayek to Mises, Jan 12, 1941). In his next letter Mises complained about how what is called liberalism in America is actually “a special brand of communism,” noting the doleful impact on public opinion of The Nation and the New Republic (Mises to Hayek, Jan 27, 1941). A few months later Hayek lamented the current state of affairs but was also worried about the future: “there is not much ground for hope even if this war should not last too long and end as one wishes. How unfortunate it really is to be an economist! I often envy the pure scientists and engineers their unbounded confidence in the future!” (Hayek to Mises, Apr 10, 1941). Of course, for Hayek, those “pure scientists and engineers” who felt moved to comment on the virtues of planning and the vices of a free market order were very much part of the problem. It was with the postwar future in mind that in 1941 Hayek began focusing more and more on The Road to Serfdom. By July he reported to Machlup that it was turning into a “full-fledged book,” and by October that, though he had been making some progress on “Scientism,” Road had become in his mind the “more important” contribution. The reason was plain: “If one cannot fight the Nazis one ought at least to fight the ideas which produce Nazism; and although the well-meaning people who are so dangerous have of course no idea of it, the danger which comes from them is none the less serious” (Hayek to Machlup, July 31 and Oct 19, 1941). He would turn his full attention to finishing it. As time passed world events gave more urgency to the work. Hitler’s ultimately fatal decision to open another front against the Soviet Union in June 1941 had made the long-term prospects for Allied victory much better, as both Mises and Hayek commented to each other in their letters (Mises and paranoia of a pathological dimension . . . Surely, Mises was of enormous intellect and the model of a pure character . . . , yet the invective in which he indulges . . .” See Lachmann to Hayek, July 6, 1978; Furth to Hayek, Mar 24, 1978.

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to Hayek, Aug 15, 1941; Hayek to Mises, July 29, 1941). Unfortunately, it also meant that genuine sympathy for Russian suffering, and praise in the British press of their sacrifices, often were accompanied by endorsements of the higher efficiency of planned societies in accomplishing wartime goals. The long-awaited entry of America into the war in December added confidence that the final outcome would be victory. Hayek was not the only one who was beginning to ask what a postwar regime might look like, and some of the answers on offer were for him deeply unsettling. As always, the men of science provided at least part of the impetus; indeed, in an irate summer letter to his friend Michael Polanyi he called out his opponents by name: “I attach very great importance to these pseudoscientific arguments on social organization being effectively met and I am getting more and more alarmed by the effect of the propaganda of the Haldanes, Hogbens, Needhams, etc. etc.” (July 1, 1941). His exasperation with the contributors to Nature led him to publish a “special attack” on planning in its very pages (Hayek to Machlup, Oct 19, 1941). The article, titled “Planning, Science, and Freedom,” reiterated arguments that Hayek had made in earlier contributions like “Freedom and the Economic System.” Its importance lies in his renewed effort to find a wider readership for his ideas. Perhaps his best line, one in which he manages to reference planning, men of science, and the phenomenon so widely decried by his opponents, the “frustration of science” by capitalism, reads: “for a hundred men of science who attack competition and ‘capitalism’ scarcely one can be found who criticizes the restrictionist and protectionist policies which masquerade as ‘planning’ and which are the true causes of the ‘frustration of science’” (Hayek 1997 [1941, Nov 15], 216). Among the people he criticized are Hogben, Blackett (who coined the phrase “the frustration of science”), and J. G. Crowther, leader of the Social Relations of Science movement (Crowther 1941). He closed the article by comparing the last of these to Emil de Bois-Reymond, who, as rector of the University of Berlin, had declared in 1870 that his own generation of scholars served as “the intellectual bodyguard of the house of Hohenzollern” (Hayek 1997 [1941, Nov 15], 220). In England in 1941, that would not be good company to keep. In December Hayek published a similar popular article, “The Economics of Planning,” more economic in orientation, in the inaugural issue of the Liberal Review. The Review, though grandly announced on its cover as the “Official Organ of the Oxford University Liberal Club,” was a pamphlet, produced using a duplicating machine, that did not have a wide circulation. The paper is notable for being the first place that the famous “tin example” contained in “The Use of Knowledge in Society” appears in print (Hayek 1997 [1941c], 146–47).

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These small interventions were only preparatory for his larger effort, the “six pence Penguin volume” that lay ahead. Hayek toiled over the effort, especially the introduction and first three chapters, going over them again and again, trying to get the rhythm right, to master writing well in English: he would later say that stylistically he thought that it was some of his best writing (Bartley interviews, Feb 10, 1983). Each chapter began with an epigraph, some penned by great liberals of the past (Adam Smith, John Milton, and Lord Acton—the last four times!), others by twentieth-century nemeses (Lenin, Trotsky, Mussolini, and . . . Mannheim!). The reference to Penguin was, incidentally, au courant. Penguin Books had been established as a separate company only in 1936, with the goal of bringing cheap paperback editions of high-quality works of fiction and (with the Pelican imprint, in 1937) nonfiction to the mass market. The business decision was prescient: the popularity of reading exploded during the war. Blackouts meant that being away from home at nighttime could be dangerous, and in any event many venues—cinema and theater—were either shuttered or on restricted schedules. People hunkered down and read. But the new venture had a distinctly political aspect as well. Krishna Menon had come from India to study with Laski in the mid-1920s, becoming in time a disciple and friend. Menon was chosen as the editor of Pelican, and a reprint of Laski’s 1930 book Liberty in the Modern State was one of the first volumes he published in his series (Kramnick and Sheerman 1993, 222–25, 381). And indeed, though the series included people like Elie Halévy, the vast majority of its more political authors read like a list of Hayek’s bêtes noires: G. D. H. Cole, Freud, Haldane, Tawney, Beatrice Webb. Hayek had responded to the men of science in Nature, but they were only the tip of the iceberg.

1942—a Further Expansion of Plans The year 1942 brought still further impetus for Hayek’s new direction. Early in the year the British Labour Party joined the discussion with the pamphlet The Old World and the New Society, supplying a vision for reconstruction after the war. Some representative excerpts: There must be no return to the unplanned competitive world of the inter-War years, in which a privileged few were maintained at the expense of the common good . . . A planned society must replace the old competitive system . . . The basis for our democracy must be planned production for community use . . . As a necessary prerequisite to the reorganization of society, the main War-time controls in industry and

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agriculture should be maintained to avoid the scramble for profits which followed the last war. (National Executive Committee of the Labour Party n.d. [1942], 3–4)

These diffuse ideas were incorporated into a resolution proposed by (who else but) Harold Laski and passed at the party conference on May 26, 1942. In his speech defending the resolution, Laski (1942) noted that “Nationalization of the essential instruments of production before the war ends, the maintenance of control over production and distribution after the war— this is the spearhead of this resolution” (111). Party boilerplate is one thing, concrete plans as how to carry it out are quite another. The famous Beveridge Report (Beveridge 1942) would provide the latter. The Inter-departmental Committee on Social Insurance and Allied Services was originally set up in early 1941 to review the mishmash of government programs then in existence to provide unemployment benefits, sick pay, pensions, and the like, and Hayek’s former director was installed as its chair. By December 1941 Beveridge began circulating a paper that contained most of the main points that made it into the final report. Over the course of 1942, through public appearances, radio talks, and the like, he built up public support for his proposals. The Beveridge Report provided the foundations for the postwar British welfare state, including family allowances, comprehensive social insurance, universal health care coverage, and a government obligation to maintain full employment. It was immensely popular, so that “unquestioning acceptance of Beveridge became a sort of litmus test of decency” (Cockett 1995, 60). The report ultimately sold about a half a million copies, influencing policy discussions not just in Britain but worldwide. In America, for example, an edition that was “reproduced photographically from the English edition” to ensure a speedy delivery was quickly made available and sold about fifty thousand copies (Abel-Smith 1994, 18). Hayek was watching these developments as he continued his work. He shared his concerns in precise terms with Jacob Viner, then at the University of Chicago: “although I am fairly optimistic about the war, I am by no means so about the peace, or rather about the economic regime that will follow the war” (Hayek to Viner, Feb 1, 1942).2 Meanwhile the news from his Viennese friends in America added to his dismay. Predictably, Mises’s mood remained morose: “Two centuries of economic theory were 2. This letter, also cited in Caldwell 2010, 7n15, was, as noted there, originally found in the Jacob Viner Papers 13.26, but a recent search of that folder in those papers was unsuccessful in locating the letter.

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in vain . . .” (Dec 16, 1941); “The Econometricians have not the slightest notion of the issues involved” (Nov 20, 1942). Indeed, it would remain so throughout the war: “what is the use of economics, if only a small minority are prepared to learn something from its teachings. The public’s ignorance is amazing” (July 27, 1944; cf. also June 18, 1941, Apr 16, 1943). But it was not just Mises. Perhaps more worrying was the reaction of the more even-tempered Fritz Machlup. Having gotten a grant from the Rockefeller Foundation to write a book on monopoly and competition, Machlup had been invited to spend some of his time off at the Brookings Institution in Washington, DC. The city of course was filled with economists, assisting with the war effort. Machlup found their performance well-intentioned but “not very creditable.” What worried him most, though, were the postwar planners, who “range from outright socialists to permanent public investment advocates; believers in a free enterprise economy are rare.” Machlup followed up with some questions: “Is your book on these matters out? Or is it coming soon? I wish it were, for it certainly could serve a very necessary purpose” (Machlup to Hayek, July 10, 1942). In an August reply Hayek could report that he had finished up all but the last two chapters of the book. Those final chapters would deal with postwar prospects, but he did not know when he was going to be able to finish them. Responding to Machlup, he commented that “here our only hope is the relatively sane American influence” (Hayek to Machlup, Aug 8, 1942). Given his earlier missives, Hayek was clearly not optimistic about the state of liberal thinking in the United States, but he still believed that things were better there than in England. While working on Road, he had gotten Machlup to send him a report of the Temporary National Economic Committee (TNEC) on the concentration of economic power, and in it he found arguments challenging one of the basic socialist claims, that largescale production techniques made the tendency to monopoly inevitable. He also was heartened by the text of one of President Roosevelt’s prewar addresses, reprinted in the TNEC report, in which FDR said that the problem with the system of free enterprise is not that it had failed, but that it had not yet been tried, a remark that led Hayek to revise in a positive direction his  estimation of the American president (Hayek to Machlup, July 31, 1941). Both would be referred to in The Road to Serfdom (Hayek 2007a [1944a], 92, 65). In any event, it was in his August 1942 letter to Machlup that Hayek first broached the idea of trying to find a publisher who might be willing to bring out an American edition of his book. In a few lines scribbled in pen in the margin of his typed letter he asked his friend for help: “Do tell me, also, whether you think you might be able to arrange for American publishers—

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but don’t show the present manuscript to a publisher, unless you can personally explain that it has not been revised for style etc.—In fact, it has been written in bits over such a long period, that it still lacks cohesion and there is some repetition. It was started in London during the night of the Blitz with German bombers overhead” (Aug 8, 1942). Hayek’s dramatic closing sentence was doubtless meant to be something that Machlup could feed to a prospective editor. In any event, later that month Hayek sent the manuscript, still missing the final two chapters, to Machlup, and his friend promised to start looking for a publisher immediately. There was, in his view, little time to lose, for “If you talk here with people over 40 years of age—except Hansen—they sound sane and relatively conservative. It is the generation brought up by Keynes and Hansen, which is blind to the political implications of their economic views” (Machlup to Hayek, Oct 23, 1942). “Hansen” referred to Alvin Hansen, the American economist who became a major promoter of Keynesian thought in the States. His views were sufficiently notorious among the Austrians that Mises and Hayek also independently and disparagingly mentioned him in letters during the war (Hayek to Machlup, Oct 19, 1941; Mises to Hayek, Dec 16, 1941). As it turned out, he would be among the first critically to review The Road to Serfdom in America (Hansen 1945, Jan 1). Machlup started his search for an American publisher for Road to Serfdom in fall 1942.3 By September 1943 he had been turned down by three different publishers. Hayek had done better in England, where Routledge agreed to publish it. We do not know what became of the idea of putting it out as a Penguin paperback, but given an increasingly severe paper shortage, the fact that Routledge had published both his Prices and Production and Profits, Interest, and Investment may have inclined Hayek to go with a familiar firm. Back in the States, there was at least one person familiar with Hayek’s manuscript who rather liked it. Aaron Director had come to England in the late 1930s to do research and while there attended Hayek’s LSE seminar (Van Horn 2013, 272). In 1943 he was working alongside Machlup at the Office of Alien Property Custodian and read Hayek’s manuscript soon after it arrived. When Machlup struck out a third time in his quest for a publisher, Director stepped in. He had done his graduate work at the University of Chicago in the early 1930s, along with his sister, Rose, who went on to marry another classmate, Milton Friedman. Director wrote to two Chicago 3. See Caldwell 2007 for a more detailed account of the search for an American publisher.

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economists who were also familiar with Hayek’s earlier work in economics, Henry Simons and Frank Knight. Though we do not know exactly what happened next, by the end of November Director was sending the galley proofs from the English edition of Road to the University of Chicago Press asking them to give it their immediate consideration. The Press sent the manuscript to the irascible Knight, whose report was decidedly lukewarm, but still sufficiently positive to cause the Press editor to bring in another Chicago economist, the socialist Jacob Marschak, for a second opinion. Marschak was far more positive, and on the basis of the two reports the Press decided to publish an American edition. The acceptance letter to Hayek was dated December 28, 1943, but because of the vagaries of the transatlantic post in wartime, Hayek did not find out about it until over a month later.4 The Road to Serfdom was published in England on March 10, 1944. While Hayek waited for the reviews to come in, he worked on preparing the American edition: the type had to be reset, most importantly to alter Hayek’s frequent reference to England as “this country” in his original text. The University of Chicago Press also wanted to change the title to Socialism: The Road to Serfdom, but both Machlup (who was handling many of the negotiations) and Hayek resisted, on the grounds that central planning could be undertaken by either the left or the right: after all, that was why the dedication was to socialists of all parties. The Press also wanted to drop the aphorisms that Hayek had meticulously chosen to head each chapter (their rationale was that such quotations were “not in vogue” in American publishing), and simply informed him of the fact as they were preparing the manuscript to be set up in type. Horrified, Hayek sent both a letter and a cable to the Press demanding that they be retained. The Press relented, but somehow managed to leave off one of the two quotes that were on the title page. Hume’s “It is seldom that liberty of any kind is lost all at once” was retained. But Tocqueville’s “I should have loved freedom, I believe, at all times, but in the time in which we live I am ready to worship it” mysteriously disappeared. The Press wanted someone to write a foreword, but the first two people they approached—Walter Lippmann and Wendell Wilkie, the latter the 1940 Republican candidate for president and author of the 1943 best seller One World—declined. Ultimately John Chamberlain, the book review editor for the New York Times, was recruited for the job (Caldwell 2007, 4. Caldwell 2007, 15–18. Hayek 2007a contains Knight’s and Marschak’s reader’s reports, as well as other related correspondence.

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1, 17–18). This may have been a strategic choice. As Mises noted in a summer letter to Hayek: “Even before the publication of the American edition your success in this country is remarkable. The Times mentioned the book already several times” (July 27, 1944).

The Road to Serfdom The Road to Serfdom was published in America in September 1944. What follows is a short summary of some of its main arguments, with commentary when appropriate. In part a polemical “tract for the times,” as Hayek himself once described it (Hayek 2007a [1976e], 53), in part a timeless critique of certain perennial socialist arguments, it would ultimately become, thanks to a 1945 Reader’s Digest condensation, his most well-known work. soMe key TheMes The Road to Serfdom is dedicated to “the socialists of all parties,” signaling its author’s perception that people from across the political spectrum were being seduced by the same set of ideas. In his introduction he informed his readers that he wrote the book because, having lived for long periods of time in two different countries, he was struck by the similarity of opinions on economic matters, ideas that might be regarded as “symptoms of a definite trend” (Hayek 2007a [1944a], 57–58).5 He felt compelled to embark on this intervention as an economist because the conversation had been taken over by all manner of “amateurs and cranks” (37–38). He acknowledged that it was “a political book,” meaning that he would not confine himself to economics but go beyond his area of expertise to comment on broader social issues. He recognized that many well-intentioned people support socialism simply because they admire its aims—“social justice, greater equality, and security”—and do not realize that, in its standard definition, it means “the abolition of private enterprise, of private ownership of the means of production, and the creation of a system of ‘planned economy’ in which the entrepreneur working for profit is replaced by a central planning body” (83). His target was socialist central planning—what he would later refer to, in a foreword to the 1956 edition of the book, as “hot socialism” (44). He was not talking about the welfare state, though evidently some of his warnings might apply equally well there, and market socialism (“competitive 5. This may be an allusion to his inaugural lecture, “The Trend of Economic Thinking.”

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socialism”) is mentioned only in a footnote, where the reader is referred to his critical review of books by Lange and Dickinson (88). Hayek offered a number of arguments against socialism, many of them deriving from economics. In countering the socialist contention that the ever-increasing complexity of modern society makes planning “inevitable,” Hayek replied that “far from being appropriate only to comparatively simple conditions, it is the very complexity of the division of labor under modern conditions which makes competition the only method by which such coordination can be adequately brought about” (95). He then walks the reader through the argument that in a world in which there are divisions of both labor and knowledge, the chief virtue of a competitive market system is that constantly adjusting market prices provide a mechanism that allows buyers and sellers to coordinate their activities. His comparison of this method with central planning is both succinct and devastating. It is no exaggeration to say that if we had to rely on conscious central planning for the growth of our industrial system, it would never have reached the degree of differentiation, complexity, and flexibility it has attained. Compared with this method of solving the economic problem by means of decentralization plus automatic coordination, the more obvious method of central direction is incredibly clumsy, primitive, and limited in scope. That the division of labor has reached the extent which makes modern civilization possible we owe to the fact that it did not have to be consciously created but that man tumbled on a method by which the division of labor could be extended far beyond the limits within which it could have been planned. Any further growth of its complexity, therefore, far from making central direction more necessary, makes it more important than ever that we should use a technique which does not depend on conscious control. (96)

This is in a sense the real-world implication to be drawn from the theoretical argument that he had introduced in “Economics and Knowledge” and had developed further in his classes at Cambridge. Another economic argument was based on new evidence, which he used to confront the technological imperative—the ubiquitous and very effective socialist claim that planning is “inevitable” because “competition is spontaneously eliminated by technological changes which we can neither reverse nor should wish to prevent” so that “the only choice left to us is between control of production by private monopolies and direction by government” (91). Hayek conceded that, though the extent had been exaggerated, some growth in concentration had occurred in the past fifty years.

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He questioned, though, whether this had happened owing to technological change. Here he quoted from the TNEC report that there was “scant support” for the assertion that the greater efficiency of large-scale production was what had caused a reduction in competition (92–93).6 Hayek offered as an alternative the standard Austrian hypothesis that government policy that restricts entry or otherwise grants privileges to cartels is the main source of monopoly. He noted the historical fact that the growth of cartels had been fastest not in the most advanced industrial countries, as one would expect were the socialist claim true, but in relative latecomers like the US and Germany. Indeed, the latter country consciously adopted policies that aimed at the cartelization of industry. German social theorists (Sombart is mentioned) then simply generalized from the experience of their own country and asserted that “monopoly capitalism” was inevitable, an assertion that was picked up and repeated by others until it had gained the status of common knowledge. Hayek next took up the popular perception that ceding control over purely economic matters is inconsequential, because what truly matters in life is the pursuit of higher values. For Hayek, the separation of economic concerns from everything else was fallacious. This popular view misses the fact that by transferring production decisions to the planning authority, one simultaneously cedes it control over which needs and wants will be satisfied, and which not. Such a system sets up the government as the ultimate monopolist, one whose decisions affect us both as consumers (they decide what gets produced) and as producers (they decide who gets hired). There is no way to separate decisions about production and decisions about consumption; as the circular flow diagram or the equations of general equilibrium theory tell us, everything is interdependent. Under competition, if one is dissatisfied, one can always at least try to find a better product or a better job. These sorts of choices are not available in a planned society. Hayek speculated on what might lie behind the willingness of people to give up control over such decisions: perhaps they are hoping to avoid having to make difficult choices altogether: “That people should wish to be relieved of the bitter choice which hard facts often impose upon them is not surprising. But few want to be relieved through having the choice made for them. People just wish that the choice should not be necessary at all” (130). The promise of eliminating the economic problem, the problem of choice that scarcity makes necessary, had long been held out by socialists, but it was as untrue in 1944 as it was when it was first articulated over a 6. Empirical studies of the extent and importance of monopoly would become a major research area in American economics in the postwar period.

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century before. Scarcity will always be with us. Indeed, the socialists’ quest for a distribution of wealth or of income that conforms to some standard of justice, rather than eliminating scarcity, would only aggravate it. And what general principle should be followed to determine what a “just” income distribution is? The only truly general principle is complete equality, but most people do not want that, and there is some question whether complete equality of income would be just, anyway. If we stop short of full equality, someone would need to discriminate between different occupational groups to find the just wages for each, as well as for different people within those groups. What determines the value of a plumber versus that of a teacher, a doctor versus that of a minister, and what about better and worse members of each of these professions? And who would make these decisions (139–41)? By invoking general principles, Hayek was able to draw a stark contrast between a liberal society and a planned one. Liberals prefer formal rules that are equally enforced and oppose laws that are applied differentially depending upon one’s status: they prefer the rule of law over the rule of men. One advantage that is conferred is economic—when individuals can take the “rules of the game,” or legal framework, as relatively stable, then they are free to make the best use of their own knowledge without fear of interference (114).7 The opposite condition holds under planning, precisely because the state is making the decisions about what to produce and, ultimately, whose needs to satisfy: “When the government has to decide how many pigs are to be raised or how many busses are to be run, which coal mines are to operate, or at what prices shoes are to be sold, these decisions cannot be deduced from formal principles” (113). Governing by general principles would become a touchstone of Hayek’s later political writing. Socialist planning cannot be made compatible with the insistence that all are equal before law and that everyone be treated the same. By definition this insistence is in conflict with policies that aim at distributive justice: “to produce the same result for different people, it is necessary to treat them differently” (117). These are all economic arguments for the relatively greater effectiveness of a market system operating under the rule of law for coordinating economic activity, when compared with a planned economy. He made clear that he did not endorse simple laissez-faire: “Probably nothing has done 7. In discussing this Hayek referred to the ability of individuals to respond to the circumstances of a particular time and place, a notion that also appeared in his Liberal Review article (1997 [1941c], 142) and that would hold a prominent place in his later “The Use of Knowledge in Society.”

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so much harm to the liberal cause as the wooden insistence of some liberals on certain rough rules of thumb, above all the principle of laissez faire” (71). For Hayek, what was most important was that freedom to enter and exit trades, to produce goods, and to buy and sell at prices that are agreed upon by the parties engaged in a transaction be preserved. All of these, it should be noted, help to ensure that the environment in which parties transact is a competitive one. His description of the institutional setup necessary for a market order to function properly, which included “an intelligently designed and continuously adjusted legal framework” (88) that protects property, prosecutes fraud, and the like, is fairly extensive. Included are such things as limits on working hours, limits on the use of dangerous materials, and the requirement of sanitary work conditions. He acknowledged that even an “extensive system of social services” need not be incompatible with maintaining competition. He further admitted that (what a later generation of economists would call) public goods and goods that have negative externalities associated with their production or consumption must be dealt with outside of the market: “in such instances we must find some substitute for the regulation of the price mechanism” (87). But this is not all. In a chapter called “Security and Freedom” he noted that economic security is often depicted by socialists as “an indispensable condition of real liberty” and that the claim was in a sense “both true and important” (147). To clarify what is at stake, he identified two types of security. Defining the first as a “security against severe physical privation, the certainty of a given minimum of sustenance for all,” he stated that in a society like that of contemporary England there was no reason that “the first kind of security should not be guaranteed to all without endangering general freedom” (148). He went on to say, “Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life against which, because of their uncertainty, few individuals can make adequate provision. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the efforts to overcome their consequences are as a rule weakened by the provision of assistance— where, in short, we deal with genuinely insurable risks—the case for the state’s helping to organize a comprehensive system of social insurance is very strong.” Speculation on what Hayek meant by the phrase “comprehensive system of social insurance” has yet to abate. Finally, he discussed “the supremely important problem of combating general fluctuations of economic activity.” His words here were very brief, and rather vague, though he did make clear that “the skillful timing of pub-

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lic works on a very large scale” could lead, if we were not careful, to “serious restrictions of the competitive sphere” (149).8 A couple of comments are in order before moving on. First, the leeway that Hayek allowed for government intervention in the economy in Road was vast. Though much of what he said would be viewed as quite reasonable by later mainstream economists, it horrified some of the conservatives of his day, as well as latter-day libertarians.9 In his preface to the 1976 edition of Road Hayek would say that he thought that some of the “concessions” he had made were unwarranted, but characteristically, he does not identify which ones (Hayek 2007a [1976e], 55). Those concessions might also explain why Keynes responded to the book as he did, a response that might surprise later generations. Keynes read it on the boat on the way to Bretton Woods, and on arriving in Atlantic City sent a letter saying that it was a “grand book” and that “morally and philosophically I find myself in agreement with virtually the whole of it; and not only in agreement with it, but in a deeply moved agreement” (Keynes to Hayek, June 28, 1944, quoted in Keynes 1980b, 385). Keynes went on to say that they would probably disagree on the question of where to draw the line regarding more or less intervention. Keynes thought that almost certainly more planning was necessary, which could be carried out safely if the leaders were “rightly orientated in their own minds and hearts to the moral issue” (Keynes 1980b, 387). So there were obvious differences between them. But the general sentiment expressed underlines once again the fact that in the context of their times and especially with respect to central planning and the men of science who advocated such a path for Britain, Keynes and Hayek were on the same side. In Road Hayek opposed the second type of security, which attempts to preserve for certain groups their current level of income. In a market system jobs are lost all the time when technological change or other things lead to a decrease in the demand for specific types of labor. Hayek acknowledged 8. In his unpublished 1948 postscript to the book, he noted more forcefully his dissent from the “Keynesian” position, aligning himself with the view, attributed to Henry Simons, in favor of a monetary policy that is based on rules rather than discretionary authority. See FAHP 106.10, 11–12. 9. Ayn Rand described Hayek’s book as “pure poison”; Frank Chodorov “thought the program verged on intellectual cowardice”; libertarian economist Walter Block was probably not alone in thinking him only “a weak and conflicted supporter of the market”; and Hans-Hermann Hoppe referred to “Hayek’s social-democratic theory of government” (Burns 2009, 104; Hülsmann 2007, 842; Block 1996, 365; Hoppe 1994, 70).

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that it offends our sense of justice when people who have worked hard to learn a skill are faced through no fault of their own with a reduction in their income. The typical government response is to grant this kind of security piecemeal, with special provisions made today for farmers, tomorrow for coal miners, and so on. Every such step, though helping some, offends those who are not in the favored group and increases in the name of fair play their own demands for assistance (Hayek 2007a [1944a], 149–50). The dangers of this ratchet effect to society are multiple. It pits groups one against another in the struggle for protection, it hinders the working of the price system, and it affects our attitude toward risk. At the end of the book, it becomes clear why trying to maintain people at their current level of income was such a bad policy. When the war ended, there was going to be a massive reallocation of resources as the economy shifted from a war footing to peacetime, in the face of which it was important “that we should all be ready to adapt ourselves quickly to a very much changed world, that no considerations for the accustomed standard of particular groups must be allowed to obstruct this adaptation, and that we learn once more to turn all our resources to wherever they contribute most to make us richer . . . Let a uniform minimum be secured to everyone by all means; but let us admit at the same time that with this assurance of a basic minimum all claims for a privileged security of particular classes must lapse” (215). Thus the fear of policies likely to be undertaken after the war was at least in part responsible for Hayek’s distinction between the two types of security. He was willing to grant a basic minimum, but feared the outcome if those who pushed for more were successful. Though one can imagine various parts of Hayek’s position being challenged by some people, the claims made were not wildly controversial, at least not to economists. Why then did the book so quickly gain a reputation in some quarters as extreme? We will see that it had less to do with his economics than with the other parts of his analysis. Part of the reaction was doubtless due to its stark opening. In his introduction, indeed in the fourth paragraph of the book, he stated the “unpalatable truth that it is Germany whose fate we are in some danger of repeating” (58). Hayek understood that his English readers would find this statement fantastical, given that their country was at war with the Nazis.10 But to the 10. The Soviet Union of course would have been an even better example of the grim consequences of totalitarian planning. Unfortunately, they were at the time an ally, so criticism of them was off limits. In the unpublished postscript Hayek wrote that much of the first draft of Road had been completed by spring 1941, but then Hitler invaded Russia. He put the manuscript aside for a while, and when he returned to it

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extent that socialist planning was being touted as providing a blueprint for postwar England, its advocates needed to deal with the claim that “the rise of fascism and naziism was not a reaction against the socialist trends of the preceding period but a necessary outcome of those tendencies” (59). This claim, which dated to his “Nazi-Socialism” memo to Beveridge in 1933, would have infuriated readers who felt any sympathy for socialist ideas, which in England during the war was a majority. One suspects that many would not have gotten beyond the opening chapter. Hayek developed his argument by reminding his readers of the road that had been abandoned—that of liberalism. In an unexpected move he identified liberalism’s main principle with “tolerance,” which on deeper reflection makes perfect sense: liberalism does not embrace a single set of values, but allows people the freedom to pursue their own values as they see fit. If this is to work in a world in which values differ, one must be tolerant of others (68). His next step was to reprise the major signposts in the rise of liberalism, mirroring the narrative that had been provided by Laski. Thus the gradual disappearance of the medieval hierarchical structure, the freeing of the individual from the ties of custom, the material progress that both enabled and followed from the subsequent growth of commerce and of science, are all noted. In Laski’s account, toward the end of the previous century the internal contradictions of liberalism began to appear, and this ultimately led to its transformation into fascism as it struggled against the rise of socialism. Hayek contended just the opposite: that it was the very success of liberalism that led fair-minded people to grow impatient with the fact that progress under it was too slow, that not all shared in its manifold benefits. This led them to utopian schemes for improvement, dreams that promised a new kind of freedom, a freedom from necessity, once the impersonal and anonymous mechanism of the market was replaced by the “collective and ‘conscious’ direction of all social forces” (73). He pointed out that this new view reflects “the habit of thought of the natural scientist and the engineer” and offered as an example of it the claim (here quoting directly from Mannheim) that “We have never had to set up and direct the entire system of nature as we are forced to do today with society” (73). Though many intellectuals might see such planning as the natural heir to liberalism, some influential voices demurred. Here he mentioned, among others, Walter Lippmann. He then threw down the gauntlet, denyhe eliminated “most of what would have been offensive to our temporary Ally and to all those Left-wingers whom I hoped to persuade and whose admiration and enthusiasm for Russia was then at its height.” See FAHP 106.10, section V.

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ing that socialism and freedom can be combined: “That democratic socialism, the great utopia of the last few generations, is not only unachievable, but that to strive for it produces something so utterly different that few of those who now wish it would be prepared to accept the consequences, many will not believe until the connection has been laid bare in all its aspects” (82). Socialism cannot work, and trying to make it work will have dire consequences. That is the dramatic message of the book, one that convinced socialists could not but receive with contempt. Hayek’s next step was to unveil his chief argument for why socialist planning was incompatible with freedom. Most advocates of socialism posit a common goal for society to achieve, typically vaguely described with such phrases as “the common good” or “the general welfare.” Implicit in this approach is the belief that there is a common set of values (what he called a “complete ethical code”) that all share. His key move here is to deny that such a complete ethical code exists. Rather, each individual has his or her own scale of values, a scale that is partial, different from those of others, and in fact often inconsistent or in conflict with those of others. In a phrase, there is not only a division of knowledge, there is also a division of values. “It is this recognition of the individual as the ultimate judge of his ends, the belief that as far as possible his own views ought to govern his actions, that forms the essence of the individualist position” (102). The absence of agreement on values poses profound difficulties for a society that wishes to combine planning with democracy. Agreeing that there should be a central plan without agreeing on its ends is like planning to take a journey but not agreeing on where to go (104). Choices have to be made, and given that people have conflicting and competing ends, and further that no one knows the content of all these partial orderings of values, how is a plan to be constructed? “[A]greement that planning is necessary, together with the inability of democratic assemblies to produce a plan, will evoke stronger and stronger demands that the government or some single individual should be given powers to act on their own responsibility. The belief is becoming more and more widespread that, if things are to get done, the responsible authorities must be freed from the fetters of democratic procedure” (108). It is the great advantage of a liberal market system that it allows coordination of individual activity without requiring agreement on a common set of values. To be successful, socialist planning that purports to be democratic requires such agreement; without it, some set of values inevitably has to be imposed. This is why democracy and socialism are ultimately incompatible. The “inevitability” is, it should be noted, a logical condition: if there is to be a plan but there is no agreement on values, the plan must

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be imposed. A similar logic informs Kenneth Arrow’s famous theorem regarding the impossibility of aggregating individual preferences to reach a social choice (Arrow 1951), and was the key argument contained in “Freedom and the Economic System.” His next step was to lay out the nightmare scenario, showing how frustration with the inability of democratic processes to come up with a plan leads to the destruction of both democracy and freedom. When one’s position in society no longer depends on impersonal market forces, but on the deliberate decision of some authority, the attitude of people toward their position in life changes. The realization dawns that the only power worth having is the power to direct who gets what. A tug of war among groups follows. Historically, resentment by the lower middle class against the betteroff members of the skilled working class was important for the rise of both fascism and Nazism (Hayek 2007a [1944a], 137, 142–43). Of course, Hayek knew that such examples were unlikely to convince his British readers, who believed that the worst aspects of the Nazi regime were due to historical accidents or perhaps to the viciousness of the German character. Surely England, or any country with similarly strong democratic traditions, should be able to run such a system for the good of the community as a whole. While acknowledging that a British or American planned economy would doubtless differ in details from the existing totalitarian states, Hayek’s answer was that “there are strong reasons for believing that what to us appear the worst features of the existing totalitarian systems are not accidental byproducts but phenomena which totalitarianism is certain sooner or later to produce” (158). The transition is detailed in two provocatively titled chapters, “Why the Worst Get on Top” and “The End of Truth.” The democratic statesmen who come to realize that, absent a uniform set of values, someone will have to impose a set of choices on the community, choices that will favor some groups and hurt others, will shrink from the task: “That socialism can be put into practice only by methods which most socialists disapprove is, of course, a lesson learned by many social reformers in the past” (159). Parties and people that promise to “get things done” will fill the void. And in order to get things done, they will have to adopt extreme methods. In order to organize a majority of the population to support the plan, the would-be leader must appeal to the lowest common denominators among the masses, whose values are the most homogeneous and malleable. To solidify support, and because it is always easier to reach agreement on a negative program than on a list of positive tasks to accomplish, a common enemy is identified—the Jew, the kulak, the capitalist plutocracy have all played this role. Finally, a strong dose of nationalism is typ-

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ically introduced, to further consolidate the separation between “us” and “them” (160–61). With that step, those who question the plan can be represented as unpatriotic, as selfish traitors to the larger social cause. In place of the homely values of tolerance and respect for the privacy of others that are part of the liberal tradition, a new sort of morality, in which the ends justify the means, is instituted. In the end, truth itself becomes a victim, because in order to get everyone to believe in the program, one must create a myth that it is the best of all possible programs and that dissent from it is treachery. “Truth” ultimately becomes something that is laid down by the authorities. Words like freedom, liberty, and justice undergo changes in meaning. To illustrate his point, Hayek could not help but mention that “even among us we have ‘planners for freedom’ who promise us a ‘collective freedom for the group’” (174), quoting phrases taken from Mannheim’s Man and Society. This step-by-step description of what would happen when the worst got on top was of course the part of the book that, in equal measures, outraged his readers on the left and delighted those on the right. Hayek’s next two chapters filled in some of the details about the originators and defenders of the pernicious ideas. In one he traced the socialist roots of Nazism, showing how the intellectual leaders of the generation that produced Nazism had all started out as socialists. Though there are prominent people on the list (Sombart, Oswald Spengler, Carl Schmitt) others have faded into the mists of time—Johann Plenge, Paul Lensch, and Hayek’s old professor, Othmar Spann. His point here was to flesh out the claim, dating to his 1933 memo to Beveridge, that Nazism was not a capitalist response to socialism but in fact grew from it. The next chapter exposes the “totalitarians in our midst,” meaning those in England whose views could lead to totalitarianism. Acland, Carr, Priestley, even the 1941 Committee all are taken as representing “the various tendencies toward totalitarianism in England” (204). Another exemplar was the Cambridge biologist and geneticist C. H. Waddington, a true man of science, whose manifold contributions to Nature and whose little book The Scientific Attitude (Waddington 1941), where the “profound scientific philosophy” of Marxism was praised, are also subjected to a detailed critique. Hayek also alluded to the work of Crowther and mentioned at the end of the chapter Harold Laski’s address before the Labour Party Conference of 1942. Hayek was evening a decade’s worth of scores. The final two substantive chapters of The Road to Serfdom were completed sometime in spring 1943, by which time an Allied victory was much more assured. The chapters are filled with recommendations and warnings about the postwar period ahead. The main worry was that there would be

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an attempt to carry on wartime central control of the economy in peacetime, and not only in England. He reiterated that the “crucial point” of the book, “that individual freedom cannot be reconciled with the supremacy of one single purpose . . . explains also why so many of the fashionable phrases about doing for the purposes of peace what we have learned to do for the purposes of war are so very misleading” (213). He also warned against making a fetish out of “full employment,” and one wonders if he had by that point heard about Lord Beveridge’s next planned book, Full Employment in a Free Society (Beveridge 1944). As to the international order in the postwar world, he opposed calls for supernational planning authorities—if a national planning board was doomed to failure, how much more so would an even larger body be? He provided an extended dystopian example of just how badly things might go if one tried to impose a plan on the many different ethnic groups living in the Danube basin. Drawing on ideas that he and Robbins had developed just prior to the war, he offered the alternative of a federation, operating under an international rule of law, that aimed to create a community of nations of free people. Characteristically, a chief role would be the negative one of keeping countries from hurting one another (e.g., by preventing them from implementing restrictionist trade policies). In his earlier discussion of the abandoned road of liberalism, Hayek had mentioned some of the great liberal thinkers whose ideas had been forgotten or discarded. In these final two chapters he again urged his readers to get back in touch with the great British liberal tradition, and perhaps most important, with its moral traditions of tolerance and its emphasis on freedom and responsibility. Though the modern view might be to deride the Victorian values of the nineteenth century, he reminded his readers that it was us, not them, who made such a mess of the world in the twentieth. If we were going to convince the Germans in the postwar period to give up their ways, and to keep others from emulating them, we must offer an alternative, and it should be the one that the British liberal tradition provides. We must regain our belief in it if we are to win over the good people remaining in Germany and Italy, and beyond. soMe CoMMon CriTiCisMs There have been many criticisms of The Road to Serfdom over the years, some in our view more justifiable than others.11 An early one, raised by Frank Knight when he reviewed the manuscript prior to its publication, was 11. The major ones mentioned here are discussed in more detail, with references, in Caldwell 2007, 23–31. For others, see Finer 1945; Shearmur 1996, 53–64.

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that the German path to Nazism was far more complicated than Hayek’s account depicted, and of course Knight was right.12 To be fair to Hayek, it should be pointed out that Road was originally intended to be part of the larger work that would have had as its first volume an extensive contribution to intellectual history that would trace the eclipse of liberalism in a number of countries and show its replacement by an enthusiasm for scientistic planning. That was the original context for the book, and it helps to explain his single-minded emphasis. Another criticism voiced initially by Keynes and repeated by many others is that Hayek was fine when it came to criticism of socialist central planning, but needed to provide a more detailed account of the liberal alternative he favored. Unlike Keynes, or someone like Milton Friedman for that matter, Hayek seldom got into the nitty-gritty of policy work. The one time he tried his hand at it, he did not accomplish much.13 This was, though, a criticism that Hayek took seriously. In later books like The Constitution of Liberty and Law, Legislation and Liberty he would articulate the general case for a constitutional democratic and liberal market order and the set of institutions that would have the best hope of allowing it to thrive. Another common criticism focused on his alleged rosy depiction of nineteenth-century liberal England. While his emphasis was on the development of the principles of a liberal order, his opponents focused on the horrible conditions under which the majority of people lived during the days of the Industrial Revolution. From Laski to Tawney to Karl Polanyi, many were the voices that decried the unbridled laissez-faire capitalism of the nineteenth century and who saw the rise of the “new liberalism” or some variant of socialism as not only appropriate responses but also an antidote to totalitarianism of the left and right. Any defense of liberalism was read as a plea to return to the bad old days. Evidently, this was not what Hayek said, but the misreading from some quarters seemed almost inevitable. Interestingly, Hayek came away from this particular criticism—and perhaps too from his interactions with such figures as Tawney, Power, Laski, Butterfield, and Clapham—with a new interest in challenging the historical accounts of his leftist critics. Should the negative accounts of the development of British capitalism be taken at face value? Hayek would air some alternative views in a book he would edit a decade later, Capitalism and the Historians (Hayek, ed. 1954). The criticism that refuses to die, and that constitutes in our opinion the 12. Pigou 1944 and Hansen 1945, Jan 1, voiced similar objections. 13. As we will see in chapter 30, Hayek’s report recommending a new housing and wage policy in Gibraltar never saw the light of day.

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most important misreading of the book, is that Hayek was committed in Road to some sort of “slippery slope” argument: the view that once a society engages in a little bit of planning, it will eventually end up in a totalitarian state.14 It was almost inevitable that anyone on the left who endorsed a program that fell short of full nationalization could not help but read him as making this type of argument. One of the first to accuse him of it was Keynes: “you are trying to persuade us that so soon as one moves an inch in the planned direction you are necessarily launched on the slippery path which will lead you in due course over the precipice” (Keynes to Hayek, June 28, 1944, quoted in Keynes 1980b, 386–87). Many, many others read Hayek in the same way, and from across the political spectrum, including Evan Durbin, Barbara Wootton, Paul Samuelson, and even George Stigler (Caldwell 2007, 28–31). One imagines that many antistatist admirers of the book would also embrace this misreading, for it fits nicely into their own preferred worldview that any increase in government intervention in the economy ultimately has the direst consequences. Note that the course of postwar Western European political history could be taken as “confirming” either view. As late as 2009, Paul Samuelson wrote about the Scandinavian countries that they “are the most ‘socialistic’ by Hayek’s crude definition. Where are their horror camps? Have the vilest elements risen there to absolute power?” (3). On the other side, those believing in a slippery slope could always reply that it was too early to tell, but that the increasing growth of the state is both undeniable and a trend to worry about. And indeed whether it is better to consider Hayek’s words as a prediction or as a warning would exercise the minds and pens of many later commentators. For his part, Hayek certainly did not view himself as engaging in historical prophecy or prediction. In his opening chapter he emphasized that every country’s path is different and that there are “no laws which history must obey” (Hayek 2007a [1944a], 57). Perhaps even more to the point, Road was intended to be part of a larger work in which he would criticize the historicist belief that there are inevitable trends in history. He also said in the introduction, “Nor am I arguing that these developments are inevitable. If they were, there would be no point in writing this” (59). Perhaps significantly, these lines would be left out of the later Reader’s Digest popularization. It might be added that as we have shown, Hayek himself allowed a substantial role for the state in his all too brief description of the functions of 14. See, e.g., Farrant and McPhail 2009, 2010, 2011; for a response, see Caldwell 2011a.

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government in a liberal regime. Recall too his remark about the mistake of a “wooden insistence” on laissez-faire. His easy acceptance of state provision of a basic minimum of income for all, and his claim that “an extensive system of social services,” whatever that means, need not be incompatible with competition, do not make him sound like someone who thought that any movement in the direction of greater state participation in the economy put one on a slippery slope. So why was he read that way by so many? There are a number of reasons behind the misreading. Part of the problem was his loose use of terms like “necessarily” or “inevitably” at certain key points in his argument. Sometimes the use was fully justified. When he claimed, for example, that when a state adopts full socialist planning, its leaders inevitably, or necessarily, must impose the plan on others, this is simply a statement of fact. The plan must come from somewhere, and if values differ and conflict, it cannot represent everyone’s values, so it necessarily must conflict with those of some. At other times he was less justified, though we might excuse him, for he was responding to the claims of people like Laski or Mannheim, who sought to convince others that capitalism must inevitably collapse, or that the technological imperative meant that planning was inevitable. His goal, evidently, was to turn such arguments on their head: capitalism does not necessarily lead to fascism or totalitarianism, but socialism does. At still other times Hayek mixed together arguments against socialist central planning and softer variants of socialism. Finally, later in his career Hayek did in fact make what some might consider slippery-slope sorts of arguments when pointing out the dangers of welfare-state-style interventions.15 In The Constitution of Liberty he would clearly distinguish between the two, as his chapter titled “The End of Socialism and the Rise of the Welfare State” attests (Hayek 1960, chap. 21). Still later he warned that “the ultimate outcome tends to be very much the same, but the process by which it is brought about is not quite the same as described in this book” (Hayek 2007a [1976e], 55). 15. The idea is somewhat reminiscent of Mises’s thesis that interventionism, rather than being a third way between capitalism and socialism, is a regime that must in the end lead to full socialism. See Mises 1977 [1929]. Boettke (2018, 150–54) argues that Hayek is making an “instability argument” rather than a slippery-slope one: serious attempts to organize society along socialist lines ultimately present policymakers with the choice of either giving up socialism as a means of organizing society, or giving up one’s democratic and liberal ideals. “There is no ironclad inevitability in Hayek’s argument . . . [but rather] a warning of a tragic possibility that would be viewed as abhorrent from the point of view of those who [like Hayek’s critic Evan Durbin] believe they are ‘socialists in their economics because they are liberals in their philosophy’” (151).

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Hayek reflected on the varying responses to his book in the foreword to the 1956 American paperback edition, and he makes it clear there that he felt that he had often been misread by both critics and admirers. The former “seem to have rejected it out of hand as a malicious and disingenuous attack on their finest ideals,” and the reactions of some of the latter “vividly brought home to me the truth of Lord Acton’s observation that ‘at all times sincere friends of freedom have been rare, and its triumphs have been due to minorities, that have prevailed by associating themselves with auxiliaries whose objects often differed from their own; and this association, which is always dangerous, has sometimes been disastrous’” (Hayek 2007a [1956], 41–42). There he raised two salient points about what he meant when he wrote the book. First, his chief concern was that “England herself was likely to experiment after the war with the same policies which I was convinced had contributed so much to destroy liberty elsewhere,” and that these policies were “hot socialism,” a doctrine that by 1956 “is nearly dead in the western world” (40, 44). And second, he expressed his hope “that at least in the quieter atmosphere of the present it will be received as what it was meant to be, not as an exhortation to resistance against any improvement or experimentation, but as a warning that we should insist that any modification in our arrangements should pass certain tests (described in the central chapter on the rule of law) before we commit ourselves to courses from which withdrawal may be difficult” (45). In the editor’s introduction to the Collected Works version of The Road to Serfdom, one of us offered this final statement of how to understand, and test, Hayek’s central thesis. It will stand as our closing comment on the interpretive quagmire posed by Hayek’s most famous book: The proper way to evaluate Hayek’s logical thesis is to ask, How many actually existing, real-world political systems have fully nationalized their means of production and preserved both some measure of economic efficiency and freedom of choice over goods and occupations? Count them up. Then compare the number with those that nationalized their means of production and turned to extensive planning and control, and with it the curtailment of individual liberties. If one agrees that this is the right test, Hayek’s position is fully vindicated: full socialism can only be put into practice by using methods of which most socialists would disapprove. (Caldwell 2007, 31)

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In addition to The Road to Serfdom, Hayek’s other big wartime project was a methodological piece, a criticism of a doctrine he dubbed “scientism.” This was originally intended to be a single chapter at the beginning of the Abuse of Reason project. But he struggled with it, working on it on and off over a period of three years. The first installment of “Scientism and the Study of Society” was published in the August 1942 issue of Economica. There would be two more installments, the final one not appearing until 1944. The chapter had grown into an essay of over 160 pages.1 In what follows, we will examine some of his chief claims and show how this work initiated one of his most important professional relationships and friendships, that with the philosopher Karl Popper. We will also examine a proposal that Hayek made in the middle of the war for a Central European college, a plan that reveals his hopes for what the postwar world might look like, and where he might fit into it. One of Hayek’s goals in writing the essay was to show that it was illegitimate for the men of (natural) science to impose their own methods of study on areas like the social sciences. Indeed, Hayek (2010 [1952b]) defined “scientism” as the “slavish imitation of the method and language of Science,” a practice that he considered “a very prejudiced approach which, before it has considered its subject, claims to know what is the most appropriate way of investigating it” (80). But his target was the much broader complex of ideas that he would summarize with the term “the engineering mentality.” The beliefs he would challenge were multiple: that the social sciences (and particularly economics) were not real sciences; that if one simply ap1. The essay was republished, with slight modification, together with “The CounterRevolution of Science” and “Comte and Hegel,” in Hayek 1952b. The Collected Works version, published in 2010, is based on the text from the 1952 book. For a more detailed summary and evaluation of the themes of the essay, see Caldwell 2004, 241–60.

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plied the methods of the real sciences to the study of social phenomena one could have much better, more rational results; that suitably trained experts could plan and design all manner of social institutions just as one plans and designs a bridge or a building, with the end result being a more efficient, productive, and just society. Those infected with the engineering mentality could be found in many countries, and the nature of the thought to be found in each country accordingly had its own characteristic elements—that was the point of the planned first volume of the Abuse of Reason project, to show both the spread of the ideas from country to country and their transformation. In “The CounterRevolution of Science” he had shown their origins in the postrevolutionary France of Saint-Simon, Comte, and the Ecole Polytechnique. In Germany they were represented in the theories of Marx and, later, the German historical school. In Britain they were nurtured by the Fabians and other socialist groups, and in America by the institutionalists. And everywhere, adding fuel to the fire, were popular scientific writers, from the natural scientists in Britain to the advocates of technocracy in the States, as well as all manner of public intellectuals, pundits, and cranks. Hayek was fighting on many disparate fronts; his opponent, again, was the very spirit of the age. He also knew what he wanted to defend as the proper approach: the methods of economics, as he had learned them through his schooling in the Austrian tradition and in his time at LSE. This involved at the most fundamental level a commitment to a theoretical approach, as opposed to either a descriptive or a historical one. The specific theoretical approach he endorsed employed the marginalist framework that had been developed over the three generations since Menger, what he called in his 1937 essay “the economic calculus.” Another key Mengerian insight, that social structures evolve from the unintended consequences of intentional human action, also needed to be incorporated. So too did Mises’s contributions. This included the subjective basis of human action, but Hayek apparently also hoped to integrate Mises’s ideas about apriorism into the framework, though in a way different from that envisaged by his mentor and friend. Finally, he wanted to take account of his own ideas about the dispersion of knowledge and, even more ambitiously, some of the psychological work he had done as a student. His ultimate goal was to convince the critics that these ideas represented a truly scientific approach to the study of social phenomena. It is no wonder that the essay grew, and took him so long to finish.2 2. For more on the Austrian tradition on which Hayek drew, and its opponents, see Caldwell 2004, chaps. 1–5.

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The Scientism Essay, Part I Hayek (2010 [1952b]) began his essay by describing the methods of the natural sciences. Noting that all humans are equipped with a sensory system with which they form sense perceptions and images of the world they inhabit, he then asserted that the characteristic method of the natural sciences is to revise and reconstruct the concepts formed by ordinary experience to get down to the constituent elements and the laws governing their interaction. Taking objects classified by our senses and reclassifying them with another classification system that captures the actual relationships was, in his view, the most characteristic feature of the natural sciences (82–84). It is evidently very different in the social sciences, where the goal is to explain human action. Here people’s subjective perceptions and beliefs lead them to act, to use the means they have at hand to pursue various ends. Subjective perceptions and beliefs (what Hayek calls “opinions”) are then the “data” of the social sciences. Yet (as we have just seen) to form our perceptions and beliefs we use a classification system that orders phenomena and relationships in a way that differs from what the natural sciences tell us is the actual nature of reality. Even so, in our own actions we tend to assume (usually correctly) that other people classify external stimuli in much the same way that we do. The very fact that we can communicate with other people suggests that our minds operate in similar ways, and indeed the assumption allows us to make sense out of the actions of others (89). When we see a person acting, we typically think of them as trying to accomplish a goal, and we use general categories that allow us to understand their actions. For example, a person might have some sort of implement in his or her hands. That instrument becomes in our mind a “hammer” only when both a thinking person and a desired effect are associated with it. The physical characteristics of the instrument are secondary, and in fact many things that are not hammers can be used as hammers. It all depends on our understanding of what the person is trying to accomplish, and that depends on our understanding of their (subjective) beliefs about the means-ends framework: “We must start from what men think and mean to do: from the fact that the individuals which compose society are guided in their actions by a classification of things or events . . . which has a common structure and which we know because we, too, are men” (97). Obviously, people can be wrong in their beliefs, and the outside observer can know that they are wrong, but none of this matters if our goal is to explain why they are acting in a particular way. As Hayek put it, “So far as human actions are concerned the things are what the acting people think they are” (89).

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The most developed of the social sciences is economics, precisely because of its relentless emphasis on the subjective basis of the means-ends framework. The point is made with a bow to Mises: every important advance in economic theory during the last hundred years was a further step in the consistent application of subjectivism. That the objects of economic activity cannot be defined in objective terms but only with reference to a human purpose goes without saying. Neither a “commodity” or an “economic good,” nor “food” or “money,” can be defined in physical terms but only in terms of views people hold about things. Economic theory has nothing to say about the little round disks of metal as which an objective or materialist view might try to define money . . . Nor could we distinguish in physical terms whether two men barter or exchange or whether they are playing some game or performing some religious ritual. Unless we can understand what acting people mean by their actions any attempt to explain them, that is, to subsume them under rules which connect similar situations to similar actions, is bound to fail. (94–95)3

Economists, of course, are most concerned with interactions in markets. The task of social scientists more generally is to show how the opinions of individual agents lead them to create through their actions the more complex social structures that constitute the social world. Hayek followed Menger in  claiming that the most interesting of these are those which emerge and persist yet are unintended or undesigned, and in dubbing the method by which larger social phenomena are revealed to be composed from the actions of individual elements the compositive method (102). Hayek provided a simple example of what he meant—the explanation of the formation of footpaths. No one intends to create a footpath, or sees one created. Before one is formed in a forest, each person makes his own path. But over time certain paths get used more often, and eventually, everyone starts using the same ones. This explanation has little to do with our powers of direct observation, but relies on our understanding of how humans act to accomplish goals. Many social and economic phenomena are susceptible 3. The sentence linking every important advance in economic theory and subjectivism carries a footnote that begins, “This is a development which has probably been carried out most consistently by Ludwig von Mises, and I believe that most peculiarities of his views which at first strike many readers as strange and unacceptable trace to the fact that in the consistent development of the subjectivist approach he has for a long time moved ahead of his contemporaries” (Hayek 2010 [1952b], 94).

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to similar sorts of explanations. These include “such cases as the evolution of money or the formation of language,” as well as “the case of the formation of prices or the direction of production under competition” (104–5). Using the compositive method to explain how individual actions create larger social processes, structures, and institutions, then, was in Hayek’s mind the chief role of the social scientist. Hayek drew a further important conclusion from his discussion. Given the sometimes vast number of elements whose interactions create social structures and institutions, the social scientist will rarely be able to predict precise outcomes: one can accurately describe how a footpath will form, but one typically will not be able to predict its exact position. This led him to distinguish between explanations that allow predictions and those that can describe only the principle by which a phenomenon is produced or the broad pattern to expect. Because of the nature of our materials, “explanations of the principle” and “pattern predictions” are often the best we can do in the social sciences (105–7). This fundamental methodological conclusion about the limits of the social sciences is one that Hayek would retain and return to again and again. As noted, Hayek’s articulation of the content and method of the social sciences leaned heavily on both Menger and Mises. But he also drew on his own research. His fairly unexpected starting point, to distinguish the natural from the social sciences by reflecting on how the former changes the normal classifying system of our sensory apparatus while the latter depends on it, and his sometimes opaque statements about the mind as a system that classifies sensory inputs, drew on his unpublished student paper on psychology. And of course his claim that humans base their actions on subjective “data” that exist only in “dispersed, incomplete, and inconsistent form” (93) drew directly on his 1937 “Economics and Knowledge” article.

Interlude: “The Facts of the Social Sciences” All of this was contained in the first installment of the “Scientism” essay, published in August 1942. Perhaps to force himself back to that project, Hayek volunteered to present a paper at the Cambridge Moral Sciences Club on November 19 of that year. The result was “The Facts of the Social Sciences,” later published in the philosophical journal Ethics, an attempt to summarize work so far and to preview the arguments to come (Hayek 2014a [1943b]). We do not know how his presentation was received, but the published paper makes a couple of interesting points that never made it into the “Scientism” essay.

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Hayek (2014a [1943b]) began the paper by telling his audience of philosophers that when he first started his career as a social scientist he was “thoroughly imbued with a belief in the universal validity of the methods of the natural sciences” (78). As he studied economics, though, two rather unsettling things became clear: economists in their own scientific practices repeatedly infringed on the accepted canons of the scientific method as understood by natural scientists, while on the other hand, whenever “a natural scientist seriously tries to apply his professional habits of thought to a social problem, the result has almost invariably been disastrous—that is, of a sort which to all professional students of these fields seems utter nonsense” (79). Thus it was time to provide a convincing defense of the methods of the social sciences, methods that to natural scientists might seem more like “medieval scholasticism” (79).4 This is perhaps the clearest statement of what motivated Hayek to embark on the Abuse of Reason project: he would defend the methods of economics and other social sciences from the criticisms of the men of (natural) science and their acolytes among the social sciences. A second new insight was into how we understand the behavior of others, which he then linked to economic theory. His claim was “that we can derive from the knowledge of our own mind in an ‘a priori’ or ‘deductive’ or ‘analytic’ fashion, an (at least in principle) exhaustive classification of all the possible forms of intelligible behavior” (86). A little further on he provided an example, drawn from economics: “If, for example, we define as economic actions all acts of choice which are made necessary by the scarcity of means available for our ends, we can, step by step, proceed to subdivide the possible situations into alternatives so that at each step there is no third possibility: a given means may be useful for only one or for many ends, a given end can be achieved by one or by several means, different means may be wanted for a given end either alternately or cumulatively, etc.” (86–87). Here he was defending the use of the economic calculus. Hayek thought that it was a useful tool, one that shows how choice proceeds when an agent has all the requisite knowledge about a given choice situation. As we saw, he did not think that it was capable of handling the market process, where market interaction causes knowledge constantly to change. What was new was his claim that it is knowledge of our own mind that prompts us to try to create an exhaustive classification system of all intelligible behavior, and that economic theory is mimicking this activity in constructing 4. This reference was doubtless meant to bring to his audience’s mind Lancelot Hogben’s brutal accusation in his Moncure Conway lecture that economics was nothing but “medieval rubbish” (Hogben 1938b, 10).

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the logic of choice. Was this a further attempt to defend Mises’s invocation of apriorism? Probably not—Hayek here used “a priori” in a different way from Mises’s; analytic, to be sure, but as a classifying device, with no whiff of Mises’s apodictic certainty. Hayek would wrestle with these strange ideas again, in his book on psychology and in later work.

The Scientism Essay, Part II The second section of the “Scientism” essay was published in Economica in February 1943. In it he offered his critique of various scientistic positions. In Hayek’s view, the social sciences are properly conceived of as being theoretical, individualist, and subjectivist: they provide a theoretical account of how the actions of individuals, which are based on subjectivist perceptions and beliefs, lead to the creation of larger social structures that are unintended, that is, that are the results of human action but not of human design. In his critique, he showed how three broad types of scientistic thought mistakenly apply methods that work well in the natural sciences to the material of the social sciences, and by so doing deny basic aspects of the phenomena under study. First, those who demand a more “objectivist” approach deny the subjective nature of the data of the social sciences. Among the proponents Hayek identified are Auguste Comte, who disparaged the use of introspection; behaviorists of various stripes, all of whom want to restrict their science to the identification of correlations between observable stimuli and behavioral responses; and physicalists like the philosopher Otto Neurath, whom Hayek interpreted as arguing that the terms of scientific theories should make reference only to observables. Second, those who tout “collectivism” deny that the social sciences should start from the opinions of individual humans, preferring instead to begin with theoretical entities at the level of wholes (like “the economy” or “society”). While Auguste Comte is again cited as a major offender, Hayek also discussed the assertion that collecting massive amounts of statistical data might help us better to understand the relationships existing among social aggregates. Though no one is named, his comments seem aimed at people like Wesley Clair Mitchell, and possibly the founders of the Econometric Society, as well as those followers of Keynes who were attempting to provide empirical counterparts to the aggregates found in his theory. Finally, those who advocate “historism” deny that the social sciences are properly theoretical in nature. Two variants of historism are taken to task. One sees history as the gradual accumulation of statistics, which ultimately will be used to draw generalizations about society—this view is typ-

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ically associated with Gustav Schmoller, the leader of the younger German historical school. Another variant is the search for laws of the development of human history. In this camp Hayek placed various stage theories and philosophies of history, the “darling vice” of the nineteenth century, and among the guilty are Hegel, Comte, Marx, and later Werner Sombart and Oswald Spengler. By claiming that various laws determine the development of history, these thinkers deny the importance of human intentional action in shaping events—from Hayek’s perspective they, like the collectivists, seek regularities and laws at the wrong level. Given the length of time he labored over this critical section of the essay, as well as some of his comments to correspondents, it is not clear how satisfied he was about the final result.5 He probably was most pleased with the critique of objectivism, for it drew on his own position in psychology. Behaviorism and with it the philosophical doctrine of physicalism that had been developed by Otto Neurath were the targets he had in mind. All such doctrines assert that scientific theories must restrict themselves to statements about what can be observed through the senses. By referring only to observables, they avoid all recourse to subjective states like intentions and beliefs, indeed all interpretation of the meaning of human action. Hayek, though, had shown with his hammer example that reference only to observables does not allow one to explain human action; one must make reference to intentions to call something a tool, or money, and so on, and thereby explain an action. More generally, such doctrines take the sensory order as given and unproblematical. Hayek’s theory, if correct, implies that observation is itself an act of interpretation, one based on the mind’s classification system. And if it is correct, it provides a truly scientific foundation for the Austrian emphasis on subjectivism. The other two sections are decidedly less original, with Hayek drawing on arguments first enunciated in the Methodenstreit between the founders of the Austrian school and the German historical school economists. There were other sources as well: Weber, Knight, and doubtless discussions that had taken place in Mises’s seminar in the late 1920s. (Indeed Mises raised some questions about Hayek’s treatment of the historian’s standpoint, and wondered why Hayek did not substitute “praxeology” for “social science”— 5. Hayek complained to Machlup that, wanting to keep Economica going during the war but faced with a shortage of submissions, he had published the first installment of Scientism before he was really satisfied with what he had written (Hayek to Machlup, Aug 8, 1942). In a letter to Karl Popper, Hayek confessed that the Scientism essay had given him great difficulty and hoped that Popper would not find any serious blunders (Jan 29, 1944).

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see Mises to Hayek, Apr 16, 1943). Some of the arguments Hayek rehearsed would have been unfamiliar to an English-speaking audience, so he was still providing a service. And showing that some of the most popular views on science in fact had their origins in Germany was always a nice touch. But Hayek was probably relieved when work on the second installment had been finished. In any event, in early 1943 Hayek diverted his attention once again from the “Scientism” essay to work on two projects: completing The Road to Serfdom and writing up a proposal for an English-speaking college in Central Europe. The two projects were very much of a piece, for both looked forward to the postwar world.

A Proposal for a Central European College Hayek finished the last two chapters of The Road to Serfdom in the spring of 1943. Few readers today pay much attention to those final chapters, for they looked ahead to various imagined postwar world scenarios. As noted earlier, Hayek opposed supernational planning authorities and implored his readers to get back in touch with the great British liberal tradition, which might serve as an example to the many different European countries, foes and friends alike, who would soon be seeking to rebuild their societies. It is interesting that Hayek chose to close on this point. In 1939 he had urged the British government to embark on a propaganda campaign that would reintroduce a German audience to a line of German liberal thinking that had been largely forgotten. Now, in Road, he was making his first attempt to do the same thing for readers who, paraphrasing Wordsworth, “the language speak that Shakespeare spake” (Hayek 2007a [1944a], 220). At the same time he was sending to the British government a proposal for “An English Speaking College of Social Studies for Central Europe.” Dated February 1943 and marked “Strictly Confidential,” the proposal ran for nine single-spaced pages (“English Speaking College,” FAHP 106.4). The plan was both ambitious and detailed. Hayek envisaged a residential college of 180 students, three classes of 60 students each, spread over three years. Each class would enroll ten students from America or England, with the remainder coming from Central Europe, broadly defined; he could have as easily said the Danube basin. The course of study would include economics, philosophy, history, and some comparative law, as well as English. Students would be postgraduates, but the course of study would be broad rather than technical. Completion of the program would confer life membership in the college. Instruction would be done by thirty-six fellows, two-thirds from America and England, the rest from Central Euro-

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pean countries, many of the latter drawn from those who had emigrated from the region to the West. To keep expenses down, membership in the residential college would be confined to men (“however regrettable this may be”), but lectures could be attended by nonresidential students as well. The tuition of the Central European residential students would be paid from three different sources: some would be foundation-sponsored students, for some tuition would be paid by their state of origin, and some would be self-financed. The annual budget Hayek estimated to be about £60,000, which would require a capital sum of between one and two million pounds, to be solicited from Western governments and private foundations. The goal behind the creation of the Central European College was to establish a place to educate a group of individuals in the Anglo-American political, juridical, and moral traditions, to produce “an elite with a certain common tradition of ideas, values, and forms of discourse” who would become the administrators, statesmen, and politicians of the next generation (“English Speaking College,” 1). Another goal was to establish English as the lingua franca of Europe, which also would facilitate the spread of the Anglo-American tradition. The college was, in short, Hayek’s attempt to make the future generation of Central European leaders familiar with the ideas of the liberal tradition of Locke and Milton, of Hume and Smith. Hayek concluded the proposal by noting that the most important task ahead was to choose a figure to lead the school who had a combination of attributes and skills: “a native of England or America, preferably a product of one of the older English Universities, a man of fairly mature years, and, above all, a genuine scholar of distinction” (“English Speaking College,” 8). This list evidently left him out of consideration for the position, which, given his hatred of administrative work, reflects a fine blend of selfknowledge and self-interest. Hayek sent the proposal via Lionel Robbins to the Foreign Office and got a letter back from Robbins a few months later holding out hope that though little was going to be done in the present, there was some possibility it could be revisited once the war was over. This did not happen, but Hayek would soon enough be pursuing other plans for defending and promoting liberalism. This little-noticed episode is nonetheless revealing. It shows in the first instance Hayek’s ability to articulate both a grand vision and a more detailed blueprint for how to execute it. It shows his willingness not only to think big but to ask big: two million pounds was not an inconsequential sum, especially at war’s end. The plan also reveals a sensitivity to the likely preconceptions of members of different national groups, and how to try to

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overcome anticipated obstacles. The college should not compete with existing national universities, nor should it depend (outside of the state grants for students) on local funding. To attract fellows from the US and England, shorter-term contracts should be offered, with the most likely period five years, though even shorter ones would be available for especially desirable candidates. To avoid national jealousies, fellows of similar stature would be paid on the same annual scale, though in order to attract the American and British professors who enjoyed higher salaries in their home countries, they could be paid a bonus upon completing their contract. Hayek suggested that the college be located in Vienna, and he offered a number of reasons why it would be the best choice. He noted Vienna’s fine libraries, its cultural and artistic amenities, and its proximity to the West (it sits on the western border of Eastern Europe). Perhaps most important, having the college in Vienna would prevent that city from becoming a channel by which German ideas might find their way to the countries of Eastern Europe.6 These arguments all made sense, but Hayek was also surely concerned about family and friends still living under the NS regime, and especially about his mother and Lenerl. Though optimistic about who would win the war, he had no idea what the disposition of the victors toward the Austrian people would be. He did his best to paint a rosy picture of the probable reception of his idea of a college there: “There has always existed a strong polyglot tradition in Vienna, and after the experience of the Nazi regime it is almost certain that nationalism, never as fierce there as it was among the ‘younger’ nations, will be non-existent” (“English Speaking College,” 3). If the British government bought into his plan, perhaps things might go better for Vienna at war’s end, and even perhaps for those of his relatives who might face sanctions over their wartime activities. Of course, if the proposed plan actually came about, it would also be a dream come true for its author. Hayek loved the residential college atmosphere of Cambridge, which his plan would duplicate in Vienna. He had by now doubtless made his decision to move away from the kind of technical economic analysis that was coming to dominate economics. The curriculum of the Central European College would exactly fit the new direction of his research. Behind the scenes he would be able to guide the direction of 6. As Shearmur (2015, 212–13) astutely notes, Hayek’s concern here was probably less with any resurgence of Nazi ideas than with the German intellectual tradition of individualism that he would contrast with the “true individualism” defended in “Individualism: True and False,” a paper that he would soon be writing (Hayek 1946a).

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the new college, yet avoid the administrative work he so detested. He would be in a position to reestablish connections with his mother, brothers, other relatives, and friends, those who had survived the past horrific years, anyway. And last but certainly not least, the move would allow him to divorce Hella and marry Lenerl. So it would seem that during those quiet, happy years with the family in wartime Cambridge so fondly recalled by Christine, her father was planning for a very different postwar life. He might even have entertained hopes that Hella and the children would reconcile themselves to the break and perhaps might come to live in Vienna, so everyone could be nearby. If he did, it was a delusion, but certainly not the first or last he would have in the realm of familial relations. At some point, Hayek made a list of people who might be drawn to teach at the college. The economists on it were an eclectic group: Harry Gideonse and Henry Simons, but also Kenneth Boulding and, most interestingly, Oskar Lange. Apparently Hayek was prepared to follow the example of the Webbs: find the best people, regardless of ideology. Another name, toward the bottom, was “Popper.” Soon after he sent off the proposal, Hayek would hear again from his philosopher acquaintance.

A Foreign Correspondent: Hayek and Popper during the War Last we saw him, Karl Popper and his wife, Hennie, were living a rather miserable life in New Zealand. The last exchange Popper had had with Hayek began with a postcard from Hayek, dated July 8, 1940, a time when he was beginning work on “Counter-Revolution.” Hayek asked for references to Laplace’s world formula, the hypothesis that if one had all the necessary data (position, weight, momenta, etc.) concerning all the bodies in the universe and the appropriate laws, one could predict their future movement perfectly. Popper obliged in a long letter in September, providing not only references but an argument for why, even if one had all the necessary data, the hypothesis misunderstands the nature of the laws of nature we have to work with, which are always approximate and provisional. From Hayek’s point of view, of course, that was just the right answer. Laplace was one of the intellectual giants whose successes positivists like Comte wanted to emulate in the social sciences, and whose efforts led directly to scientism (Popper to Hayek, Sept 16, 1940). And there their communication ended for nearly two and a half years. From 1940 onward Popper began work on the book that would become The Open Society and Its Enemies, his wide-ranging and provocative cri-

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tique of Plato, Hegel, and Marx as contributors to the totalitarian impulses that in the twentieth century had led to fascism. In the book he would criticize Marx for what he dubbed his historicism, which for Popper meant “an approach to the social sciences which assumes that historical prediction is their principal aim, and which assumes that this aim is attainable by discovering the ‘rhythms’ or the ‘patterns,’ the ‘laws’ or the ‘trends’ that underlie the evolution of history” (Popper [1957] 2002, 3). As Malachi Hacohen in his masterful biography shows, Popper came to this criticism by a very different route from Hayek’s. Popper was a social democrat who blamed the Austro-Marxist belief in the inevitability of socialist revolution for the failure of the left to resist the rise of fascism and National Socialism in prewar Austria. Because the book was not published until 1945, however, it would become widely interpreted in the postwar period as a Cold War critique of the Soviet Union (Hacohen 2000, 383–84).7 Popper toiled over the manuscript for two and a half years. He began looking for American publishers in fall 1942, enlisting various people he knew in the States, but their efforts came to naught. In April 1943 he began seeking out British publishers, writing to friends and acquaintances in London: Ernst Gombrich, the philosopher Susan Stebbing (who had invited him to lecture at Bedford College, University of London, back in fall 1935), and the person who had tried to help him get his first book translated, Friedrich Hayek. A little later he also wrote to Hyman Levy. Neither Levy nor Stebbing (the latter was ill and would die in September) was of much help, but Hayek and Gombrich would eventually come through (Hacohen 2000, 450–57). Popper’s brief letter of April 26, 1943, informed Hayek that Gombrich was going to look for a British publisher for the book, at that point entitled A Social Philosophy for Everyman, and asked him if he would be willing to vouch for the quality of his work in general should Gombrich be able to find a prospective publisher who wanted a reference. To give him some sense of the content of the manuscript, Popper included the table of contents, preface, and introduction with his letter. They arrived sometime in early July. Hayek was by then finishing up The Road to Serfdom and would soon be turning his attention to the third installment of “Scientism.” Hayek was stunned when he began to read the introduction, for Popper noted there that he had elsewhere, in a work called “The Poverty of His7. A place that Hacohen’s biography goes astray is in his characterization of Hayek, who comes across as the stick-figure libertarian who led Popper away from his socialist roots. For a review of the book, see Caldwell 2005.

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toricism,” provided arguments against the various forms of the doctrine, one that he felt wrongly conflated historical prophecy with scientific prediction. Contemporary proponents of the erroneous ideas would include people like Mannheim (Popper did not mention him in the introduction, but did in his accompanying letter to Hayek) who talked about such things as the inevitability of collectivist planning. Needless to say, having just published his own critique of (what he there called) historism in part II of the “Scientism” essay, Hayek was delighted to find Popper working on the same themes, but from a different, philosophical perspective. Hayek very quickly replied, letting Popper know that they were working on apparently similar projects and that he was willing to help Gombrich in any way that he could. Unfortunately, Hayek had no offprints of the two installments of “Scientism” to send him, but he enclosed instead his pieces from Nature and the Liberal Review. Popper had sent Gombrich three copies of A Social Philosophy for Everyman, and Hayek promised to read the manuscript that summer and get back to him with comments. He also asked about “The Poverty of Historicism” mentioned in the introduction (Hayek to Popper, July 12, 1943). Thus began their fascinating wartime correspondence. It was immediately apparent to both men that each of them was “fighting the same battle on different fronts” (Popper to Hayek, Dec 9, 1943). They both had the same contemporary foes (Mannheim, Crowther, Haldane, Bernal, Neurath, Waddington, and Hogben are all mentioned in the first year of their exchanges—Hogben even became a kind of code word for “querulous person”) and were combating the same mistaken ideas (“historicism” in its various guises, inductivist methods, and comprehensive economic planning). And each had something to learn from the other. Popper was coming to social science methodology from the philosophy of the physical sciences, and was as he admitted a “typical dilettante” when it came to things like economics (Popper to Hayek, Oct 26, 1943). Hayek confessed feeling the same way when it came to the philosophical foundations of his own arguments (Hayek to Popper, Jan 29, 1944). Though it often took two months or more for items to arrive, during that first year a lot happened, events that would profoundly alter Popper’s professional life. He responded to Hayek’s query about “Poverty” that it was an essay that he had started long ago, reminding him at one point that he had in fact given a lecture in Hayek’s LSE seminar on the topic. He was currently reworking the second part of it, where his criticisms of historicism were to be found, but the first part, in which he described the different variants of historicism, was ready to send off to a journal. Hayek offered

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to publish the paper in parts in Economica.8 And though the search for a publisher for The Open Society and Its Enemies had many false starts, as well as controversies over the title and, given the wartime paper shortage, its length, ultimately Routledge offered to take on the book. In his letter recommending the manuscript to the press, Hayek could report that Laski had also read it, and for once they were in complete agreement. The deal was sealed, fittingly, at Hayek’s favorite venue, the Reform Club, with Hayek, Gombrich, and the Routledge editor Herbert Read in attendance (Hacohen 2000, 456–58; Howson 2011, 497; Cockett 1995, 83). Perhaps an even more consequential opportunity was announced by Hayek in a letter sent November 5, 1943. Professor Abraham Wolf had recently retired, and as a result a new readership in Logic and Scientific Method at LSE was being created. Hayek did not reveal that he together with the sociologist Morris Ginsberg had been the force behind the creation of the readership, and that he had already begun showing Popper’s manuscript around, to Director Carr-Saunders, Ginsberg, and Laski. Hayek wrote to provide details of the position: Would Popper be interested? When the letter finally arrived in New Zealand in December Popper immediately cabled back “Should like to be considered” (Hacohen 2000, 496–97; Howson 2011, 496; Hayek to Popper, Nov 5, 1943; Popper to Hayek, Dec 8, 1943). Like the search for a publisher, this too would be a protracted process. Popper spent the early months of 1944 doing final revisions of volume 1 of Open Society and working on “Poverty.” Then he suffered a physical collapse that lasted about four months—he told Hayek in May that he was so weak that he was having a hard time even reading (Popper to Hayek, May 16, 1944; cf. May 28 and Sept 24, 1944). He spent the second half of the year revising the second volume of Open Society and working on the latter parts of “Poverty.” Though Gombrich had sent in the materials for the application for the LSE post early in February 1944, LSE would not formally advertise the job until January 1945. Meanwhile Popper began exploring other job possibilities in New Zealand, Australia, and England, and Hayek was achieving some newfound fame with the publication in England of The Road to Serfdom (Hacohen 2000, 458–59, 496–98; Popper to Hayek, Oct 23, 1944). When it finally came time to find someone to fill the new position, Hayek was made a member of the committee evaluating candidates; others included Carr-Saunders, Ginsberg, and Tawney, as well as three philoso8. For considerations of space Hayek ended up having to cut some portions of “Poverty I” before printing it in Economica. Shearmur 1998 provides a full account, including the text of the material that was cut.

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phers, two of them external. At the last minute two factors almost scuttled the deal. As a result of his trip to America to publicize the American printing of Road to Serfdom, Hayek ended up not being able to attend the crucial meeting. Instead he wrote a detailed evaluation of the nine candidates, concluding that Popper was the only real choice (see FAHP 44.1). The committee ultimately followed his advice and sent forward to the university administration Popper’s name. Then Morris Ginsberg read the third installment of Popper’s “Poverty of Historicism,” which appeared in Economica in May 1945, and was so incensed by it that he tried to get the proposal to hire reversed. Luckily the decision was not reversed, but even after all the papers were signed, there were the inevitable delays, complications, and traumas. Karl and Hennie finally arrived in Britain on January 25, 1946, and were met at the dock by Gombrich, who carried with him a copy of The Open Society (Popper 1944–45; Hacohen 2000, 498–500; Hayek, Shehadi interviews, 22). The Hayek-Popper wartime correspondence is both compelling and instructive, as one watches the two principals slowly coming to understand each other’s views.9 Comments from both stressed their common ground, how well the other was expressing his ideas, and how much each was learning from the other. But there were also clear differences, and it was a delicate dance, especially for Popper, whose personality did not allow such matters to be ignored, but who could not afford to be perceived a “Hogben” by a person who was by all lights his patron. He was also in the awkward position of having Hayek’s positions in front of him (by December 1943 he had read the first two installments of “Scientism,” and by May 1944 had received his copy of Road) at the same time that he was rewriting the second, critical part of “Poverty.” In addition to criticizing historicism, Popper’s positive project was to argue that all sciences should try to follow the same method, the one he had described in Logik. This was the method of trial and error, in which scientists propose bold conjectures (bold in the sense of forbidding much, thereby producing precise predictions), followed by attempts to falsify them by testing their predictions against observable reality. A paradigmatic example is provided by the theory of celestial mechanics, which allows one to predict the exact moment that an eclipse will occur: the theory is both bold in its prediction and easily falsifiable. In addition, Popper’s proposed methodology ruled out ad hoc theory adjustments in those cases in which the predicted outcome did not occur: falsifications needed to be 9. A Hayek-Popper Correspondence volume is planned for the Collected Works of F. A. Hayek.

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taken seriously. It also ruled out such stratagems as making open-ended predictions or explaining phenomena by reference to unobservable processes that could be invoked whenever it was convenient. Marx’s prediction that capitalism will collapse sometime in the future, with no indication when, was an example of the former; Freudian psychoanalysis, in which any behavior can be explained by reference to unconscious and unobservable impulses, is an example of the latter.10 Hayek certainly was sympathetic to a philosophical account of science that would rule out Marxian and Freudian analysis as unscientific, and indeed he would later say that when he first read Popper’s ideas about scientific method in Logik he recognized that they confirmed his own intuitions that neither Marxism nor Freudian analysis was scientific (Hayek 1994, 49–51). But it is also clear from their correspondence that when it came to the application of these ideas in the social sciences, some of Popper’s terminology did not mesh with that used by Hayek. For example, Popper advocated “piecemeal social engineering,” piecemeal implying that policymakers would try out new approaches to the design or reconstruction of social institutions, then “test” them by seeing how well they worked, given the goals of policy, and modifying them as necessary. In “Poverty” he cites the “Agenda for Reform” found in Walter Lippmann’s Good Society as an example of a liberal program of piecemeal social engineering. He contrasts this with “utopian social engineering,” the attempt to remodel the whole of society according to a preconceived plan, citing Mannheim’s Man and Society in an Age of Reconstruction no less than three times as the example (Popper [1957] 2002, sec. 21). Hayek would evidently agree with the examples, but he had of course criticized the “engineering point of view” in his earlier writings and would do so again in the third installment of the “Scientism” essay. Popper began the section in “Poverty” in which this is discussed with a footnote noting the differences in their terminology and acknowledging his agreement with Hayek’s argument that any sort of planning that requires the planner to have all the necessary knowledge beforehand was not what he had in mind when advocating piecemeal social engineering (sec. 21).11 10. Note that Hayek’s recourse to the conscious intentions of individuals in explaining human action, though referring to something unobservable, does not refer to something unconscious. 11. Hayek noted that there were terminological differences in Hayek to Popper, Nov  12, 1943; Popper defended piecemeal social technology in Popper to Hayek, Jan 6, 1944, cf. Popper to Hayek, Mar 14, 1944; Hayek made the argument that social engineering assumes all the relevant knowledge is in one head in Hayek to Popper,

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Other differences, though, went beyond terminology. Hayek was, after all, a liberal, and Popper a social democrat if not a socialist. On one occasion Popper referred to his own “advocacy of interventionism, and critique of laissez faire.” In defending it he invoked Hayek’s writings about interventionism in Collectivist Economic Planning, making the point that interventionism is inevitable, and what matters is the type of interventionism. The type Popper favored was “based on a conscious liberal and humanitarian policy”; then “there is a hope of getting over the fatal split in the humanitarian camp, and of uniting the vast majority of liberals and socialists (as it were, under the flags of Mill and Lippmann)” (Popper to Hayek, Mar 15, 1944). The subject came up again most dramatically in Popper’s letter to Hayek when he received his copy of The Road to Serfdom. He was effusive about the book, saying how he felt that it was in a way like a third volume to Open Society, in the sense that it was something “I ought to have written if only I would have had the ability.” Referring to the essays in Economica, he went on to say that he had “learned more from you than from any other living thinker, except perhaps Alfred Tarski,” high praise indeed. But he then went on to warn again that too much in Hayek’s work could lead one to think that he felt that the institutions that he favored were sacrosanct, and that this could be taken “as a new version of an apology for laissez faire.” Rather we must continually appeal to motives that seek to help the less well off in society. “What we need is peace and mutual confidence within the camp of humanitarianism, and the great majority of socialists is within this camp. I hope that you do not mind that I continue to harp on the same subject in nearly all my letters. It is not, I know, a point of real disagreement. It is rather a question of emphasis, but as such an important one” (Popper to Hayek, May 28, 1944). Hayek did not respond to Popper’s political concerns; after all, he had criticized laissez-faire more than once in the book. There were still evident differences between them politically. Hayek was surely leery of experimenting too boldly with social policy, if only because once a policy is put into effect, it gains constituents and thus becomes difficult to reverse, even if it is not accomplishing its intended goals. None of this deterred Hayek in his efforts to get Popper’s work published, to bring him to LSE, and to consider him as a candidate for fellow at the Central European College. There were other differences, some concerning methodology. One had to do with the role of testing in the social sciences. Popper’s complaint was Jan 29, 1944; Popper acknowledged the importance of the distinction in Popper to Hayek, Mar 14, 1944.

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prompted by Hayek’s treatment of the objectivism of the scientistic approach. While praising Hayek’s critique as “by far the best criticism of behaviorism I have seen . . . absolutely convincing,” Popper was worried about the implications of a subjectivist approach for testing theories (Popper to Hayek, Dec 16, 1943). Although Hayek’s immediate reply was not really to the point, he would ultimately embrace Popper’s criterion that a theory must be conceivably falsifiable to count as scientific, while insisting that the degree of falsifiability will often be small in the social sciences. For his part, Popper would in both “Poverty” and Open Society begin to develop the notion of situational logic as the appropriate method for the social sciences, an idea that he would state more formally in later work (Popper [1957] 2002, sec. 31; 1945, chap. 14; cf. Caldwell 1991b). But there was another problem: if Popper’s claim is that all real sciences should follow the method of trial and error, what does that do to Hayek’s central claim that scientism is the illegitimate attempt by social scientists to follow the methods of the natural sciences? Though this seems like an unbreachable gap, Popper came up with a brilliant solution: the methods that Hayek rightly criticized as scientistic were not the actual methods of the natural sciences, but illegitimate reconstructions. By this reading, scientism is “a name for the imitation of what certain people mistake for the method and language of science” (Popper [1957] 2002, 96n; emphasis in the original). Popper devoted almost four pages of section 29 of “Poverty” to showing that Hayek’s “Scientism” essay was actually an argument in favor of the unity of scientific method (126–29)! Hayek accepted Popper’s solution. When he reprinted the “Scientism” essay in 1952, he added a paragraph that emphasized that “the methods which scientists or men fascinated by the natural sciences have so often tried to force upon the social sciences were not always necessarily those which the scientists in fact followed in their own field, but rather those which they believed that they employed” (Hayek 2010 [1952b], 79). Interestingly, he did not indicate it was an addition, nor did he credit Popper. Hayek made another change to the 1952 text that can be traced to his wartime correspondence, again without mentioning it: he changed “historism” to “historicism.” As he admitted in one of his letters: “I believe, incidentally, that your term, historicism, is better than historism (it has also the sanction of Lord Acton, see Inaugural Lecture); I wish now I had used it, particularly as it would suit my terminology so well: scientism an abuse of science, historicism an abuse of history!” (Hayek to Popper, Jan 29, 1944). As for his influence on Popper, Hayek’s main contribution was a rather dubious one. Popper never wavered from his idea that the method of trial and error was the proper one for the social sciences. But he did spend a lot

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of time in “Poverty” trying to show that his own ideas, terminology notwithstanding, were consistent with Hayek’s, and also that they shared common enemies (Mannheim is lacerated in no less than fourteen different footnotes). This effort to show solidarity caused him to deviate from the planned, very systematic structure of the essay announced in the table of contents. In an autobiographical essay Popper once said that he considered “Poverty” to be one of his “stodgiest pieces of writing” (Popper [1976] 2002, 130). A better description would be brilliant but disorganized, and the latter trait was due to modifications he made with Hayek’s arguments in mind (Caldwell 2006, 115–17).

The Scientism Essay, Part III Hayek’s closing chapters of the “Scientism” essay appeared in the February 1944 issue of Economica. In them he highlighted certain detrimental consequences of the scientistic worldview, among them the dangerous idea that we possess the ability to refashion social institutions at will. (This was why Popper worried that Hayek thought that certain institutions were sacrosanct.) For Hayek, widespread enthusiasm for a variety of forms of economic planning revealed the pervasiveness of the engineering mentality and was but a natural consequence of the steady ascendancy of the scientistic prejudice. Among the guilty parties named in the closing chapters were Neurath, Needham, and Mannheim (twice). Hayek also praised the “individualist approach” for recognizing the limits of the human mind: The individualist approach, in awareness of the constitutional limits of the individual mind, attempts to show how man in society is able, by the use of various resultants of the social process, to increase his powers with the help of the knowledge implicit in them and of which he is never aware; it makes us understand that the only “reason” which can in any sense be regarded as superior to individual reason does not exist apart from the inter-individual process in which, by means of impersonal media, the knowledge of successive generations and of millions of people living simultaneously is combined and mutually adjusted, and that this process is the only form in which the totality of human knowledge ever exists. (Hayek 2010 [1952b], 153)

Hayek’s original plan for the Abuse of Reason project called for an introduction that was titled “The Humility of Individualism,” so this passage was doubtless written with that in mind. Soon after the war’s end he would de-

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liver an address titled “Individualism: True and False” that one could imagine as serving in this role.12 Though Hayek planned to keep working on the Abuse of Reason project, it was in fact never completed. One can speculate about what caused the change of plans, but certainly one reason was the impact on Hayek’s life and career prospects of the publication of his war effort, The Road to Serfdom, to which we now turn.

12. Accordingly, in the Collected Works of F. A. Hayek volume that reprints “The Counter-Revolution of Science” and the “Scientism” essay, that paper is included as a prelude (Hayek 2010 [1946a]).

· 30 · The Publication(s) of The Road to Serfdom The Reception in England Hayek was hopeful that The Road to Serfdom would generate a lot of discussion in England. A few months before its publication he even supplied Routledge with a list of twelve “Points from the Book” for the back of its dust jacket.1 Sales, when they took place, did not disappoint. When it appeared in March 1944, the first printing of 2,000 copies sold out nearly immediately, as did the second run of 1,000.2 Unfortunately, at that point the paper shortage prevented any further response. By summer Hayek was complaining to Routledge that Road had gotten a reputation as being “that unobtainable book” (Cockett 1995, 85). He sent a copy to his friend in New Zealand, who in a lengthy airgraph and in typical Popperian style gushed with unbridled enthusiasm and praise, then quickly listed the various points on which he demurred (Popper to Hayek, May 28, 1944). The very next day Popper sent a further congratulatory note, pointing out that he probably had the only copy of the book in Christchurch “if not in New Zealand.” In his return post Hayek reacted: “I fear you somewhat overrate the importance and probable effect of my book . . . The success is in a way much greater than I had ever hoped for—but not altogether of the right kind: not, so far, among the liberals but almost exclusively among the conservatives, at least if one is to judge by the discussion in the press. The liberal press was rather sniffy about it and the definitely left (including some so-called liberals) try on the whole to pass it over in silence . . .” (Hayek to Popper, July 8, 1944). From Hayek’s personal collection of reviews in newspapers and weeklies 1. Cockett 1995, 77–81. The twelve points are reproduced on p. 81. 2. The publication figures are from Cockett 1995, 80, 85. These numbers differ from those that Hayek reported in a letter of May 24, 1944 to Fritz Machlup of 2,000 and 2,500.

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the outlets that treated it most favorably were indeed decidedly conservative.3 Ten days after its publication Hayek amusedly reported to Machlup that so far only the Roman Catholic weekly Tablet of all places had recommended the book (Hayek to Machlup, Mar 20, 1944). On March 30 the Financial News recommended the book, echoing its warning that planning, which attempts to correct problems associated with laissez-faire, could itself be destructive of both economic and political freedom (unsigned, Mar 30, 1944). The next day Hayek’s friend Michael Polanyi published a sympathetic piece in the Spectator titled “The Socialist Error.” He lamented the popular beliefs in both the inevitability and the virtues of socialist planning, noting how proponents from across the ideological spectrum (he mentioned Laski, Acland, and Carr) now shared this view. He concluded by applauding Hayek’s call for the British to return to their earlier liberal values of freedom and tolerance (Polanyi 1944, Mar 31). Conservative early reviews tended to emphasize the more provocative parts of the book. The Listener offered its readers a brief and approving reprise of what it took to be the central message, that planning would lead to the worst getting on top (unsigned, Mar 30, 1944). And there were many mostly brief, uninformative, and laudatory reviews in trade press outlets— variations of the same review appeared in such august venues as the Cabinet Maker, Fruitgrower, Hardware Trade Journal, Timber Trade Journal, and Gas World. Confirming Hayek’s “unobtainable book” thesis, a writer for the World’s Paper Trade Review alerted his audience to the important new book “which I hope shortly to read” (unsigned, Apr 14, 1944). The most notable review in April—and this only because of its author— was by George Orwell in the Observer. Orwell reviewed Serfdom together with the now-forgotten The Mirror of the Past by Konni Zilliacus. A 1941 Committee member whose pro-Soviet views in the late 1940s led the Labour Party briefly to expel him, Zilliacus claimed that the real motive behind Britain’s fighting the Great War was imperialist: it was seeking to protect its colonies. Orwell’s review did not begin promisingly, characterizing Road as a defense of laissez-faire capitalism. Orwell felt that both Hayek and Zilliacus had offered elements of truth in their opposing accounts, but that both had minimized the evils associated with their preferred alternatives. “Capitalism leads to dole queues, the scramble for markets, and war. Collectivism leads to concentration camps, leader worship, and war. There is no way out of this unless a planned economy can somehow be combined with the freedom of the intellect, which can only happen if the concept of right and wrong is restored to politics. Both of these writers are aware of 3. The reviews mentioned in what follows may be found in FAHP 135.10–15, 136.1.

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this, more or less; but since they can show no practicable way of bringing it about the combined effect of their books is a depressing one” (Orwell 1944, Apr 9). Orwell’s lazy characterization of Hayek’s argument nonetheless captured a common reaction to the book: given the probable direction of postwar politics, warnings about the dangers of planning are apposite, but there could be no return to nineteenth-century capitalism, so more was needed by way of articulation of a positive way forward. It was fair to ask for more on the way forward, but Orwell missed what Polanyi recognized, that Hayek’s praise for the earlier British tradition was a defense not of laissezfaire capitalism, but rather of the liberal emphasis on individual liberty, freedom of conscience, and tolerance. The following month saw reviews appear in the Banker and the Economist, and these may have been the ones that Hayek had in mind when he complained about the sniffy reaction of the liberal press. The first, titled “After ‘Planning’—What?,” quoted extensively from the book, but focused on various reasons why most readers would dismiss Hayek’s message as “fanciful.” Though praising Hayek’s skill and scholarship, it noted that “few will be prepared to accept his thesis in its entirety and without reservation.” Only at the very end does the leader writer acknowledge that two frequent grounds for dismissing Hayek’s book—the beliefs that a tendency to monopoly is inevitable and that a return to laissez-faire is what Hayek is offering as a remedy—were both unjustified (unsigned, Banker, May 1944). The review in the Economist, whose title also asked a question, was more straightforward: Hayek had shown that a completely planned state would be neither democratic nor free, but how relevant was that to Britain’s present state? It noted that Hayek’s actual argument, which it summarized as “there are dangers in complete planning but that Britain is nowhere near the danger zone yet,” was quite moderate, but that the book had come to be regarded as extreme because on occasion “Professor Hayek’s constitutional apprehensiveness gets the better of him.” The review was titled, accordingly, “Road to Serfdom?” The conclusion drawn did border on sniffy: “the great mass of moderate opinion should cease to bother itself with the purely theoretical question whether complete planning would be preferable to complete absence of planning.” Rather, the future would require both planning and free enterprise. To the extent that the present conversation in Britain overstressed the former, Hayek’s book might serve the positive purpose of helping to restore the balance (unsigned, Economist, May 13, 1944). As another reviewer writing in the conservative monthly the Statist commented, the Economist review “praises the work with faint damns” (unsigned, Statist, May 20, 1944). Like Orwell, and like Keynes, whose June 28 letter would soon cross Hayek’s desk, the editors wanted more by

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way of a positive plan.4 A short review in Liberal Magazine recognized that the book was a liberal’s challenge to socialist planning, but that was about it from the liberal press. If Hayek was awaiting a truly critical response, it arrived in the July– September number of the Political Quarterly. Hayek would have known, or known of, the reviewer. The Hungarian-born Thomas Balogh arrived in London in 1930, having traveled a peripatetic path through academia (including a Rockefeller Foundation fellowship) and banking. Thanks to a letter of introduction to Keynes from Joseph Schumpeter he was offered a job by one of Keynes’s financial friends in the City and, later, became a regular contributor to Kingsley Martin’s New Statesman. Settling in London, he shared a flat with Paul Rosenstein-Rodan and his fellow countryman Nicholas Kaldor. Soon he was teaching classes at University College London, writing pieces for newspapers and magazines (including the Economist), and making contacts with politicians and thought leaders on the left. Also a member of the 1941 Committee, he called for a continuation of wartime controls after the war as a way to prevent the return of unemployment. Ambitious, splenetic, self-promoting, bombastic, an inveterate womanizer and gossip, he was liked by few. It is said that when he was proposed as a member of the Labour Party’s XYZ Club Hugh Dalton quipped, “We already have a Buddha, why do we need pest?” The rotund Hungarian Nicholas Kaldor was Buddha. The labels stuck, especially after both became advisers to Harold Wilson’s Labour government in 1964 (Morris 2007, 5–23; Thirlwall 1987, 24, 33).5 Balogh’s review is about what one would expect. Hayek’s thesis is “neither new nor complex” and was filled with holes (Balogh 1944, 257). Barone and Lange already showed that planning can establish a rational system of production. Hayek assumes that we can return to perfect markets, but this is a dream. To eliminate the wastage of imperfect competition and oligopoly the state must impose price controls. Planning and the rule of law are fully compatible. In contrast with the state, Hayek assumes “the perfect foresight, willingness and ability of individuals to plan their lives for themselves” (262). But as Tawney showed, inequality of income means that such discretion is out of the reach of “the overwhelming part of the population.” 4. A respectful review in the Guardian also raised the question (Laird 1944, Aug 25). 5. Balogh’s biographer Morris (2007, 23) states that he was a member of the XYZ Club, while Kaldor’s biographer Thirlwall (1987, 33) said that Balogh’s membership was blocked because he couldn’t keep secrets, a bad trait for a Club whose membership was confidential.

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In short, “there is hardly a single old economic fallacy . . . which Professor von Hayek does not serve up once more” (262). As for Hayek’s invocation of the great liberal thinkers of the past, these no longer represent “the spirit of this country” but only “the aprioristic unreality, the fogginess of unsupported generalizations which rule out living compromise because it does not fit into a deductive—one is almost tempted to say weltanschaulich— system” (263). Laski’s books, two of which Balogh reviewed next (it was a joint review), are introduced as representing “a complete if unpremeditated answer to Professor von Hayek’s book” (263). Balogh did not deal in any serious way with Hayek’s arguments. But his frequent reference to “Professor von Hayek” (a nice complement to the reference to a weltanschaulich system) is notable; none of the other reviews from this period when referring to Hayek included the “von.” Balogh’s review thus has the distinction of being the first by an opponent on the British left that emphasized the presumably Teutonic ancestry of their adversary. Perhaps the most egregious example to come was when Hugh Dalton, as Chancellor of the Exchequer in the postwar Labour government, referred to his former LSE colleague in a speech before the House of Commons as a “German theorist recently landed in this country.”6 Hayek was of course neither German nor a recent arrival, which Dalton well knew.

Hayek Does Policy: The Trip to Gibraltar Sometime in the late spring of 1944 a somewhat unlikely opportunity presented itself. Hayek was contacted by the Colonial Office, which asked if he might have a “good student” who could do a cost-of-living survey for Gibraltar. Hayek replied that he had no real students at the time, but would be happy to do it himself, over the summer break. They agreed, but also asked him to do additional reports, including an economic and social survey. Thus began Hayek’s only real stint of government work. Because of its huge rock formation, the habitable region of the roughly 2½-square-mile isthmus of Gibraltar is rather small (in his report Hayek estimated it at less than 100 square acres). Heavily fortified and much fought over since medieval times, Gibraltar became a British Crown Colony in 1713. Under British rule it served as a military fortress, and in the late nineteenth century the Royal Navy expanded and modernized the dockyards and Gibraltar became the base for the British Atlantic Fleet. 6. The speech took place on February 14, 1946. Hayek mentions it in a footnote in his unpublished postscript to The Road to Serfdom, FAHP 106.10.

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For the most part, though its setting was idyllic, the town itself was a squalid, miserable place to live. Sanitation was poor and the microclimate on the rock at times pestilently dank and humid. The housing stock for the great mass of people was limited and in poor repair. Crowding, always bad, became much worse in 1936 when the Spanish Civil War broke out and thousands of refugees poured across the border. The resulting pressure on house rents induced the Executive Council to pass a rent restriction ordinance at the beginning of 1939. In May 1940 the entire civilian nonworking population was evacuated, and many houses were occupied by military personnel. In October a further rent control was imposed, in which rents were set at one-third of their level on May 1, 1940. The anticipated repatriation of the Gibraltarian families was one reason for the need for the reports, for the government had guaranteed that returning families would be accommodated in Gibraltar (Grocott 2017, 1088–89). Hayek arrived on August 14 and stayed through September 27. In the spring and summer before he left he had been in correspondence with Fritz Machlup regarding the steps and missteps surrounding the publication of the American edition of Road. Toward the end of that period Machlup essentially became the acting managing editor of the prestigious journal the American Economic Review and immediately let Hayek know that he would welcome a submission. Though initially hesitant, Hayek wrote his old friend again once he arrived in Gibraltar. He reported finding the place beautiful and his work fascinating, calling it “a rare opportunity to see everything (the term ‘sociological’ provides a perfect pretext to poke one’s nose into wherever one wants)” (Hayek to Machlup, Aug 29, 1944). He promised to begin work on the article as soon as he got back to England. He planned to call it “The Utilization of Knowledge in Society.” From his datebook and notes it appears that Hayek did indeed poke his nose into a lot of places. He interviewed all manner of people, from high and low officials in the colonial government and military, to community figures like the local Roman Catholic bishop and the pharmacist (he asked the latter about birth control practices), to heads and employees of local firms, to dockworkers and other naval yard workmen, be they English contract workers, Gibraltarian, or Spanish (anywhere from 5,000 to 7,000 Spanish dockworkers and other manual workers, as well as women who served as shop assistants, waitresses, or domestic help, crossed the border each day). He prepared four reports: an estimate of the change in the cost of living from 1939 to 1944, with a cost-of-living index that could be used going forward; an estimate of the wages and salaries paid to different classes of workers in 1939 and 1944; a proposal for constructing a census; and the most substantive contribution, an eighteen-page “Report on Some Economic

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Problems of Gibraltar.” The first three were completed while he was there; the last was submitted the next month.7 The first two studies showed that prices had gone up about 70 percent over the five-year period studied, while wages lagged behind. The “Report on Some Economic Problems” documented the dependence of the local economy on the fortress garrison, the naval dockyards, and the port and noted the daily inflow and outflow of workers across the border. Hayek also offered estimates on past and current population, as well as on expected trends, but emphasized how tentative the numbers were. The last census had been in 1931, so current data often did not exist, and when they did often conflicted. For this reason Hayek in his third report recommended that a more systematic census be constructed. He proposed that data be gathered that would allow the identification of each resident according to a variety of different demographic characteristics: sex, age, occupation, income, nationality, and previous residence. A card-reading machine could be used to collate the information. Though the initial response to the census proposal was positive, it was soon criticized by René Kuczynski, the demographic adviser to the Secretary of State for the Colonies. Kuczynski viewed the proposal as complicated, expensive, and perhaps unnecessary—he thought that some of the discrepancies between data sources that Hayek identified could be cleared up by further examination. Kuczynski, a German immigrant who had fled the Nazis because of his Jewish descent, had since 1933 been a colleague of Hayek’s at LSE, having been appointed as reader in demography there by Beveridge. At least some of his opposition to Hayek’s proposal may have reflected a desire to protect professional turf. The fact that they differed politically may have also played a role (Grocott 2017, 1089–92). The latter half of Hayek’s “Report on Some Economic Problems” dealt with housing and wage policy. The 1940 rent controls and use of housing for military personnel had the expected effect (expected, at least, by economists) of causing a further deterioration in the housing stock. Repairs were not undertaken, and some places were simply abandoned by landlords who at one-third rent could not keep them up. At least some of the dwellings he found “truly appalling” (“Report,” 11). Hayek’s proposed solution was free market in orientation. Given the frequency of cross-border traffic, he described Gibraltar and the neighboring town of La Linea as a contiguous urban area, with Gibraltar being the commercial center and La Linea the suburbs. In most such situations elsewhere, rents are higher in the city 7. The notes for his various reports may be found in FAHP 113.5, and the reports themselves in 113.6.

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center and lower in the suburbs. He recommended that rent controls be gradually relaxed and rents in Gibraltar be allowed to increase until supply met demand. This would over time lead to an increase in the housing stock, induce landlords to improve their properties, and encourage poorer Gibraltarians to immigrate to the Spanish suburbs, where housing was both cheaper and of better quality (even in the poorest districts many houses there had small gardens) and the climate healthier. He suggested that lowcost housing estates might be built in La Linea by private firms with British government support to help ease the transition and that the housing of essential workers who needed to live in Gibraltar be subsidized. Moving to wage policy, Hayek noted that more than 50 percent of the working population in Gibraltar was employed by the government, either colonial or imperial, and wages in the private sector tended to track those offered there, so wage policy boiled down to determining at what level authorities would set the wage for various job titles. In essence, government authorities had monopsony power over wages in Gibraltar. Hayek’s second proposal was again free market in orientation: wages should not be set so high as to be too far out of line with those in the larger surrounding area. Rather than trying to handle the problem of low incomes by simply setting wages higher, colonial policy should try to encourage Gibraltarians to gain the requisite skills to compete for more highly paying jobs. This would require certain changes in policy. To reduce resentment, Hayek recommended that the premium paid to workers who had come from England over that paid Gibraltarians performing the same job (before the war the difference sometimes amounted to more than double the wages) should be reduced. Resentment over this policy was especially evident in H. M. Dockyard: “the Dockyard is regarded as the one institution where the discrimination against the Gibraltarians are [sic] still maintained as rigidly as ever . . . One can, indeed, not be long in Gibraltar without realizing that the relative position of the Gibraltarian and the English workers and employees in the Dockyard is the oldest and most seriously felt grievance of the local population” (14). To encourage Gibraltarians to gain skills, Hayek recommended ending the British colonial policy that imposed legal restrictions on who could work in specific jobs, which in effect reserved all the higher-paying jobs for English personnel. Gibraltarians should be permitted to sit for the examinations that would allow them to compete for the better positions. As might be imagined, Hayek’s proposals were not met with high approbation. His first two reports had shown that wages and salaries on Gibraltar had not kept up with the cost of living, but in his Report he called for only modest increases in wages, quite the opposite of what was expected.

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His proposal regarding rent controls implied that returning Gibraltarians would confront not only a heavily deteriorated housing stock (made worse, of course, by past policy) but rising rents, which struck officials as both cruel and fraught with political risks. Finally, Hayek’s clear and pointed criticism of the paternalistic and discriminatory aspects of colonial policy did not sit well with the Colonial Office. The reaction was predictable. One official termed his proposals “indefensible,” another “bloodless” (Grocott 2017, 1098). The response reflected not only the political difficulties that would have confronted any attempt to put the proposals into effect, but also the mindset of the Colonial Office. At the most fundamental level, by this point in time Beveridge-style planning had been embraced by authorities responsible for managing the colonies, so that free market reforms of the sort Hayek proposed were anathema to them. In this specific case, what seemed to them to be the evident solution was to keep rent controls in place, to construct state-run and subsidized housing, and to promote prosperity by raising the wages paid out by the various government authorities. Wage and price controls and government-provided assistance were seen as the way forward. In sum, Hayek’s proposals “flew in the face of economic planning, social security, and imperial preference” (Grocott 2017, 1092). Officials from the Colonial Office met with Hayek in June 1945 in the hopes that he would alter his recommendations, but he demurred. At a meeting at the Colonial Office the next month, his proposals were discussed and rejected, and as a result the Report was never published. Indeed, because of the continuing housing crisis, repatriation after the war went very slowly, the last of the evacuees not able to return until 1951 (Grocott 2017, 1098–1102). It is too bad that the Report was suppressed because it is a fascinating document. Hayek talked to a lot of people and came to a good understanding of what life was like on Gibraltar. The Report is filled with comments on the elaborate sets of social hierarchies that existed in the colony, the interactions among the various groups, including types of intermarriage, the stereotypes that each group carried about itself and about the others, and so on. Thus though many Gibraltarian men carried surnames that were Italian or English in origin, the culture was predominantly Spanish, because a majority of them tended to marry women of Spanish origin. Though English was the official language, the 1931 census reported that fully half of the women and one-third of the total population did not speak it. Indeed, because of the mixed cultures, many Gibraltarians spoke neither English nor Spanish very well. This of course counted against the men when it came to employment. It was widely thought that the “best” Gibraltarians

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were hired by the private sector, while the rest ended up being hired by the various government authorities. Stereotypes emerged, one of the most widespread and damaging being that Gibraltarians were not good manual workers. This set up an unhealthy dynamic of noblesse oblige and condescension from at least some of the English and dependency and resentment from many of the Gibraltarians. Hayek’s Report was apparently an eye-opener for some in the Colonial Office. Even one of his harshest critics stated, “I do not suppose that a more acute and illuminating analysis of the civilian community in Gibraltar has ever been made” (S. E. V. Luke, quoted in Grocott 2017, 1101). His recommendations were fully consistent with the general free market principles he supported but included details (a gradual relaxation of rent controls, and government support for the construction of housing estates in La Linea to make relocation easier) that were tailored to the situation. Hayek had experienced the insidious effects of rent controls himself in Vienna after the Great War and had written about their unintended consequences (Hayek 1931h). A couple of years later, two American economists whom Hayek had not yet met, Milton Friedman and George Stigler, would publish their own critique of rent controls, under the clever title “Roofs or Ceilings?” (Friedman and Stigler 1946). The title was meant to suggest that one can have increased housing (more roofs), or low rents (price ceilings), but without further intervention (e.g., a government program to supply housing), not both. Though Hayek’s remarks about discrimination were strongly worded, his report was principally descriptive. But read carefully, it clearly implicated extant government policy for its role in hastening the deterioration of the housing stock, in enforcing discrimination, and in fostering and perpetuating negative attitudes among the various population groups. The idea that market forces could work against such unwelcome outcomes would be a theme that Hayek and (in particular the more policy-oriented) Friedman would stress in their later work.

Hitting the Road for Road Hayek apparently brought a cask of sherry with him when he returned from Gibraltar. He had reason enough to celebrate, for while he was away (on September 18) the American edition of Road was published. By the day he arrived back, the University of Chicago Press had ordered a third printing of 5,000 copies (the first printing had been 2,000 and the second 5,000). The next day, September 28, they upped the third printing to 10,000 (Scoon, in Hayek 2007a, 257).

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Reviews again played a role. Though a rather neutral one by Orville Prescott appeared in the New York Times on Wednesday, September 20, Henry Hazlitt’s adulatory account in the following Sunday’s New York Times Book Review got considerable attention. Hazlitt famously began, “In The Road to Serfdom Friedrich A. Hayek has written one of the most important books of our generation,” but the review itself was unimpressive, consisting mainly of quotations from the book interspersed with complimentary comments from Hazlitt (1944, Sept 24). Soon thereafter many short reviews appeared, some syndicated, in city papers around the country, most echoing Hazlitt’s message. As in England, the reviewers were for the most part conservative enthusiasts. A not unrepresentative treatment is this from the New York Mirror: “If you love the USA and your liberties The Road to Serfdom is as precious as bread” (Casseres 1944, Nov 9). There were also two fairly lengthy and appreciative reviews in important outlets both of which better reflected Hayek’s message, one in the New York Herald Tribune Weekly Book Review in October, the other in Fortune in November (Hacker 1944, Oct 29; Davenport 1944). If Hazlitt’s encomium enthralled the right, it provoked the left. PM was a daily newspaper published in New York between 1943 and 1948 that was notable for taking no advertising, this to ensure independence from commercial pressure. Hazlitt’s review was specifically mentioned as the reason that they decided to do their own. Under the heading “Textbook for Reactionaries,” the reviewer A. R. Sweezy criticized Hayek for constructing a battle between two straw men, collectivism and individualism.8 He particularly disliked Hayek’s lumping Soviet Communism with the Nazi regime under the collectivist label. Sweezy (1944, Nov 5) believed that the former was trying to raise “the material and cultural level of the people,” while the latter was simply “a compound of monopoly capitalism and political gangsterism directed toward war,” reflecting views that Hayek had criticized in his Beveridge memo of 1933. The Progressive reviewed both Hayek and Mises’s Omnipotent Government together and was entertainingly dismissive, likening them to protective nurses on duty at the hospital of free enterprise. “The breed of these two is familiar enough to anyone who has had to wade through the dreary morass of monopoly capitalism apologetics”— all they could offer was “the philosophy of grab and greed” (Coleman 1944, Oct 23). Writing in The Nation, Reinhold Niebuhr (1944, Oct 21) faulted Hayek for ignoring the dangers of economic power, something that for him 8. This appears to have been Alan R. Sweezy, who in the 1930s had spent a year in Vienna on a Sheldon Fellowship and wrote an article for the Review of Economic Studies on the Austrian theory of value (Sweezy 1934).

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was equally worrisome as state power, and found the idea that democracy is inconsistent with planning to be “pretty close to pure nonsense.” His review was titled “The Collectivist Bogy.” In late October, the Reader’s Digest approached the Press with an offer to publish a condensation, which the director immediately accepted. Once again Hayek’s friend Harry Gideonse played the role of guardian angel. Gideonse had met Rollin Hemens, the assistant director of the Press, one morning in July, and they had discussed Road and people to whom copies should be sent. Gideonse had suggested Max Eastman, who was then a “roving editor” at Reader’s Digest (Hemens to Gideonse, Nov 9, 1944). The very popular magazine—it had a circulation at the time of about 8,750,000— was published ten times a year. Small in size, each issue collected articles selected by its editor, DeWitt Wallace, on a variety of topics from other magazines, often condensing them and usually including a condensation of a book. Eastman had studied philosophy under Dewey at Columbia University but was radicalized in the second decade of the century, ending up editing the prominent socialist monthly The Masses. In 1922 he traveled to the Soviet Union where he stayed for almost two years, befriending Trotsky and marrying a Russian woman, Elena Krylenko. After Lenin’s death, Eastman became increasingly critical of Stalin and the path of the Soviet experiment. By 1940 he was writing that Stalinism was worse than fascism, providing lines that Hayek could not help but quote in Road (Hayek 2007a [1944a], 79). Eastman was ecstatic about the book and immediately asked Wallace if he could do a condensation of it. In a letter to the Press, Eastman told them that he hoped to persuade Wallace to allow him to write an introduction to the condensation that would begin: “The Road to Serfdom is, in my opinion, the most important political book of this epoch. If our civilization survives the desperate crisis it is passing through, it will be because we arrive soon enough at the mature and expert wisdoms contained in this book. It is the science of our salvation, and ought to be taught and studied, not just read and discussed” (Eastman to UCP, Oct 30, 1944). Though Wallace was a conservative anticommunist, he wisely kept Eastman from attaching these lines to introduce the condensation. Perhaps the invocation that it be “taught and studied” rather than “read and discussed” was a bit too reminiscent of Eastman’s Trotskyite past. Once the Reader’s Digest contract had been signed, University of Chicago Press Director Joseph Brandt realized he had a hit on his hands and began brainstorming ways to keep the momentum going. He came up with the idea of inviting Hayek over to do some talks at universities. When he

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contacted a few economics departments, they responded well, so in January 1945 he cabled Hayek to invite him to visit five campuses in April, during the break between terms at LSE. Hayek received permission to travel from the appropriate government authorities and had to be ready to sail when notified of available space. He departed Liverpool on March 21 at 5 p.m. and weighed himself, probably a good practice, before he left. In his datebook he recorded a weight of “14 stone 10, dressed,” around 200 pounds. We do not know whether he gained or lost weight because he did not report on it again when the trip was over. Prior to Hayek’s visit dueling reviews kept pouring in. In December Henry Chamberlin (1944) wrote in the Atlantic Monthly that Road was “a great book, worthy to be ranked with John Stuart Mill’s Essay on Liberty.” The first issue of the new year for the New Republic contained a response, a substantive critical review by Alvin Hansen titled “The New Crusade against Planning.” Spread over three and a half pages, Hansen’s review hammered on the inadequacy of Hayek’s distinction between good and bad planning, providing numerous examples of government programs of all sorts and asking—which was it, good or bad? He also wondered why so many other Western democracies that had adopted various social welfare programs over the past fifty years had not followed Germany’s example, noting that what needed explaining was why Germany took a different path. In short, Hansen zeroed in on the two weaknesses that careful readers like Keynes and Knight had identified—failure to draw the line between good and bad planning, and simplification of the history. That said, Hansen (1945, Jan 1) could not resist getting in a few gratuitous swipes, declaring that “this kind of writing is not scholarship” and that “Hayek’s book will not be longlived. There is no substance in it to make it live” (11, 12). So much for the predictions of economists. Meanwhile, the readers of Look magazine found in their February 6 issue a two-page spread, under the heading “America is following the same road that Russia followed . . . Italy followed . . . Germany followed,” in which Hayek’s message had been reduced to eighteen captioned cartoons (unsigned, Feb 6, 1945). So much for American subtlety! Once word got out that Hayek was coming to the States, the Press got deluged with requests to have him speak or give interviews, and they ultimately turned over responsibility for his itinerary to a professional organization, the National Concerts and Artists Corporation. While he was in transit the Reader’s Digest issue with the condensation appeared, so he managed to arrive just when interest was peaking. Hayek talked about his visit in later interviews, and he clearly relished making a good tale of it. In an oft-recited account, he arrived on a Saturday, and the very next day he was scheduled to talk at the Town Hall Club in

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Manhattan. He envisaged a small women’s club but was told on the way from his hotel to the venue that it held three thousand and that his address had to last exactly one hour because it was also being broadcast on the radio. They had titled his talk “Law and International Affairs,” a topic he claimed never to have thought about, and when he got to the microphone he had no idea what he was going to say. But once he started he could see that the American audience was very receptive. He warmed to the task, and in the end the talk was a great success. This was repeated at many subsequent venues (Hayek 1983a, 464–66; cf. 1994, 104–5; Ebenstein 2003b, 135–36). It is a great story, but it also reveals the danger of speaking extemporaneously about events that occurred over three decades earlier. We know from his datebook that Hayek actually arrived in Hoboken, New Jersey, on Easter Sunday, April 1, 1945. He visited Mises and attended a cocktail party the next day, and on Tuesday had a luncheon with some of the Reader’s Digest staff. He didn’t speak at the Town Hall Club until 11 a.m. on Wednesday, and the seating capacity of that venue is around 1,500, not 3,000.9 Though the tour included additional interviews and stops, he maintained his speaking engagements on campuses, which included Harvard, Columbia, the Wharton School in Pennsylvania, Oklahoma, Minnesota, and of course Chicago; stops at Lawrence College and Iowa State were added later. Often the campus audiences were students, and at Chicago at least his topics for his three lectures were decidedly economic in nature.10 Hayek also complained in a later interview that he never got a penny in royalties from the condensation because the Press gave it free to Reader’s Digest. This is untrue. A preliminary statement of US income prepared by the Press during the tour noted that they charged Reader’s Digest a fee of $4,000 for the condensation. After paying Routledge $140, the remaining $3,860 was split 50–50 with Hayek, who after US taxes of 30 percent received $1,351. Through March 1945 he also earned $6,136.63 in royalties and $525 for permissions to reproduce material from the book. In addition, the Reader’s Digest paid for all expenses related to the tour. The National 9. Hayek prepared a file card on this episode, reported on in IB 112–13, that aligns much more closely with the actual sequence of events—he probably consulted his datebook in preparing it. 10. The general title for the lectures was “The Money Stream and the Flow of Goods” (see the typescript in FAHP 103.30). Billed as “free public lectures” and held at 4:30 in Mandel Hall on April 24–26, the three talks were “The Futility of a Purely Monetary Approach to the Savings Investment Problem,” “How Much Saving Do We Want?,” and “Maximum Employment and Stable Employment.” See the Lecture Tour Schedule in UCPA, 230.2.

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Concerts and Artists Corporation charged a fee for Hayek’s appearances, and after their commission of 35 percent (10 percent for radio talks) was deducted, he received $1,760. All told, between royalties and fees Hayek earned close to $10,000 from his American adventure, or about £2,425, with more to come (UCPA 230.2). That was more than the amount of his annual salary at LSE.11 It is possible that Hayek was unaware that some of the money he received from the University of Chicago Press was for fees received from other sources, or maybe he simply forgot that. Even so, such complaints about money were petty, and unfortunately, as we will see, not entirely unrepresentative. All that said, they did work him pretty hard. He would frequently be scheduled to depart late in the evening on an overnight train to be ready for multiple events scheduled the next day in another town. This went on for five weeks; he had only two open days built into the schedule for the whole month of April. By the time he departed by plane from New York on May 11, he must have been completely exhausted. What did Hayek experience on his tour? As noted, he found the American audiences who flocked to his talks receptive. But he was also clearly surprised, and distressed, by the strong reactions that his book provoked from both supporters and opponents. In an interview published toward the end of his trip he stated, “I was at first a bit puzzled and even alarmed when I found that a book written in no party spirit and not meant to support any popular philosophy should have been so exclusively welcomed by one party and so thoroughly excoriated by the other” (Hayek, Chicago Sun, May 6, 1945). In a later reflection he contrasted the reception in England, where many socialists took his warnings seriously, with that in America, which had not traveled quite so far down the road toward planning yet, and where the book “was bound either profoundly to shock or greatly to delight the members of sharply divided groups” (Hayek 2007a [1956], 43). A few episodes are illustrative. On April 22 he participated in a University of Chicago roundtable discussion of his book that was broadcast on radio. The other two participants, both professors at the university, were Maynard Krueger, who in 1940 had been the vice-presidential nominee for the national Socialist party, and Charles Merriam, who had served as the vice-chairman of the National Resources Planning Board. There had been a warm-up session the evening before that became so heated that by the time the broadcast took place Hayek and Merriam “were scarcely on speaking terms” (Karl 1974, 291). As a transcript of the broadcast shows, the two men 11. In his final year at the LSE Hayek’s salary was £2,040. See FAHP 35.13.

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peppered Hayek with questions, with frequent interruptions when he tried to answer (Hayek 1994, 108–23). Though Hayek held his own it was more of a brawl than an academic discussion. The very next day Hayek spoke before the Economic Club of Detroit and got the opposite kind of reception. A transcript of his talk shows him trying to correct various mistaken impressions. Hayek noted that the book was aimed principally at people of goodwill on the left who did not realize where their enthusiasm for planning might lead. His goal was to convince them that once government was put in charge of deciding what to produce and who was to produce it, further steps to constrain and control opinion to support its decisions could not be far behind. But he also worried about those on the right who might misunderstand his message, people who seemed to oppose any sort of government activity. He reiterated that what he was calling for was a new liberalism, not a return to the laissez-faire of old.12 When he was in Washington DC he was invited by a Republican senator to speak before a group, and responding to a question about tariffs he bluntly replied, “If you have any comprehension of my philosophy at all, you must know that one thing I stand for above all else is free trade throughout the world.” The reporter on the story added that with that, “the temperature of the room went down at least 10 degrees” (Childs 1945, May 6). The story ran under the gleeful banner “Apostle Hot Potato: Austrian for Whom Senator Hawkes Gave Party Embarrassed Republicans.” Hayek’s American journey took place during momentous times. Franklin Delano Roosevelt died of a cerebral hemorrhage on April 12. By the end of April Hitler had committed suicide in his bunker in Berlin, and on May 8 VE Day signaled the end of the war in the European theater. Churchill as leader of a national coalition government wanted to delay calling elections until after the war in the Pacific had ended, but some of the Labour ministers in his cabinet disagreed. So he dissolved Parliament and set the general election for July 5. Bizarrely, Hayek, Laski, and Beveridge would all have roles in the political drama to come.

The British General Election of 1945 The publication of the Beveridge Report in later 1942 had made Hayek’s former director a national figure, “a personal symbol of the kind of society that people in Britain were hoping for after the war” (Harris 1997, 424). His reputation extended beyond the borders. Invited by the Rockefeller Foun12. A transcript of the talk, which is representative of the extemporaneous talks he did throughout the tour, may be found in FAHP 106.8.

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dation, in 1943 he and his new wife spent three months in the States, where he gave over one hundred speeches on his report and vision for the postwar future. According to his biographer, except for some skepticism from those on the right, his trip was “a spectacular publicity success . . . Everywhere he went he was received with extravagant enthusiasm and praise” (425–26). In the Beveridge Report he had identified five “giants” to be dispatched: want, disease, ignorance, squalor, and idleness, and his stated goal there was to achieve a permanent state of “full employment,” which he defined as a 3 percent unemployment rate, an incredibly low number.13 He did not say in the report how such a goal was to be reached, but in private it was clear that he was willing to countenance state control of production and the planned deployment of labor to achieve the objective. When he returned from America he began work on his next book, a detailed examination of employment policy. In a series of conferences and meetings in Oxford he took advice from a number of economists, among them Kaldor, Wootton, Joan Robinson, and E. F. Schumacher. Interestingly, it was Kaldor and Robinson who pushed Beveridge to move away from the state socialism he favored toward more Keynesian responses to the problem of unemployment. The resulting book, Full Employment in a Free Society, appeared in late 1944. It was a work of synthesis, with Beveridge translating into plain understandable prose the ideas he had culled from his younger advisers. As Hayek would state in a review that appeared in the American business magazine Fortune in March 1945 (Hayek 1945c), the book combined Beveridge’s own detailed statistical understanding of unemployment with a theoretical framework provided by Lord Keynes. Hayek doubted that the “fashionable Keynesian doctrines” that stressed a general deficiency of demand could be made compatible with Beveridge’s emphasis on the diversity of the extent of unemployment across industries and places, a telling point.14 He also criticized the proposal that all private investment be subject to the direction of a national investment board, noting that Beveridge’s claim that “essential liberties” would still be preserved was made possible only by denying that private ownership of the means of production is an essential 13. It was in marked contrast with the “high and stable level of employment,” defined as an unemployment rate below 8.5 percent, that would be called for in the government’s White Paper, crafted in part by Lionel Robbins, that was published in May 1944 (Cockett 1995, 65). 14. Notably, Keynes himself—in contrast to some of his followers—had been aware of this very problem (even if his solution would not have been the same as Hayek’s). In 1937, when unemployment was around 12.5 percent he noted in an article for The Times (Jan 12–14, 1937), “How to Avoid a Slump,” that “we are in more need today of a rightly distributed demand than of a greater aggregate demand” (Keynes 1982, 385).

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liberty.15 Asserting that “much the most important fact about his book is that he lends the weight of his prestige” in support of “the Keynes-Hansen theory,” Hayek spent the rest of his space raising questions about that theory. Hayek’s review appeared the month before he visited America, and the titles of the lectures he gave in Chicago as well as the transcript of the Detroit Economic Club talk indicate that responding to Beveridge’s book, and especially the claim that a permanent state of full employment should be a goal of policy, was much on his mind. Beveridge’s book contained four appendixes, one of them signed by Kaldor. During the war Kaldor was the author of the annual analysis of the government’s White Papers on National Income and Expenditure, which appeared for three successive years in the Economic Journal (Thirlwall 1987, 81). His appendix, “Quantitative Aspects of the Full Employment Problem in Britain,” continued in this vein and included estimates of national income for 1948 if the proposed policies were undertaken. In later interviews Hayek would sometimes say that Kaldor had actually written the book because Beveridge did not know enough economics to have written it. Since the book helped to popularize Keynesian thought, Hayek suggested impishly that the Keynesian Revolution should really be called the Kaldorian Revolution (Hayek 1983a, 111–12; 1994, 86).16 Kaldor denied Hayek’s allegation, claiming credit only for the appendix (Kaldor, Shehadi interviews, 27). This is fully confirmed by Beveridge’s biographer, who noted the importance of the “technical committee,” and in particular of the contribution of E. F. Schumacher, who wrote many drafts (Harris 1997, 434). Schumacher would later gain fame as the author of Small Is Beautiful (E. F. Schumacher 1973). Hayek was right about Beveridge’s lack of knowledge of economic theory but wrong about Kaldor’s being the author. If Hayek did not think much of Beveridge’s new book, the feelings were reciprocated. In a letter to a friend, Beveridge opined that Hayek “is not I think a man who understands British mentality . . . I did not find his book the least convincing” (quoted in Harris 1997, 442). That assessment was not, however, shared by the liberal wing of the Conservative Party, who were searching for a theme for the coming election. For them, “The Road to Serfdom appeared as manna from heaven,” providing “the intellectual apparatus to assail the gathering political enthusiasm for the post-war planning which they had, up to then, only managed to post15. Hayek (1945, Jan 6) had earlier offered his British readers a more extensive critique. 16. In his reminiscences Hayek sometimes seems to mix up the 1942 Beveridge Report with Beveridge’s 1944 book, Full Employment in a Free Society.

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pone” (Cockett 1995, 91). A key role was played by the Conservative Party chairman, Ralph Assheton. Assheton had bought fifty copies of Hayek’s book when it was first published and distributed it to others in the party, and even to members of the Labour Party currently serving in the national government like Clement Attlee and Herbert Morrison. Once the election had been set and hoping to attract liberals and others worried about planning into the conservative camp, he began incorporating the Hayekian critique into his election stop speeches, one of which he sent to Churchill. There were other initiatives. The Conservative Central Office even went so far as to give up 1½ tons of its precious paper allotment from the general campaign to bring out an abridged version of the book. Owing to printing delays it did not appear until the next year, too late for the 1945 general election. The abridgment carried no explicit reference to who made it possible, though it did replace the quotes from Tocqueville and Hume on the title page by one from Churchill (Shearmur 2006, 311–12). When Churchill called for the election Harold Laski was chairman of the Labour Party. Though not a member of Parliament he had been the top vote getter of the seven-person group selected by the constituency parties to serve on the National Executive Committee throughout the war years. He had used his position to be the left gadfly of the party, repeatedly criticizing those who served in the national government for what he saw as their timidity toward advancing the cause of socialism during wartime. This came at some cost: all the leading Labour figures—Attlee, Morrison, Ernest Bevan, Hugh Dalton—had at various points distanced themselves from him. He also began attacking Churchill in the press in 1942, accusing him of fighting the war to preserve traditional Britain rather than to create a new more just world after the war, and in 1943 he criticized Roosevelt, whom he knew personally, lamenting that big business had taken over the New Deal and that the American president by his actions would seem to be content with a postwar world that was “run by the old men for the old purposes” (Kramnick and Sheerman 1993, 434–51, quote on p. 451). Attacking leaders in his own party was one thing, criticizing the leaders of the two biggest democracies taking on the Axis powers was quite another. Those he maligned as well as the press reacted; in time the patience of even close friends wore thin. Eventually, “the carefully woven contradiction that constructed his life as the consummate insider friend of the Great and the Good who also thundered from the outside at their power and privilege was unravelling” (465). This brings us to how Hayek became a figure in the 1945 election. For better or worse, Churchill and the Conservative Party decided to run against the left wing of the Labour Party. They would set themselves in opposition to the doctrines that Harold Laski had been urging on the world through-

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out the war. Churchill made his case in his first radio address on June 4, 1945. There he painted a grim picture of what life would be like in Britain under a socialist regime: “My friends, I must tell you that a socialist policy is abhorrent to the British ideas of freedom . . . Socialism is inseparably interwoven with totalitarianism and the object worship of the state . . . No socialist system can be established without a political police . . . No socialist government . . . could afford to allow free, sharp, or violently worded expressions of public discontent. They would have to fall back on some form of Gestapo, no doubt very humanely directed in the first instance” (Kramnick and Sheerman 1993, 481). There is little evidence that Churchill had actually read Hayek’s book, but he had read Assheton’s speech. The themes of what came to be known as the “Gestapo speech” came straight out of Road. If anyone had any doubts, the next night the leader of the Labour Party, Clement Attlee, in a calm and reasoned rebuttal dismissed the charge that socialism would lead to a loss of liberty as a “travesty,” then noted its non-British origins: “I shall not waste time on this theoretical stuff which is merely a secondhand version of the academic views of an Austrian— Professor Friedrich August von Hayek—who is very popular just now with the Conservative Party. Any system can be reduced to absurdity by this kind of theoretical reasoning, just as German professors showed theoretically that British democracy must be beaten by German dictatorship. It was not” (Attlee 1946, 7). The Conservatives, then, were intent on portraying Labour as the party not of its unprepossessing leader but of the notorious “Red Professor” Laski, and Labour paid them back (taking a page from Balogh) by showing that the Conservatives were under the sway of the theoretical ideas of one Professor Friedrich August von Hayek. Perhaps typically, not long afterward the irrepressible Laski aided the Conservatives in their efforts by sending a statement to the Daily Herald that if Clement Attlee accompanied Churchill to Potsdam the next month to meet with Truman and Stalin, the Labour Party could not be committed to any policy decided there until it had been debated in the Party Executive. This led the conservative press led by Lord Beaverbrook to claim that the Labour Party leadership was beholden to a secretive “Laski caucus.” Churchill himself picked up on it, complaining in his next radio broadcast that the political scene had been “complicated and darkened by the repeated intervention by Professor Laski” (Kramnick and Sheerman 1993, 484). After that, Tory Party hecklers followed Laski on the campaign trail, drawing blood in Newark, where he reportedly responded to a question with the statement that if the Labour Party could not accomplish its ends via the ballot box, then it would have to resort to violence, even if that meant revolution. He denied ever

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saying that and immediately brought a libel suit against the local paper that first published the story, as well as others that reported on it, including the two large-circulation Beaverbrook papers in London, the Daily Express and the Evening Standard (486–87). Thus it was not altogether an overstatement when Hayek and Laski’s LSE colleague Lance Beale wrote at the time that “the rival doctrines of the 1945 general election were derived from the London School of Economics” (quoted in Cockett 1995, 95). In the end, though, the election turned on other matters.17 Churchill had been the perfect wartime leader, but many now wanted government in the hands of admittedly less exciting but clearly competent leaders like Attlee and Morrison. The Gestapo speech was widely viewed as a strategic error: even mainstream outlets like the Times and the Economist chastised the Prime Minister, noting that his actual opponents in the Labour Party had served ably together with Churchill in the national government right up until the election was called (Kramnick and Sheerman 1993, 481–82). The British electorate was exhausted from the war and ready for new beginnings, and the Beveridge Report and steady drumbeat of reform proposals that had been issued throughout the war provided a way forward. In the end it was a landslide victory for Labour, which gained 393 seats to the Conservatives’ 213. The Liberal Party was reduced to 12 seats and would no longer be a serious electoral contender. Beveridge had successfully stood as Liberal Party candidate in a by-election in 1944, but he was among those who lost his seat in the general election; ironically, given the landslide victory for Labour, it was to a Conservative candidate in a three-way race. In the end, though, Sir William became Baron Beveridge of Tuggal and leader of the Liberals in the House of Lords (Harris 1997, 443–51). For his part, Laski continued to stay in the public eye: he mockingly crowed following the election that he was now “the temporary head of the socialist Gestapo” (Kynaston 2007, 75). But he also became ever more marginalized, especially when his well-publicized libel case against the Beaverbrook papers finally went to trial and ended in a humiliating defeat. Eventually the trial concentrated on what he had written over his long career about “revolution.” He had always advocated “revolution by consent” but 17. In his insightful biography of “Citizen Clem” Attlee, John Bew (2016, 358–62) provides a brief but penetrating explanation of why Labour won in such a dramatic fashion. Attlee himself is given due credit. Shy, laconic, modest but determined, he was an easy man to ridicule—the “sheep in sheep’s clothing” of the famous joke— but also to underestimate, as opponents both within and outside his party came to realize.

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also followed the Marxist line that socialist revolution was in any event inevitable, whether it came by consent or through violence. Was that a description or advocacy? (This was, of course, the same sort of interpretive problem that Hayek had run into when he used the word “inevitable.”) The jury took only forty minutes to find the newspaper innocent of libel, and Laski was ordered to pay all court costs, which came to £12,000. Laski’s LSE salary at the time was £1,600 a year, so luckily for him and his wife, a fund was set up that ultimately was able to cover the costs. But he never really recovered. A heavy smoker who had frequent bouts of pneumonia and bronchitis, he declined in health over the next few years. Admitted to the hospital with a collapsed lung, he died twenty-four hours later, on March 24, 1950, at the age of fifty-six (Kramnick and Sheerman 1993, 516–43, 576–77). But to return to our protagonist: that was how Friedrich Hayek, who hoped to launch a liberal revival, came to be associated evermore with the Tories in the public’s mind in Britain. It is unclear exactly how he felt about that at the time. He lunched with two friends at the Reform Club the day after the Gestapo broadcast and apparently was pleased that his ideas had been taken up by Churchill (Cockett 1995, 95–96). And in face of the paper shortage he was evidently quite happy to accept the Conservative Party’s help in bringing out an abridged edition of Road. On the other hand, when a few weeks after the broadcast Christina Foyle offered to bring out a Right Book Club edition, he declined (Shearmur 2006, 312). And we must remember his early letter to Popper the summer before, when he reported that his success was “not altogether of the right kind.” Ambivalence is probably the operative noun. In any event, Labour had won a smashing victory, and even before the renewed fame or notoriety that the Gestapo speech had earned him, the v for “von” had disappeared from his name on the masthead of Economica for the May 1945 issue.

· Part VI · Changing Worlds

The five years that followed the end of World War II were years of profound change for the world, but also for the life of Friedrich Hayek. The impact of the war on the parts of the world that he knew best, England and Central and Western Europe, was sobering. England was a victor but hardly felt like one. There was plenty to challenge the legendary stiff upper lip: Demobilization seemed to go on forever, there were housing and manpower and food shortages, wartime rationing remained firmly in place and would do so until the 1950s, and rebuilding would be a painfully slow process. On the continent the final assaults had killed hundreds of thousands and reduced whole cities to smoldering piles of rubble. The end of active fighting had been followed by the rigors of military occupation, extending the misery of the war for the civilian population. There were worrisome political challenges as well, especially for someone like Hayek. In England, though Laski’s dream of full nationalization was not realized, a number of sectors were brought under government direction soon after the war ended, hand in hand with the construction of the British welfare state. In both Germany and Austria, the occupation zones essentially duplicated a (poorly) planned economy, with all of the inefficiencies brought on by price controls, rationing, dictates forbidding internal and external trade, all heaped on top of an often arbitrarily managed denazification process. Hanging over everything was the Soviet threat. This was the atmosphere in which Hayek decided to reembark on the mission he had set for himself before the war, but with new emphases and directions. His popular effort, The Road to Serfdom, written with the British intelligentsia in mind, had not had much success in stemming the postwar enthusiasm for collectivism. But it had made him a well-known figure, and that led to many invitations to give talks. Everywhere he went, he would encounter one or two people who shared his liberal views. His new vision, articulated as early as 1944, was to form a society of scholars whose task

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would be to develop and construct the philosophical and economic foundations for a new liberalism, one that could provide an alternative to the prevailing progressive wisdom of the day. He would pursue the goal patiently but relentlessly. Amazingly, at the same time he would craft some of his most memorable articles and make considerable progress on a manuscript that would later be published as The Sensory Order. His trips to America and across Europe in the years right after the war made one thing very clear to him. Because of its general political climate, access to sympathetic foundations that might provide funding, and the presence of a critical mass of scholars, the United States was the right place to begin his mission. The 1945 trip to promote The Road to Serfdom was the first step in building the necessary networks and connections. He would visit for another extended period in 1946 and soon thereafter secure support for travel funds for a contingent of scholars based in America to attend a conference in Switzerland. At its conclusion, the Mont Pèlerin Society was formed. Though there were missteps along the way and plenty of learning on the job, Hayek proved remarkably adept at bringing many disparate, some quite difficult, individuals together. Of course, it was not just the general state of the world that concerned Hayek, but also the particular fate of family members, friends, and colleagues who had ridden out the war in Austria and Germany. Luckily for him, and them, his immediate family had all survived the war itself. But conditions in postwar Vienna were horrific, exacerbated by the policies of the occupying forces. Its university was even more diminished, and attempts by Hayek to help had no effect. Hayek’s family and friends faced many trials, mostly figurative but in one case—that of his brother Heinz— literal. Finally, there was the person he had longed for all during war, Lenerl. The occupation meant that it was more than a year after the end of the war before he was able finally to visit Vienna and see her. When that finally happened, they began planning how they could spend the future together. It was then that all these changes began to come together. If he was to have a life with Lenerl he would need to make enough money to fund the expenses of two households. And if he were to have an impact on the resurgence of liberalism, he would need access to financing and to a congenial base. Neither England nor Austria offered solutions. All signposts pointed to the United States. In the end, changing worlds meant for Fritz that he would have to move, literally, from the old to the new world, and this with a new wife and a new job. But there was a fly in the ointment. His wife, Hella, refused to let him go, or even to discuss it. It had been a communication failure that had got-

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ten him into his predicament, and ironically, it was Hella’s refusal to talk about  it that made a very bad situation that much worse. Their parting ended up being a tragedy of no small proportions, with everyone damaged deeply. No one (with the possible exception of Lionel Robbins) came out of it looking very good, and everyone at various points looked quite bad. This exceedingly sad tale will be the closing act for our book.

· 31 · War’s End

Hayek’s attempt to mount a popular defense of liberalism with The Road to Serfdom had had decidedly mixed results. It was evidently a publishing success, but it had not succeeded politically, in view of the British elections. At war’s end Hayek began focusing more and more of his attention on the fate of Europe. He reestablished contact with some colleagues on the continent, two of whom, Wilhelm Röpke and Walter Eucken, would later join with him in the effort to forward the cause of liberalism in that shattered part of the world. The opportunity cost of the book was also high, as its writing and subsequent events caused Hayek to slow his work on other, more intellectual projects. When he got back to England from his American sojourn in May 1945, he returned to these endeavors. Over the course of that year and the next he would complete four major pieces of academic work, including his most famous economics article and the first draft of a manuscript that several years later would become a book on theoretical psychology. In the midst of all this frenzied intellectual activity there was also physical disruption. During the summer after the book tour the School and the Hayeks would leave Cambridge to move back to London. Then in spring 1946 Hayek would take another trip to America, staying for four full months. While there he would cement relationships with a band of likeminded academics and an important financial backer, all of whom would help him in his efforts to further the cause of liberalism. It should go without saying that all during this period Hayek also worried about his family and friends in, and the ultimate postwar fate of, Austria. That story, however, is sufficiently complex that it must await its own chapter.

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Rebuilding Liberalism on the Continent If Hayek’s attention increasingly turned toward Europe following the publication of Road, this was not an altogether new focus. His scheme to assist with British propaganda at the outset of the war was, after all, directed at Germany, and his proposal for a Central European college as well as one of the final chapters of Road concentrated on the future of the Danube basin. In 1944 Hayek had floated further ideas. On February 28 he read a paper before the Political Society at King’s College, Cambridge—his friend Sir John Clapham was in the chair—entitled “Historians and the Future of Europe” (Hayek 1992a [1944b]). Hayek directly posed the question there of how best to rebuild European civilization after the war. Clumsy efforts to proselytize the Germans would evidently do more harm than good. His preferred approach would be to bring together the few intellectuals across Europe who still embraced liberalism with their counterparts in Germany who had managed to survive the Nazi regime. Sharing ideas back and forth, where the victors could learn from their former foes about life under totalitarian regimes, just as the latter were being reintroduced to the liberal tradition, would be far more effective than ham-fisted government propaganda. Hayek proposed founding an organization whose chief mission would be to facilitate contacts among such like-minded individuals, but that also might undertake such tasks as popularizing the works of earlier German liberals, translating important texts, producing a journal, and so on. Hayek linked these proposals to the historians mentioned in the paper’s title by reminding his audience of the pernicious effect of the German historians and other members of the professoriate in Germany who had abetted Bismarck in the construction of the German Empire that was the prelude to the rise of Nazism. By promoting the idea that ends justified means, as long as they secured the success of the Empire against its rivals, the professors had undermined belief in both objective truth and the importance of moral values. It was their malevolent influence that needed to be counteracted. Hayek (1992a [1944b]) then invoked the name of the great British historian Lord Acton, whose papers he had explored while in Cambridge. Acton, “half German by education and more than half German by training as a historian,” was someone who united “the great English liberal tradition with the best there is in the liberal tradition of the Continent” (209). The fact that Acton was a devout Catholic yet independent from Rome also made him attractive, for “what spirit of liberalism can still be found in Germany is mainly to be found among the Catholic groups” who had been among

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the  staunchest opponents of Hitler in Germany (201). Though Tocqueville, Jakob Burckhardt, and Edmund Burke were also mentioned as figures whose names might be considered, Hayek settled on calling his new organization the Acton Society, and closed his paper by asking his audience what they thought of the idea. * * * So who were these German liberals whose help would be so vital to the postwar rehabilitation of Germany? Hayek doubtless had in mind some of his friends and acquaintances from the days of the German Ricardians, especially Wilhelm Röpke and Walter Eucken. How had these German allies of his spent the war? When the fighting in Europe began heating up in May and June 1940, Röpke decided (unlike Mises and Kelsen) to remain at the Graduate Institute of International Studies in Geneva, telling Hayek that he had not wanted further to jeopardize “Rappard’s gallant endeavors to keep the Institute afloat” by joining the exodus (Röpke to Hayek, Mar 1, 1941). This was a risky decision, particularly given that he had retained his German citizenship—an awkward position that exposed him to the danger of extradition, but that also allowed him to maintain contact with colleagues in Germany. Throughout the war Hayek had been eager to keep up with new German contributions to economics, sociology, and history, especially those that opposed the ideology of the Nazis (see, e.g., Hayek to Röpke, Dec 13, 1941), and for this purpose Röpke was a vital link to the continent. During the first few years of the conflict, they wrote to each other regularly. The news was often depressing. For example, Röpke praised the German monthly Deutsche Rundschau for its “outspoken though undogmatic Christian attitude and the high sense of responsibility for the patrimony of the West” (Röpke to Hayek, Mar 19, 1942). Yet only a few months later he had to report that the regime had closed it down and that its editor, Rudolf Pechel, had been sent to a concentration camp (Röpke to Hayek, July 8, 1942). Of course, much correspondence was also devoted to a mutual sharing of work and ideas. Röpke had during the war turned his focus from business cycle research toward a comprehensive investigation of the economic and social crisis that he regarded as the true origin of the global catastrophe. This gave rise to his famous war trilogy, Die Gesellschaftskrisis der Gegenwart (1942b, trans. The Social Crisis of Our Time, 1950), Civitas humana (1944, trans. 1948), and Internationale Ordnung (1945a, trans. International Order and Economic Integration, 1959a). In return, Hayek sent his

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German friend his “Counter-Revolution of Science” articles. Though there were occasional minor disagreements, they mostly expressed mutual appreciation. Hayek began helping to find British or American publishers for translations of Röpke’s books, a particularly difficult task given wartime restrictions on printing and paper supply.1 Both firmly agreed that liberalism needed to move beyond simple laissez-faire, though there were differences in emphasis. Hayek felt that what was often criticized as the old liberalism was a vulgarization of what the earlier writers had actually thought: “the great economists in the laissez-faire tradition, from Hume and Smith to Bentham and Senior . . . knew precisely that the beneficial working of competition depended on the legal framework and it was only some of their contemptible epigones like McCulloch . . . who distorted it into a caricature” (Hayek to Röpke, Oct 24, 1942; see also June 6, 1942). Hayek also objected to Röpke’s choice of the term “Third Way” as a label for his preferred liberal alternative because it might misleadingly suggest a kind of equidistance to the alternatives of old liberalism and socialism, as in the idea that was popular in England in the 1930s of a “Middle Way” (Hayek to Röpke, June 6, 1942). A broader difference between them was how they conceptualized the individual’s relationship to the liberal system. Röpke’s view of the individual (and this was also true of Eucken) was deeply rooted in the Christian tradition. Though all three men agreed about the necessity of a legal and institutional framework that would safeguard a sphere of freedom for the individual, Röpke and Eucken were also concerned about how that freedom might be used. Freedom was a prerequisite for leading a good life, but such a life required adherence to certain social norms and moral values. They accordingly (and in this they were joined by their colleague Alexander Rüstow) worried about the possibly dysfunctional effects of a liberal economic order—for example, a tendency toward bigness and a corresponding loss of individuality (“megalomania” and “Vermassung”)—that might undermine its moral base. The liberal economic order that they sought, in 1. Hayek was less successful in promoting English translations of Röpke’s Germanlanguage articles. A paper on Friedrich List that was especially dear to Röpke (based on two articles in the Neue Zürcher Zeitung, Röpke 1942, Mar 18 and 19) not only failed to find a home in the Quarterly Journal of Economics (where Röpke complained about Friedrich Lutz’s indifference), but also in Economica despite Hayek’s position there as managing editor. Hayek even tried briefly to improve the translation, but in the end gave up. It is a testimony to the excellent relations between the two that the resentment of the ever sensitive Röpke was only short-lived. On this episode see Röpke to Hayek, Jan 16, May 29, July 8, and Sept 4, 1942, and Hayek to Röpke, May 12, June 6, and Oct 24, 1942.

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short, must enable individuals to pursue a good life. Hayek did not explicitly address such concerns in his published writings of the period, probably because he felt that freedom implied that each individual must find his own way. Even though he was agnostic rather than a practicing Christian, Hayek personally would have agreed with the moral values that Röpke and Eucken held dear, but he did not feel in his role as a scientist that he should let such values enter his analysis. Although at the time these differences were secondary and dwarfed by the importance of their fight against socialism and planning, they contained the seeds for future conflicts.2 Röpke was Hayek’s major source of information concerning Walter Eucken. Once the war started, of course, there could be no direct communication between Hayek and his friend in Freiburg. Prudence dictated that explicit use of names be avoided, as when Röpke reported that “W.E. is well and courageously active” (Röpke to Hayek, May 13, 1941). Hayek was elated to receive from Röpke a copy of Eucken’s magnum opus, Grundlagen der Nationalökonomie (Eucken 1940, trans. 1950), which he praised as “a very excellent piece of work which has further raised my sincere admiration for our friend. To have retained this independence of thought in this environment!” (Hayek to Röpke, Aug 17, 1941). Röpke was able to stay in touch with Eucken until January 1943, when the latter was denounced by a colleague and his ability to communicate with people outside of Germany ceased (see Eucken to Röpke, May 28, 1945). Hayek distributed his paper proposing an Acton Society widely, but in retrospect probably the most important recipient was Röpke, who in the same packet also received a copy of Road.3 Röpke was excited to receive both. Regarding the book, he repaid Hayek’s earlier efforts on his behalf by offering to help produce a German version (Hayek 1945d). His wife, Eva, would do the raw translation—it was possibly this version that circulated among the members of the Freiburg circle and on which Eucken later commented—and Röpke himself the final revision of the text and an in2. On the specifics of German neoliberalism, see Zweynert 2013; on the curious mutual neglect between Hayek and Eucken in their published writings, see Wohlgemuth 2013; cf. also Vanberg 2003 and Kolev 2010. 3. Among the more notable on his distribution list were Keynes, Lippmann, CarrSaunders, Popper, Toynbee, Trevelyan, Knight, Gideonse, M. Polanyi, and Butterfield. Among this group only three, Trevelyan, Polanyi, and Butterfield, wrote back. See FAHP 61.6 for the distribution list, and 61.7 for the correspondence. Shearmur (2015) argues convincingly that we might view this and subsequent documents like “A Plan for the Future of Germany” and “Prospects of Freedom” as composing “the other path” to the founding of the Mont Pèlerin Society, that is, in addition to the Colloque Lippmann, which is often taken as its precursor.

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troduction.4 It was ultimately published by Eugen Rentsch, the Swiss publisher who had brought out Röpke’s wartime books (see Röpke to Hayek, Jan 2, 1945).5 He was equally effusive about Hayek’s proposal for an international society promoting liberalism, remarking on “the astounding parallelism” of their thinking, for he was hoping to found a journal devoted to “defending the case of humanism and liberalism” (Röpke to Hayek, Jan 2, 1945). His only reservation was with Hayek’s planned name for the society: Acton was little known on the continent. As we will see, Röpke would be only one of many to voice such concerns. * * * A few months after receiving Röpke’s enthusiastic reply Hayek was off to America to promote Road. Ironically given the Eurocentric focus of Hayek’s proposal for an Acton Society, one of the earliest opportunities for him to try to bring his idea to fruition occurred on that trip. Following Hayek’s talk at the Economic Club of Detroit on April 23, Loren Miller of the Detroit Bureau of Governmental Research arranged for him to meet Harold Luhnow, the president of the William Volker Charities Fund.6 Luhnow proposed that Hayek write an American Road, a project that the Fund would underwrite. Hayek demurred but said he would try to find a suitable person to do so. At the end of his trip, Hayek wrote to Luhnow to tell him that his first choice for the job, Friedrich Lutz (the husband of his former student Vera Smith) of Princeton, was currently too busy but might be persuaded at some 4. Eucken’s letter to Hayek of March 12, 1946, is reprinted and commented upon in Goldschmidt and Hesse 2013. Eucken criticized the book for its absence of a positive program, for neglecting the role of an appropriate legal framework, and for not recognizing that liberalism and democracy are not identical. While it is certainly true that Hayek did not spell out a positive program in the book, the latter two criticisms seem to us off the mark. 5. For more on the Röpke-Rentsch connection, see Franc 2018. Note that the German title changed from Der Weg in die Knechtschaft to Der Weg zur Knechtschaft. A typescript with the earlier title is preserved in the library of the University of Freiburg. We thank Andrea Franc for pointing out that for a Swiss audience the word “Knechtschaft” had a special ring, reminding them of their founders’ famous Rütli oath, a declaration of a preference of death over a life in serfdom. 6. For more on Miller, Luhnow, and the Volker Fund, see Burgin 2012, 100. What follows draws on Van Horn and Mirowski 2009; cf. Caldwell 2011b for a contrasting view on certain issues. Many of the relevant documents may be found in FAHP 58.16.

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future point to undertake it. Alternatively, there were people at Chicago who might be brought in to collaborate on the project (Hayek to Luhnow, May 3, 1945). In mentioning Chicago Hayek probably had in mind Henry Simons, with whom he had discussed Luhnow’s proposal. Simons, though, was eager to bring his friend Aaron Director back to Chicago from Washington, DC, and saw Luhnow’s scheme if suitably transformed as an opportunity to do so. (We recall that Director was well known to Hayek: he attended his seminar at LSE in the late 1930s and was instrumental in helping Machlup find a publisher for Road.) By June 1945 Simons had written up a memorandum proposing an institute, with Director as its director, to explore major questions in political philosophy and economic policy from a liberal perspective. The institute would publish both scholarly and semipopular literature, bring visiting academics and speakers to campus, and undertake to shape professional opinion rather than seek immediate political results. This proposal was evidently quite a different animal from what Luhnow had in mind. It was also grandiose: the institute was to run for twenty years and involve several prominent scholars. At a later meeting in Washington, DC, attended not only by Simons and Director but also by Machlup and Milton Friedman, some more modest alternatives were discussed. Crucially, though, and to Simons’s deep disappointment, Director on hearing Simons’s plan was unwilling to commit to coming to Chicago to direct the affair. Nonetheless Simons sent a shorter version of the memo to Hayek, asking him to forward it to Luhnow. Hayek went along with Simons but also saw his own set of opportunities. He wrote Luhnow in August 1945 to let him know that he had not yet identified a person to write an American version of Road but that if Volker were prepared to underwrite the trip, he was willing to come over the next year to try again. In the meantime, he noted that there were other initiatives that Luhnow might want to consider, forwarding Simons’s proposal with a strong endorsement. He also included his own proposal for an “International Academy for Political Philosophy” that would now tentatively be titled (perhaps reflecting Röpke’s admonition) “The Acton-Tocqueville Society.”7 Perhaps to set the stage Hayek had only a little earlier published in the widely circulated American weekly the Saturday Review of Literature a piece titled “A Plan for the Future of Germany,” which also concluded with 7. The memorandum proposing the society may be found in FAHP 61.8. His letter suggests that Hayek mentioned this idea to Luhnow before, probably when he first met him in the States.

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the idea of founding an organization whose aim would be to promote “the general principles of the basic liberalism of Western civilization which it wishes to preserve” (Hayek 1992a [1945, June 23], 233). Hayek’s plan was by now a bit more detailed. He was proposing a closed society of scholars which, “starting with a comparatively small group, would add to its numbers by election” (FAHP 61.8, 8). There must be agreement among its members on a common basis of values, which included the “broad liberalism which used to be justly regarded as the common property of all Englishmen and Americans . . . but within these limits there ought to be room for many shades of opinion from, to mention only two instances, some ‘liberal socialists’ at one end to some ‘liberal Catholics’ at the other” (7). Funding would be needed to facilitate contacts among members, to organize meetings of the society, to do translations of foundational texts, to establish (doubtless with Röpke’s proposal in mind) an international journal, and perhaps even to set up a permanent home on neutral ground (he mentioned Switzerland, where Röpke was located, or Tyrol, which of course was a region he loved), where gatherings could take place and work could be done. This would not come cheap. Hayek estimated that a sum of $500,000 was necessary, though he conceded that a tenth of that amount would provide an adequate basis for a beginning. So much for the big ask. Luhnow made it plain in his next letter that he had no interest in either of the alternative proposals.8 But he was prepared to pay for Hayek to come to the States again in 1946, and once Hayek indicated his readiness to go, Luhnow contacted the chancellor of Chicago and president of Stanford to arrange visits to the two campuses that would begin in April 1946. So Hayek’s first try at finding financial backing for the establishment of an Acton-Tocqueville Society came up short. Still, he had articulated a clearer vision of what he wanted to accomplish and was at least in conversation with people who might someday provide some kind of support. * * * When he got back from the States Hayek resumed his correspondence with his German friends. In the letter he had gotten from Röpke before 8. Luhnow to Hayek, Sept 7, 1945. Later that year Loren Miller told Hayek that while he was personally sympathetic to his attempt to form a society of liberals, others had read his memo as being overly focused on the regeneration of Germany and Western Europe rather than on promoting liberalism in America, which of course it was. See Miller to Hayek, Nov 10, 1945.

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the American trip, Röpke had recounted that he had had no news from Eucken, “but after the wholesale bombardment of his town I am extremely worried about him.” Allied bombs were not the only worry. Members of Eucken’s Freiburg circle had been in close contact with both Dietrich Bonhoeffer and the Confessing Church, as well as with Carl Goerdeler, one of the co-conspirators in the failed attempt to assassinate Hitler on July 20, 1944.9 This eventually led to the arrest of his colleagues Adolf Lampe and Constantin von Dietze and the historian Gerhard Ritter by the Gestapo. Eucken was also detained for a couple of days by the Gestapo, but unlike Dietze and Lampe, he was spared being tortured (Rieter and Schmolz 1993, 95–99). In the end, in Eucken’s own words, everyone had “miraculously” escaped death (Eucken to Röpke, June 25, 1945). Hayek was greatly relieved when he found out that Eucken, “about whose fate I was more concerned than anyone else’s in Germany,” had managed to survive (Hayek to Röpke, July 10, 1945). It was only then that Hayek got some sense of Eucken’s activities during the war. In Eucken’s first letter to him after a gap of six years, he said: “There is so much to report . . . On the one hand, we tried to progress and to become effective through quiet and steady work and so to derogate the rule of this diabolic system of power—that is, by initiating a real spiritual movement. On the other hand, the events and our own deeds took a dramatic turn and brought us into close contact with the Gestapo . . . The catastrophe that we experienced is only a piece of what has seized upon the whole world” (Eucken to Hayek, Aug 12, 1945). The scientific work to which Eucken referred, and which laid the foundations for ordo-liberalism, had first proceeded under the auspices of Nazi institutions (see, e.g., Eucken 1942), then informally in a working group led by Erwin von Beckerath, where members of the Freiburg circle were joined by other like-minded economists. Eucken shared Hayek’s agenda, writing, “It is of the utmost importance that those who are determined not to follow the ‘Road to Serfdom’ remain in contact, in close contact,” and later that year, “We non-socialist economists must cooperate across borders” (Eucken to Hayek, Aug 12 and Nov 10, 1945; translation in Goldschmidt and Hesse 2013, 125). Meanwhile, Röpke had begun seeking funding in Europe for his journal and asked to include Hayek’s name with those of people like William Rappard, Benedetto Croce, and Luigi Einaudi on its title page (Röpke to Hayek, July 28, 1945). A few months later, when Hayek went to Zurich to deliver some lectures, he was at last able to see his friend Röpke 9. For the relation between the Freiburg circle and the German resistance see Goldschmidt, ed. 2005.

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again, and also to meet the person who was helping him finance the journal, one Albert Hunold.10 Over the course of the following years, the relations that Hayek was establishing (or in some cases, reestablishing) in America and on the continent would become ever more intertwined.

On Knowledge, the Mind, Individualism, and Competition War’s end marked a time of incredible scholarly productivity for Hayek. The four pieces he completed remain among his most important; the three articles would be included in his remarkable postwar collection Individualism and Economic Order (Hayek 1948a), and the fourth would grow into his book on psychology, The Sensory Order (Hayek 1952a).11 We reprise them briefly here. “The Use of knoWLedge in soCieTy” Recall that when Hayek was in Gibraltar in August 1944 he had promised his friend Fritz Machlup that he would begin work on a paper called “The Utilization of Knowledge in Economics” as soon as he got back. He wrote it in either late 1944 or early 1945 before his American tour to promote Road, and by July 1945 Machlup could let him know that the paper had been accepted and would be published in the September 1945 issue of the American Economic Review under the decidedly less cumbersome title “The Use of Knowledge in Society” (Machlup to Hayek, July 9, 1945).12 In his paper Hayek wanted to demonstrate how freely adjusting marketformed prices could help to solve the problem of coordinating human activity in a world of dispersed, subjectively held knowledge, the very problem he had set up but not answered in “Economics and Knowledge.” He began with a question: If one wanted to design an efficiently operating economic system in a world of dispersed knowledge, would it be better to take a cen10. Hartwell (1995, 30) dates the encounter to November 1945, but Hayek’s datebook for that year indicates that his trip to Zurich took place in October. 11. We call Individualism and Economic Order remarkable because it also contained, among other pieces, “Economics and Knowledge” and Hayek’s three essays on socialism, that is, his most important economic writings in areas outside of money, capital, and the cycle. 12. As he reported in a letter to Paul Samuelson, he read the paper at a seminar at Harvard during the trip. Joseph Schumpeter was in the chair, so Hayek out of courtesy left off the final section in which he criticized Schumpeter and was amused when the latter concluded the session by saying that we can all agree with the views expressed in the paper (Hayek to Samuelson, Mar 6, 1981).

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tralized or a decentralized approach? The answer depends on which one is better at using knowledge, and that depends on what sort of knowledge is most important in an economic system. Many people when they hear the word “knowledge” think of scientific knowledge or some other form of specialized expertise. But in an economic system, a much more significant kind is that which everyday participants in the market system possess, what Hayek called “the knowledge of the particular circumstances of time and place” (Hayek 2014a [1945a], 95). This knowledge is hugely important in a world of constant change because knowledge of changes in local conditions is essential if one is to make the right decisions. But there is a catch. The person who has localized knowledge has a very restricted view, with little idea of what is going on in the rest of the system. This brings the key problem to the fore: How can a single person use not only his own knowledge, but also the dispersed, localized knowledge that exists in the brains of other agents in the system? It would be (to say the least) difficult for a central authority to collect such knowledge, especially if it is constantly changing. Is there a way to use it? This is the essence of the knowledge problem. It is here that the price system comes in. The “man on the spot” might possess only local knowledge, but if he is engaging in market activity, what is going on in the system as a whole is reflected in the prices that he confronts every day. Hayek illustrated the claim with the famous “tin example,” in which he shows that millions of market participants react “in the right direction” when there is a change in the price of a good or resource. This occurs even though they know nothing about what caused the change; their lack of such local knowledge is however no longer an impediment to their behaving as if they knew (Hayek 2014a [1945a], 99–100). Thus the workings of this market mechanism should be regarded as a “marvel,” for had it been “the result of deliberate human design . . . it would have been acclaimed as one of the greatest triumphs of the human mind,” yet it happens all on its own, simply as the result of the attempt by millions of people to do their best in a market setting (101). Though he does not use the phrase, what Hayek is describing in the tin example is, quite evidently, a spontaneous order. “The Use of Knowledge in Society” is Hayek’s most famous economics paper, a key document within the Austrian tradition but also one that is frequently cited as a seminal early contribution by economic theorists working on the economics of information.13 Yet as has been noted, its insights 13. See, e.g., Grossman 1989, 1, 32, 108, 134; Hurwicz 1984, 419; and Stiglitz 2000, 1446–48, 1468–69. These authors, however, interpret Hayek as focusing on the informational properties of equilibrium prices, whereas his actual concern is with the

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derived from work he had done earlier. The tin example, reference to the “man on the spot” and to knowledge of particular time and place, were all used by Hayek in “The Economics of Planning,” the paper published in an Oxford student publication in 1941. Indeed the front cover of that document in his archives contains a later addition, in blue ink and in Hayek’s hand, that reads “Notes on The Use of Knowledge in Society” (FAHP 106.2). We suspect he consulted the earlier, virtually unknown paper, as well as other works, while writing the one that would ultimately bring him so much attention. Ironically, a paper that he had probably dashed off rather quickly ended up being far more influential than the capital theory book that he had toiled on for nearly a decade. He noted that “it seems that to be noticed one had by then to write for the journal of the professional American economists” (IB 87), and he might have been right: Though it may have been a coincidence, only two years later Hayek was elected a fellow of the Econometric Society. WhAT is Mind? Hayek’s writing project over the summer of 1945 was a paper on theoretical psychology that carried the working title “What Is Mind? A Working Hypothesis on the Origin of Sensory Qualities and Abstract Concepts” (FAHP 138.24). He would later say that he turned to the problem because publication of Road to Serfdom had so discredited him professionally that he wanted very much to do something that was purely scientific (Hayek 1994, 152). There certainly must have been something to this, but why a paper on mind? Hayek hinted at an answer in his preface, where he explained that his unexpected excursion into psychology was stimulated by a reconsideration of ideas he had first expressed in a student paper and that had later proven helpful when reflecting on questions of the method of the social sciences. Recall that Hayek began his “Scientism” essay by noting that the characteristic method of the physical sciences was to discover the underlying physical order, that is, to reclassify objects that our senses have classified in one way in another way that captures the actual relationships. The point of his essay on “Mind” was to explore what gives rise to the sensory order, the phenomenal experience that we all have but that natural science tells us differs from the actual physical order. The subtitle of the essay suggests that the signaling function of disequilibrium prices. Hayek’s ideas on knowledge have also generated a vast secondary literature among those sympathetic to the Austrian view; see, e.g., Thomsen 1992, Kirzner 1997.

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same principles and mechanisms that give rise to our sensory experience also allow us to undertake higher-level thinking, to form abstract concepts. Hayek also referred to abstract concepts in the “Scientism” essay. All humans use abstract concepts to understand and make sense of our shared phenomenal experience. When we explain our own actions or try to understand those of others, we think in terms of a means-ends framework, then “explain” behavior by seeing it as undertaken to accomplish a certain goal. The means-ends framework, itself an abstract device, allows us to classify the actions of others, on the assumption that they too employ such a framework. As he put it in “Facts of the Social Sciences,” written around the same time: “My knowledge of the everyday things around me, of the particular ways in which we express ideas or emotions, will be of little use in interpreting the behaviour of the inhabitants of Tierra del Fuego. But my understanding of what I mean by a means to an end, by food or a weapon, a word or a sign, and probably even an exchange or a gift, will still be useful and even essential in my attempt to understand what they do” (Hayek 2014a [1943b], 85). The concept of “classification” clearly ends up playing a crucial role in all of this. The natural sciences engage in classification, in searching for the underlying physical order. The social sciences, as well as humans in their everyday activity, do so in trying to understand and anticipate the actions of others. And according to Hayek, the mind itself is a classifying device, and that is what gives rise to the sensory order of our experience. That anyway is what he proposed in the manuscript that he worked on beginning in the summer of 1945. The classification system he envisaged was meant to be (at least in principle) exhaustive. In “The Facts of the Social Sciences,” Hayek asserted that in trying to understand the behavior of others, we could derive “from the knowledge of our own mind” an in principle “exhaustive classification of all the possible forms of intelligible behavior” (86). When we reviewed Hayek’s teaching of the “Principles” course at Cambridge, also taking place at the same time, we saw how he claimed that the purpose of the economic calculus was nothing less than “to provide an exhaustive classification of the objects of economic activity according to their economically relevant attributes” (see chapter 27). Interestingly, he invoked the same notion of an exhaustive description in section 29 of the 1945 essay, though his meaning there is a bit obscure: “if we can explain how all the different sensory qualities differ from each other we have explained all there is to explain, or that the whole system of qualities can be exhaustively described in terms of, or consists of nothing but, all the relations which can exist between the elements” (FAHP 138.24, 5).

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Hayek wanted to identify the origins of our sensory experiences and to explore how the same classifying mechanisms might give rise to abstract thought, used in everything from our everyday interactions with others to our most elaborate (economic) theories. While working on his 1920 essay he had written, “The next great revolution in science will be owed to the exploration of man himself, that is, of his mind” (see chapter 8). Perhaps that was the very ambitious step he hoped to take. But, at least in his first draft, he also appears to have wanted to engage in criticism. He wanted to discredit behaviorism, the doctrine that psychology should eschew any reference to unobservable, subjectively experienced mental states in explaining action, and limit itself to the description of observable responses of subjects to known physical stimuli. Though he criticized behaviorism in the “Scientism” essay, Hayek there could only allude to his early work in psychology and its implications for such “objectivist” doctrines. Why turn back to this question now? This brings us to Hayek’s correspondence over the course of the year with Ludwig von Mises’s old nemesis, the Vienna Circle philosopher of social science, Otto Neurath. Neurath had moved to the Netherlands after the February 1934 uprising and subsequent repression of the Social Democrats and was forced to move again when the Nazis invaded the Netherlands in May 1940. This last was in the nick of time: he and his scientific collaborator, Maria Reidmeister, secured the last two seats on a boat fleeing Rotterdam for England. Once they arrived safely they were both interned for about seven months, then on release settled in Oxford where they got married and established the Isotype Institute. Isotype is an international pictorial language that provides a symbolic way of representing information using easily understood icons. Familiar examples today are the symbols designating men’s and women’s restrooms, or bicycle symbols on roadways indicating bike lanes. Neurath had developed the isotype system in the mid-1920s when he became the director of the Museum of Economy and Society in Vienna, using it to inform and influence the public concerning economic and social conditions (Cartwright et al. 1996, 63–72, 82–86). Not incidentally, Neurath was also a proponent of physicalism, the philosophical doctrine that the terms used in scientific theories must refer to observables. As such, physicalism can be viewed as the philosophical counterpart to behaviorism in psychology. Neurath had written a critical review of Hayek’s Road (Neurath 1945), which early in the year he sent Hayek along with a letter defending “logical empiricism” from the charge that it led to totalitarianism, logical empiricism being the positivist philosophy that emerged as the successor to logical positivism (Neurath to Hayek, Jan 11, 1945). Hayek sent a brief and polite reply, noting that he was soon to be leaving for his American trip.

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He referred him to the “Scientism” essay and expressed some surprise that Neurath was still willing to endorse in natura, or moneyless, calculation, the very argument that had set Mises off decades before. Ever the diplomat, Hayek also noted his agreement with a member of the Vienna Circle, Karl Popper (Hayek to Neurath, Feb 1, 1945). There matters rested until Hayek returned from his book tour. Neurath wrote again at the end of June, challenging Hayek’s criticism of in natura calculation and proposing an exchange in a journal or perhaps a debate on the merits of logical empiricism. The letter arrived just as Hayek was trying to get some work done on his own difficult essay before having to move at the beginning of August. Luckily Neurath closed by asking whether Gustav Hayek, who had taught him at gymnasium, was a relation. Hayek in his return letter could at least answer the latter question in the affirmative, while noting that his current work left him no time to discuss the other points (Neurath to Hayek, June 25, 1945; Hayek to Neurath, July 9, 1945). Given that Neurath first wrote to Hayek in January 1945, one wonders whether it was his making contact that prompted Hayek to begin work on “What Is Mind?” Starting on its first page and carrying on for five more, under the heading “Views which deny or disregard the problem,” Hayek launched into a sustained attack on behaviorism. As he saw it, the key problem was that behaviorism simply ignored the existence of the two orders. By describing stimuli in terms of their phenomenal rather than their physical attributes, it assumed that the physical and the phenomenal world were one and the same, which of course natural science says is not true. Furthermore, behaviorists think that references to mental states are unscientific. This ignores the evident fact that the phenomenal order that we experience is itself a product of our nervous system, including our brain. Behaviorists of necessity make reference to qualities that depend on mental events for their existence, thereby violating their own principles.14 Why was Hayek so keen to attack behaviorism? Quite simply, it was a doctrine that had been repeatedly invoked by his opponents. Mitchell thought that it should replace the means-ends framework used by economists. People like Mannheim thought it could provide a tool for reconstructing the new society, since behavioral “conditioning” provided a means for altering deviant human behavior, for shaping myriad sorts of human activity along more “acceptable” lines. For Hayek, behaviorists and their physicalist counterparts epitomized scientistic thinkers, for they insisted that theirs were the only truly objective, scientific approaches to the study of the so14. For more on the problems that Hayek’s theory causes for behaviorism, see Caldwell 2004, 270–73.

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cial. If Hayek could come up with a plausible theory that could undermine the foundations of both of these doctrines, he would have accomplished much. And if his argument relied on a physiologically grounded (read, again, scientific) psychological theory, he could have the added pleasure of reinforcing his earlier claim that behaviorists and physicalists were not the real scientists after all, but only scientistic pretenders. Though he had no idea of what Hayek was working on, Neurath was ready to debate the merits of physicalism, which he felt Hayek misunderstood. On July 26 he sent him a letter with a thirteen-page, single-spaced paper titled “Physicalism, Planning and the Social Sciences” that he hoped would provide grounds for an exchange. He reminded Hayek again of it in a letter in December, to which Hayek responded with an apology and promise to attend to it as soon as he finished his paper on psychology (Neurath to Hayek, Dec 3, 1945; Hayek to Neurath, Dec 6, 1945). Hayek seemed in his last letter to have been genuinely interested in having an exchange, and it might have been a great debate, but less than three weeks later Neurath was dead from a stroke. “What Is Mind?” was meant to be an essay, not a book. It is plausible that Neurath’s letters may have prompted Hayek to pull his old student essay out again—after all, it was in part a critique of Mach, and Mach had been one of the writers that inspired the Vienna Circle positivists. But as he got deeper into the subject, the desire to criticize behaviorism began to take a back seat to the positive work of describing how the sensory order gets created. The second draft of the essay, completed in 1947, consisted of a thorough rewriting of the first two chapters. Though a critique of behaviorism would still make it into The Sensory Order, it was moved from the first five pages to a less prominent location, the end of the first chapter. Neurath may have thought that Hayek was just making excuses when he failed to engage his arguments, but he really was busy during this period. When the war ended the School decided to move back to London, and so did Fritz and Hella. Describing the actual move, Hayek told Machlup that “the last few weeks here have been almost as hectic as my visit to the United States,” which is saying something (Hayek to Machlup, Aug 15, 1945). “individUALisM: TrUe And fALse” The introductory chapter of the Abuse of Reason volumes was supposed to carry the title “The Humility of Individualism.”15 Hayek probably had some 15. Nolan (2013, 60–64) offers six possible references that Hayek may have had in mind in selecting as its new title “Individualism: True and False.”

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notes for the planned chapter, but it appears he did not write anything up until he was invited to deliver the 1945 Finlay Lecture at University College Dublin. He told Neurath that he began working on the piece when he returned from his summer holiday in October 1945, writing it in his spare time while being “faced with the task of getting the Department of Economics going in London almost single handed” (Hayek to Neurath, Dec 6, 1945). Hayek’s host in Dublin, Professor George O’Brien, was the man who had contacted Hayek about the discovery of the James Mill–Ricardo correspondence, and who also wrote one of the fullest appreciative reviews of Road (O’Brien 1944). He was one of those “liberal Catholics” whom Hayek had mentioned in his proposal to Luhnow. The Finlay Lecture, delivered on December 17, 1945, was a formal event, and given his newfound fame, Hayek drew an overflow crowd (Nolan 2013, 54–55). “Individualism: True and False” is one of Hayek’s most wide-ranging essays. He began by defending the view that one should start from first principles, rather than judging each case on its merits, when addressing the question of the appropriate foundations for the social order. He chose the term “individualism” to identify the principles he would explore in his essay, this because it had been coined by the Saint-Simonians who, opposing it, also coined the term “socialism” to describe their own preferred principles. Of course, had “Individualism: True and False” served the role Hayek intended as the introduction to the Abuse of Reason book, the next chapters would have been the ones describing the origins of socialism and scientism in the writings of Saint-Simon and his followers. His next step was to identify the two strands of individualism in writings of past political and social philosophers. “Individualism true” was represented by Locke, Mandeville, Burke, and Scottish Enlightenment thinkers like Smith, Hume, Josiah Tucker, and Adam Ferguson. In the nineteenth century it continued in the work of Menger, Tocqueville, and Acton. “Individualism false” reflected the ideas of Descartes and others influenced by the French rationalist tradition, including the physiocrats, which spread to England through the writings of utilitarians like Bentham and the Mills. Rousseau was also part of this branch. In distinguishing the two streams of individualism Hayek of course knew he was mixing up some very different traditions, as later critics have pointed out.16 Had he continued with the Abuse of Reason project, one of the main points of the historical sections of volume 1 would have been to justify such distinctions, showing how one tradition led to liberal democracy, the other toward scientism, planning, and ultimately totalitarianism. 16. See Caldwell 2010, 40n115 for some challenges to Hayek’s groupings.

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Hayek defended individualism true from certain mischaracterizations that had been offered by its modern critics. It was first and foremost a theory of society, and neither presupposed nor based its arguments on the assumption of isolated, atomistic individuals. When the writers in his preferred tradition used the phrase self-interest, they were assuming not that all people are selfish but only that people ought to be allowed to follow their own desires, which might be noble or base. Nor did it assert that each person knows his own best interest, but only that nobody can know who knows it best, and that the way to find out is through a social process in which each person is free to try to see what he can do. Finally, the bogey of rational economic man so often associated with the tradition is in fact a product of individualism false (it derives from the utilitarians), not individualism true, whose advocates thought that “man was by nature lazy and indolent, improvident and wasteful . . . Smith’s chief concern was not so much with what man might occasionally achieve when he was at his best but that he should have as little opportunity as possible to do harm when he was at his worst” (Hayek 2010 [1946a], 57). Indeed it is one of the great virtues of individualism true that “it is a system under which bad men can do least harm” (57). It does not depend on finding political leaders, or planning administrators, who are just and wise. So what were the positive contributions of those in Hayek’s favored tradition? Simply put, they sought “a set of institutions by which man could be induced, by his own choice and from the motives which determined his ordinary conduct, to contribute as much as possible to the need of all others; and their discovery was that the system of private property did provide such inducements to a much greater extent than had yet been understood” (58). He added though that the institutions of private property were not fixed in stone. The earlier writers did not believe in a naïve “natural harmony of interests” doctrine. Individualism true was never doctrinaire laissez-faire. This discovery was just a specific instance of a more general insight of these writers, that many beneficial social institutions arise as the result of human action but not as the result of human design. The market itself provided perhaps the most important example: “What the economists understood for the first time was that the market as it had grown up was an effective way of making man take part in a process more complex and extended than he could comprehend and that it was through the market that he was made to contribute ‘to ends which were no part of his purpose’” (60). Realizing how such institutions allow people to contribute to society even though their knowledge as market participants is limited led these writers to a certain humility regarding how best to improve society (hence “the humility of individualism”) and caution about changing long-standing

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conventional modes of behavior, this in contrast with the false individualists who thought that all human institutions could and should be subjected to the control of human reason. In the latter part of the essay Hayek discussed some of the political, social, and cultural institutions that would allow an individualist society to function and prosper. In his view, the limits of human knowledge led to the chief practical conclusion of individualism: an insistence on the limitation of coercive power. This is accomplished by granting the government a monopoly on coercion, then setting limits on its use to those areas where it is either preventing coercion by others or reducing its total to a minimum. He insisted that the limits of human knowledge meant that government should not try to pick winners and losers, but rather employ general rules and abstract principles that apply to all in its legal framework. He recognized, though, that by emphasizing equality before the law rather than equal starting points or equal outcomes, individualism is necessarily incompatible with most notions of distributive justice. Readers familiar with Hayek’s later political writings will recognize that many of the most important themes that one finds in them are present somewhere in the essay: Differences between the French and the Scottish Enlightenment; the importance of limiting the coercive power of the state to only those circumstances in which it is indispensable for reducing coercion by others; the limits of human knowledge and its implication that the legal framework should employ general rules; the tension that exists between preserving individual freedom within a market order and achieving distributive justice; and the importance for the smooth functioning of society of individuals’ submitting to moral rules and conventions that may appear to them unintelligible and irrational. Not everything is there— for example, evolutionary themes are absent—but “Individualism: True and False” still provides the best preview of much of Hayek’s future work in political philosophy. “The MeAning of CoMPeTiTion” In the aftermath of the war, the question of the regulation of industry was a key policy issue. Economists typically hold that competition leads to efficient market outcomes, for it forces firms to produce the goods that consumers desire at minimal costs. Firms that either produce the wrong goods relative to consumers’ wants or do so at costs higher than those of their competitors do not survive in the market, and owing to competition the prices at which goods are sold by the remaining firms reflect costs of production, with all excess profits eliminated. The theoretical model that economists

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increasingly used to capture these commonsensical notions was the theory of perfect competition. That model (or, more precisely, its misuse in discussions about appropriate policy toward business) was Hayek’s target in his article, “The Meaning of Competition”: “It appears to be generally held that the so-called theory of ‘perfect competition’ provides the appropriate model for judging the effectiveness of competition in real life and that, to the extent that real competition differs from that model, it is undesirable and even harmful.—For this attitude there seems to me to exist very little justification” (Hayek 2014a [1948b], 105). As he had made clear in his lectures at Cambridge, for Hayek “competition is a dynamic process whose essential characteristics are assumed away by the assumptions underlying static analysis” (107). What worried Hayek most were proposals to “remedy” the imperfect competition that one necessarily encounters in the real world. Such policy proposals revealed the dangers of taking the theoretical models too seriously. Hayek did not identify by name any opponents in “The Meaning of Competition,” but someone who had publicly supported such policies at the time was (who else but) Nicholas Kaldor. His “utility production” proposal called for the government to specify and limit by law the features of a wide range of consumer goods. This promised multiple benefits, including lowering consumer prices “by eliminating the unnecessary features on standard models; by enabling full advantage to be taken of the economies of large-scale production; by relieving manufacturers of selling costs, and by reducing the wholesale and retail margins of distribution” (Thirlwall 1987, 98–99). In short, through intervention competition in the real world could be made to look more like the competition found in economists’ models. Hayek noted that, paradoxically, our everyday notion of what competition entails is wholly absent from the economic theory of perfect competition. There is no rivalry or striving, no attempts to undercut a competitor or differentiate a product; in short, “‘perfect’ competition means indeed the absence of all competitive activities” (Hayek 2014a [1948b], 109). The larger methodological point was that static equilibrium theory, with its focus on outcomes when all adjustments have been made, obscured the fact that the forces of competition actually operate during periods of disequilibrium. Competition becomes more important as the market becomes less perfect, for it forces adjustments to be made in an ever-changing world. In Hayek’s view, attempts to replicate the artificial world of perfect competition were a recipe for policy disaster, for they would lead, in the pursuit of perfection, to the suppression of competition as it actually exists in the real world. Hayek’s essay may have been motivated by policy proposals, but it was

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also simply part and parcel of his larger position that the economic calculus, a classifying device for discussing static resource allocation under the assumption of full information, was fine in its own domain, but that such equilibrium approaches were wholly inappropriate when discussing the process of market competition. A theory of competition based on static analysis was a category mistake. The three “knowledge” papers thus belong together—and indeed were reprinted together in Individualism and Economic Order. In “Economics and Knowledge” Hayek asserted that to answer the question of how a movement toward societal equilibrium might ever come about in a world of dispersed knowledge and constant change, we need to learn more about kinds of knowledge that individuals must possess, and the process by which they will acquire it. In “The Use of Knowledge in Society,” he answered the first question: it is not scientific knowledge, but specific knowledge of time and place, that is most important. In “The Meaning of Competition,” he answered the second: it is the market process, that is, the process of rivalrous market competition, through which such localized knowledge is discovered and transmitted to others.

More Institution Building: The 1946 Trip to America Hayek left for his third American adventure on April 5, 1946. The visits that Harold Luhnow had arranged obliged Hayek to offer some lectures to students, but the real purpose was for him to find someone to write an American version of Road. In exchange the Volker Fund would pay his travel and other incidental expenses. His appointment book details each step. His first stop, logically enough, was the University of Chicago, where he was able to confer directly with Henry Simons, who still wanted to bring Aaron Director from Washington to Chicago to do the job. Hayek took advantage of the visit to see several other people, from faculty members like Knight and John Nef to visitors like William Rappard and Frank Fetter. Having gotten a sense of the scene in Chicago, he flew to Washington DC, where he met with Machlup and Director. The outcome was a success: Director was willing to undertake the project and come back to Chicago, on the condition that he be granted permanent tenure in the Law School. On his return to Chicago Hayek conferred in separate meetings with the dean of the Law School, Wilber Katz, and the university chancellor, Robert Maynard Hutchins. Both seemed on board, so the next step was for Katz to bring the proposal for the new hire before the faculty of the Law School, whose approval was necessary. All that groundwork was laid in about two weeks’ time, but then the usual

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pace and rhythm of academia took over. On May 3 Hayek informed Luhnow that things at Chicago had slowed down and that in the meantime he was going to Princeton. He stopped in New York on the way, meeting Jasper Crane (a Dupont executive) and Leonard Read, the director of the Foundation for Economic Education, who hosted a dinner that included among the guests Ludwig von Mises. At Princeton Hayek saw Oskar Morgenstern and presented “The Meaning of Competition” as the Stafford Little Lecture. The ever-critical Morgenstern reported to his diary (May 23, 1946) that it was “weak, ‘literary’ & scholastic . . . no success,” and Hayek as a person too “self-centered” and no match for his discussion partner “Johnny.”17 When Hayek got back to Chicago the next day, he learned that the Law Faculty was willing to go along with the proposal if the Volker Fund was willing to pay Director’s salary for the first five years of his appointment. The game was on. On May 23 Hayek wrote again to Luhnow to tell him of the deal. He reported that the arrangements were “as good as any I hoped to get.” Director would return to Chicago under the conditions stated above, where he would begin work on a free market study, a semipopular book that would be composed over three years. Though he would be the main author, he would have the active support and collaboration of people like Simons and Milton Friedman (Hayek had first met the latter on the trip and misspelled his surname as Friedmann), as well as other faculty members and occasional short-term visitors who would assist on various specialized topics. A memorandum justifying the study and an outline of topics to be covered were included. Thinking he had done all that he could to ensure a successful outcome, the next day Hayek departed by train for Stanford, stopping off for a couple of days to tour the Grand Canyon. After he left, things began to unravel at Chicago. Apparently Katz and Hutchins had come away from their discussions with Hayek with different opinions as to the nature of the final proposal, and when it was laid out in full the central administration of the university balked at the idea of automatically granting Director tenure at the end of his five-year appointment. Suddenly it looked like the whole deal would fall through. A little over a week later, on June 19, Henry Simons died from an overdose of sleeping pills. It is unclear whether it was accidental or a suicide, but whatever the cause, it was a disaster for the Hayek plan. As he said to Luhnow in his next letter (June 25, 1946): “I believe this is a very great loss to our cause and I feel it very much personally, since during 17. That, is John von Neumann, with whom Morgenstern collaborated in the creation of the theory of games (Neumann and Morgenstern 1944; cf. Morgenstern 1976).

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the weeks I worked with him in Chicago I had become very fond of him. But if my scheme collapses as a result I really don’t know where to turn . . . I must wait now to hear more about the situation, but I feel very depressed at the moment.” The worst part of the tragedy was that it was so needless. The central administration was actually willing to reconsider the case and ended up offering Director the appointment, though without a guarantee of tenure at the end. Director did not know what to do and asked Hayek for advice. Hayek encouraged him to take the position and carry on the work that Simons had begun. Director agreed and took the assignment. By late July Luhnow had sent a letter with a check for $25,000 to Dean Katz to cover the first year. And that is how Aaron Director ended up coming back to the University of Chicago, in the same year that his brother-in-law Milton Friedman arrived there from Minnesota. The so-called Second Chicago School of Economics had been born, and evidently Hayek played a role in its formation.18 While the deal was being worked out in Chicago, Hayek languished at Stanford. He later reported that the members of the department ignored him, and he suspected that the president of the university, who had invited him, may have neglected to consult them first. He ended up talking to members of the psychology department (possibly about the current state of the field, which would be helpful when he continued his work on “What Is Mind?”) and to some university trustees instead (IB 118). The economists may have felt some discomfort at having as their guest the author of a popular book, but this did not prevent Hayek from repeating some of the warnings from Road in his lecture, “The Prospects of Freedom.” In the talk he also repeated, at times verbatim, themes that had animated his Acton-Tocqueville Society memo: the importance of ideas; the necessity to combat the planning mentality and support the restoration of a liberal political and economic order; the need for international collaboration among like-minded men; the project of an international academy of political philosophy. He finished the talk with a series of quotations from—no surprise here—Acton and Tocqueville.19 He ended his American visit with a short trip to Mexico before returning to London, via New York, on August 7, 1946. So what did Hayek accomplish on his third trip to the States? Evidently 18. As Medema 2018 relates, there is a large and contentious literature on the scope and meaning of the phrase “Chicago School of Economics.” Van Horn and Mirowski 2009 and Caldwell 2011b offer differing assessments of the importance of Hayek’s role in its founding. Van Horn 2014 reviews the evidence regarding Simons’s death. 19. “The Prospects of Freedom” may be found in FAHP 107.7 and is reprinted in Hayek 2021 [1946c].

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he had gotten Aaron Director to go to Chicago, though not in the way he had planned. The Free Market Study would never get written—Director did not write much but would become one of the most influential teachers at Chicago. Instead, something very much in its image would be published by Milton Friedman a decade and a half later: Capitalism and Freedom (Friedman 1962). Finally, his success helped further cement his relationships with both a major funder who was a supporter of free market ideas and some like-minded American scholars. * * * On Easter Sunday, April 21, 1946, the day Hayek was meeting with Machlup and Director in Washington to seal the deal, John Maynard Keynes died, aged sixty-two. Keynes’s health had been fragile for a decade, and the strains of his war work, particularly his participation in negotiations at Bretton Woods and over the American loan, had severely weakened him. Hayek had twice visited Cambridge before leaving on his trip, on the weekends of February 9 and again March 16, and saw Keynes on the first and possibly on both visits. The earlier one was when Keynes had snapped his fingers, indicating how quickly he could turn around public opinion, in response to Hayek’s question about whether Keynes was getting concerned about how his disciples were using his ideas.20 One wonders what the so-called Keynesian Revolution would have looked like—or whether there would have even been one—had Keynes lived another few decades.

20. Hayek was not the only one to tell the story of Keynes’s displeasure toward the end of his life with how his name was being invoked to justify policies he did not favor. Another recounted, In my last talk with Keynes, a few months before his death, it was clear that he had got far away from his “euthanasia of the rentier.” He complained that the easy money policy was being pushed too far, both in England and here [the US], and emphasized interest as an element of income, and its basic importance in the structure and functioning of private capitalism. He was amused by my remark that it was time to write another book because the all-out easy money policy was being preached in his name, and replied that he did think he ought to keep one jump ahead. (Williams 1948, 287–88) For an even earlier instance, Austin Robinson recalled Keynes having commented to him and Lydia at breakfast in Washington in 1944, after having dined the night before with some Washington “Keynesian” economists: “I was the only nonKeynesian there” (in Hutchison 1977, 58).

· 32 · Postwar Austria

Fritz’s Austrian Family at War’s End One of the most maddening things for Hayek after the war was how long it took him to finally reach Vienna. Knowing that it was the Russians rather than one of the other Allied powers that had arrived first did not help. The Soviets’ Vienna offensive began in early April 1945, and by April 13 their troops were marching into the city. The first American troops did not appear until over three months later, followed still later by the British and French. In the 1943 Moscow Declaration signed by the Allies, Austria was deemed both the “first victim” of Nazi aggression and a country that bore co-responsibility for later aggression. Its fate at the end of the war was to be both liberated and occupied. In July 1945 the victorious forces divided the country, like Germany, into four zones. Vienna, an enclave within the Russian zone, was divided between the four allies. (Fortunately for her, Felicitas lived in the American zone.) Though an Austrian government was permitted to form over the summer, with parliamentary elections to be held in November, its power was limited. The country would remain under Allied “tutelage” for another ten years, as the Cold War and other realpolitik concerns kept the various principals from departing.1 The battle for Vienna had been costly for the Soviet army, which lost around 18,000 men. Soviet troops had little sympathy for the families of their defeated foes, so the first few months of occupation were horrific for the civilian population. In Vienna alone, estimates of the number of women of all ages raped by June vary between 70,000 and 100,000. Those who had fled the city in order to survive returned to houses that had been looted, occupied by others, or destroyed during the fighting. Supplies of foodstuffs were scarce. Average daily rations in the spring and summer of 1945 had fallen in the city to between 350 and 800 calories 1. The section on postwar Vienna draws on J. Lewis 2000; Eisterer 2002; and Naimark 2019, chap. 7.

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per person. The Russians and later the United Nations Relief and Rehabilitation Administration stepped in with aid to prevent mass starvation, but the most common provisions were the long-but-not-fondly-remembered dried peas, often worm-infested. Shortages of food continued for the next two years, exacerbated by the drought of summer 1946 and freezing winter of 1946–47 and by low food production in 1947. Both Fritz and Hella had family and friends in Vienna. We do not know how much they knew about general conditions on the ground, or the specific fates of their loved ones, as the fighting concluded. There had been some sporadic exchanges of information even during the war.2 William Rappard in Geneva served as a go-between connecting Fritz with his mother: Felicitas sent Rappard letters that he then translated and forwarded to Hayek as part of his own correspondence (see Rappard to Hayek, Aug 26 and Oct 28, 1942, and Feb 22, 1943). Their content scarcely went beyond saying that the family was well. Fritz also was in contact with Lenerl, though was subtle enough to turn to another friend in Geneva, Wilhelm Röpke, instead of Rappard, as the conduit. Thus Hayek asked his friend to forward a reprint of his Economica article to his “cousin,” identifying her as “the lady we met on the Katschberg” during a summer vacation before the war.3 Well into 1944 (see Felicitas to Fritz, Nov 25, 1945) there were also some exchanges by the way of “Red Cross letters,” but these were restricted to a maximum of twenty-five words, enough only to transmit the barest of facts. When war finally ended, some real letters, hand-carried by friends who had official reason to travel, began to get through.4 Unfortunately, of all these the only letters that appear to have been preserved are a few sent by Felicitas in late 1945. They are informative and indeed fascinating, but— apart from official documents—everything else we know was either written down later, as was the case with Erich’s reminiscences, or came from stories passed down by family members. Erich worked for most of the war at the big German chemical firm IG 2. Thus, Bartley’s statement (IB 93) that “From the beginning of the war until 1946, no contact between Friedrich H. and his brothers and mother” is true only if we interpret “contact” as meaning “direct contact by regular mail.” We have been unable to find any evidence to support Christine Hayek’s statement that her father may have gotten news about Lenerl through a contact in the Vatican (Christine interviews, Oct 14, 2012). 3. Hayek to Röpke, Feb 8, 1942. Cubitt (2006, 287n194) states that Lenerl told her that she and Hayek stayed in contact during the war via someone in “a neutral country.” 4. One of those friends was one “Dr. Rudinger,” most probably an Austrian emigrant related to the Rudinger family who had hosted Fritz when he was in New York in 1923/24.

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Farben in Berlin. Owing to his mountaineering background he was used as a geologist rather than a chemist, and was repeatedly sent to the Balkans to search for ores (Bartley interviews, 1983). In 1944 he was appointed deputy director of the research laboratory of Donau Chemie, a subsidiary of IG Farben. Though its main office was in Vienna, Erich appears to have spent part of his time at a plant in the Tyrolean town Landeck. This proved lucky in two respects. First, the location was not too distant from the Tyrolean village St. Johann, where his wife and children stayed during the war. Second, Tyrol was a region where the resistance put up by retreating German forces was lighter than in the east of Austria, so it was spared most of the fighting.5 When the facility at Landeck was shut down at war’s end, Erich got a research assistant position at the Chemical Institute of the University of Innsbruck and was able within a short time to complete his habilitation thesis and become a lecturer on organic and inorganic chemistry (see Gutmann 1987 and Goller 2000). Throughout the war Felicitas had resided in her Vienna flat on Paradisgasse. In January 1945 Erich convinced her to leave it for Göstling, a village in the countryside in Lower Austria. When Felicitas decided to surprise Erich by returning to Vienna on her birthday, March 13, the situation was clearly worsening: one night a Soviet bombing raid forced them to take cover in the basement of a nearby church. Nonetheless she remained in Vienna for a couple of more weeks to look after a friend who was doing poorly. When she finally left in early April, the rail service on her route out was frequently disrupted in areas where bombing had occurred. It took her six days to get back to Göstling, and on the way her luggage got lost, which meant “the loss of some 70kg [150 pounds] of important possessions” (Felicitas to Fritz, Nov 25, 1945). Back in Vienna in June she found that some china and other valuables had been stolen, as were some more commonplace items, though luckily the linen and carpets remained. She made repairs as best she could, refitting the glass from pictures to replace broken windows. Soon she had to take in a boarder, as was the rule for all but the tiniest of residences, to accommodate the soldiers of the occupying armies and the host of incoming refugees. Though Felicitas managed to keep an upbeat, “stiff upper lip” tone in her letters, plainly life in postwar Vienna was dreadful. She had planted beans, potatoes, and peas at a friend’s estate in Göstling but was unable to go to 5. According to Christine, the family story is that Erich narrowly escaped the Russians, fleeing in “the clothes he stood up in” to the farmhouse in the country where they spent their summer holidays, which we presume is St. Johann (Christine interviews, Oct 14, 2012, May 20, 2013).

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harvest them later because of travel restrictions. She would go to a common kitchen for her midday meal, then have “always the same few peas” at home in the evenings. She mentioned gratefully the food that Fritz would send her, including cod-liver oil pills, sardines, and an instant dairy drink, “Ovaltine” (Felicitas to Fritz, Dec 14, 1945). A year later, in summer 1946, she admitted after receiving a package of food from him that “one is now so reliant on food donations and knows, more than during the first war, what hunger really means” (Felicitas to Fritz, June 14, 1946). Food shortages would continue for another year. There was little by way of mental or cultural stimulation. The Opera and Burg were closed due to damage. Radio transmission when it worked was weak. Some cinema was available, but only if one was prepared to stand in long lines and risk going out at night in a city with few functioning streetlights and chaotic traffic. Once winter had come even reading was difficult, as one’s hands would freeze; she did most of her reading in heated cafés. She would get up every day and do her morning exercises, then visit her siblings and try to get them up and about. Until the end of August 1945, there had been only one untoward encounter with the occupying forces. Felicitas had been accosted by a Russian soldier who tried to rob her, but she managed to get away. The family’s luck ran out on August 28, though, when Felicitas’s stepmother, Ida Juraschek, “Mami,” was killed when she was run over by an army vehicle. Though eighty years old, she had been in good health; Felicitas even described her as “spry.” In her letter to Fritz she blamed (without directly naming them, to avoid running afoul of the censors) the Russians, whom she detested: “Isn’t it a bestial, cultureless race, that drives over a person countless times and leaves her dead in the street!” (Felicitas to Fritz, Nov 25, 1945). Fritz would repeat his mother’s version, but according to Erich’s reminiscences it had been an American vehicle that killed her (IB 111; see EHH). Felicitas took this sad occasion to recount the many blows that her stepmother and other family members had suffered throughout the war. In 1940 her daughter Margarete (Grete), a half-sister of Felicitas and the wife of Eduard Castle, had died. The next year Ida was gravely injured when she was hit by a tram, but thanks to the good care provided by her daughter Trude she was able to recover. Trude herself was still depressed from the untimely death of her husband, Wilhelm Schmidt. Franz, who had served at the Upper Austrian office for the preservation of monuments, had the dubious distinction of both failing in his attempt to become a member of the Nazi party and being interned for some time after the war for having tried. When he was eventually released and returned to Vienna, it was only after his mother, Ida, had died. Her death was also a great loss for Felicitas’s

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sister Beate, because—we may surmise—Ida had supported her financially. Felicitas’s trust in Beate’s ability to “live in beauty and optimism” under all circumstances nonetheless remained unbroken; as evidence she noted that Beate had finished a novel on Richard Wagner (Felicitas to Fritz, Dec 14, 1945).6 Fritz also found out that Erich’s mother-in-law, “Mother Nitsche,” succumbed in Vienna after a prolonged illness. In her news-filled letter of November 25, Felicitas described Fritz’s uncle Paul and aunt Stephanie Hayek as “lame ducks” and worried that both had aged prematurely and seemed bordering on senility. Her diagnosis turned out only too true; Paul was to die in February 1946, to be followed by his wife only a month later. More bad news was to follow, as Felicitas next reported the demise of Hella’s mother, Marianne Fritsch, in April 1946, a death she described as “quick and painless” (Felicitas to Fritz, May 8, 1946). Evidently these were not good times (or the right place) to live peacefully into old age. Also at an end was the Stallner side of the family’s time in Hochenegg, which had since 1918 been a part of Yugoslavia. In a reaction to atrocities committed during the period of German occupation, it was no longer a safe place for members of the German-speaking minority. In the many reports in her preserved letters about the hardships that had befallen members of the Hayek family, Felicitas mentioned only once the uncomfortable topic of her earlier enthusiasm for National Socialism: “I have paid for my attitude with a gigantic disappointment, and I can hardly comprehend the injustices that happened.” She was, however, quick to add that “now, likewise, things happen that cause a lot of suffering for us” (Felicitas to Fritz, Nov 25, 1945). By the time she wrote those lines in November 1945 Felicitas had gotten three letters from Fritz, one in November 1944, one in September 1945, and another soon before she wrote. She had also gotten news about him from Erich, whom Fritz had written, and news about Christine and Laurence from Hella. Ever the proud mother, Felicitas let her son know how happy she was about the success of The Road to Serfdom but admitted that his American publicity tour made her worry that he might be tempted to move with his family to the States. Hella had told her that both Christine and Laurence had grown up quite a bit, and that Christine was a bit of a tomboy, not caring too much about her own appearance. Felicitas, herself a bit of a tomboy, approved (Felicitas to Fritz, Nov 25, 1945). Felicitas’s last letter during this period was written while Fritz was in the middle of his four-month visit in 1946 to America. He had written to tell Felicitas about all the different places he would see, Chicago and Stanford 6. Her novel like many others remained unpublished and may be found in the papers of Eduard Castle, Vienna City Library, 83.4.1.12.

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but also the Grand Canyon and Yosemite Park, and she wrote back enthusiastically that she would follow his route on a map. She also looked forward to receiving the food packages from America that he had promised to send to her and to Edith. She was in a particularly good mood because she was writing from St. Johann, where she was visiting Erich and Edith and their children. At her plot of land in Grinzing she had climbed the cherry tree, harvesting four kilos of cherries that she carried to them to the countryside, and could report that though conditions were bad there, Edith had managed to regain some weight. (It was a standard Hayek family story that Felicitas would climb the trees in her orchard for fruit until she was well into her seventies.) She ended with the hope that his planned trip to Vienna in September would take place (Felicitas to Fritz, June 14, 1946). And what about Hayek’s other great concern regarding Austria—the fate of Lenerl and her family? Unfortunately, apart from the fact that they all survived the war, we do not know where or how they spent the last horrific months.7 * * * Fritz finally made it to the continent in August 1946 and was able to get to Vienna for two weeks in early September 1946. He would follow up with a second visit in January 1947. Even before the war was over, Hayek was thinking about what lay ahead for Austria. In spring 1945 he contributed an article, “The Future of Austria,” to the Spectator (Hayek 1945, Apr 6). He began with the claim that for Austrians the attractiveness of Anschluss had been more economic than nationalistic—it was a chance for a poor and weak country to join with a more prosperous neighbor. He blamed the decay of the Austrian economy during the interwar period on the capital consumption that resulted from the excessive claims made by a newly enfranchised working class, a thesis he had made before and would repeat in later accounts (e.g., Hayek 1946, Nov 28). So which way forward? The best solution might be to join a federation of states extending south and east, but Russian opposition made that unlikely. Another would be to make Vienna the new home for the League of Nations or its successor. Perhaps the most reasonable possibil7. The only information that we have been able to uncover is that Hans, Lenerl’s younger son, was conscripted into the German army in 1944 and after a short spell as a prisoner of war returned to Vienna to begin studying physics at the University in Vienna in the winter term 1945/46. This information was taken from his obituary; he died in October 2018.

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ity, given its location, would be to give Austria the status of a truly neutral country, with Vienna as a free trade zone at the interface between Western and Eastern Europe. He warned, though, of the counterproductive effects if the Allies were simply to treat Austria as a willing German ally. Finally, he argued for remedying the injustice of the St. Germain treaty by reuniting the South Tyrol with Austria. During the war Hayek had been a member of a Justice for the South Tyrol Committee. Jointly with Sir John Clapham and the Austrian Archduke Robert he had co-edited a pamphlet, “The Case of the Tyrol” (Justice for the South Tyrol Committee, ed. n.d. [1944a?]), then contributed to another (Hayek n.d. [1944?]).8 He continued to pursue the subject after the end of the war in letters to the editors of Time and Tide and The Times (Hayek 1945, Nov 17 and Dec 22). When Hayek entered Vienna for the first time in September 1946, he was shocked by the appalling condition of the city and its inhabitants (Cubitt interviews, Sept 16, 2013). After his visit he published an analytic but impassioned assessment in the Commercial and Financial Chronicle, an American business weekly.9 Owing to misguided policies, Austria was actually in worse shape eighteen months after the end of hostilities than it had been when the fighting stopped. Mass starvation had only narrowly been avoided when real aid had begun to arrive that past summer. Wage and price controls, set at low levels, made it uneconomical for Austrians to work and benefited only the occupiers, who were buying up the few goods produced. Furthermore, the Russians, under the pretext of confiscating “German assets,” stripped out machinery and plants in their area of control and shipped them back to the Soviet Union, which not only devastated the specific enterprises but created unfilled gaps in supply chains. As Austria became weaker and weaker, requiring ever more aid, the temptation would be to abandon her to the Russians. Despite all this, said Hayek, there were some hopeful signs. The coalition government was fairly stable;10 some plant and equipment survived and could be repurposed; new oil deposits had been opened up; and the country could become economically much stronger if more foreign trade were permitted. What was needed was some aid to jump-start the economy, the removal of various economic restrictions, and an end to the occupation. Hayek was clearly worried that Austria 8. Both pamphlets are preserved in FAHP 69.5. 9. Hayek 1946, Nov 28 may be found in FAHP 165.37. 10. In part as a reaction to the unspeakable behavior of the Russian army at the end of the war, the Communist Party in Austria did very poorly in the November election, gaining only 5.4 percent of the vote. The coalition that formed was between the conservative People’s Party (49.8%), the successor of the Christian Socials, and the Socialist party (44.6%) (Bischof 2002, 176).

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might end up, through a combination of neglect and misguided policies, in the Soviet orbit. He had other concerns, too. In her very first letter in November 1945 Felicitas had mentioned that she had not heard from Heinz, who was in Würzburg, since he had written to let her know that they all had survived a terrible bombing raid. That attack took place on March 16, 1945, and it laid much of the city to waste. The institute where Heinz worked was heavily damaged, and he was put in charge of organizing its rebuilding. This ended in August, when he was dismissed by the occupying authorities because of his membership in the Nazi party and other organizations (Hildebrandt 2013a, 288).11 He would need to go through a denazification hearing before he would be eligible to work again. We will turn to that episode at the end of the chapter. But first, we will look at Hayek’s reintroduction to academic life in Vienna, where the combined effects of the denazification program and what he once called the “three purges” were, to say the least, troubling.

Institutionalizing Mediocrity: Denazification, the Three Purges, and the Austrian Academy Denazification in Austria proceeded in several waves. Though always distinguishing between those who had committed crimes in their NS position and fellow travelers of various degrees, the categories changed through time.12 Thus in the first “Verbotsgesetz” (Prohibition Law) of 1945, socalled illegal Nazis, that is, Austrians who had entered the party between 1934 and 1938, after it had been declared illegal by the corporate state regime, fell into the category that included war criminals. Meanwhile all other members of the party (as well as applicants) and of its affiliated military associations, like the SS and the SA, faced penalties ranging from compulsory retirement and occupational bans to reduced pensions and fines. An attempt by the Austrian Parliament in 1946 to enact a revised, and in some respects softer, set of criteria was vetoed by the Allied Council, but a 11. In an unrecorded conversation Richard Zundritsch once told Caldwell the family story that when his grandfather Heinz was interviewed by an American officer, the person had a copy of the Reader’s Digest condensation on his desk. When Heinz told the officer that his brother had written it, he said something like, “Well, all right then, you must be OK,” and told him to be on his way. In his letter of May 22, 1946, Heinz told Fritz that he had gotten temporary permission to work in the institute library from a US officer after he had mentioned Fritz’s book. 12. On denazification in Austria, see, e.g., Stiefel 1981; Meissl, Mulley, and Rathkolb, eds. 1986; and R. Pfefferle and H. Pfefferle 2014.

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new denazification law was finally enacted in 1947, one that no longer automatically deemed “illegal Nazis” comparable to war criminals and that reduced the categories of fellow travelers to two, the more and the less incriminated. Denazification was finally put to an end by a series of amnesties for everyone except war criminals in the 1950s. The denazification laws contained special regulations for the universities. Immediately after the war the US had pressed for the removal from teaching positions of both adherents of the corporate state and those of the NS regimes, then realizing that this would leave the universities virtually devoid of teaching staff, targeted only the latter (Stifter 2014). Illegal Nazis and those appointed during the NS regime were dismissed without exception. For those who had been only members of the party or affiliated organizations, special university commissions were set up to decide on their political reliability and whether they could be kept. Teachers in sensitive subjects like the social sciences or philosophy received special scrutiny. Of course, the machinery moved very slowly, and the bureaucracy proved incapable of handling the many appeals of verdicts. It was after the Allies had vetoed the attempt by the Austrian Parliament to modify the stringent 1945 law that Hayek offered his assessment of denazification in Austria. By this time he had visited Vienna twice. Published in January 1947 in the Spectator and carrying the provocative title “Re-Nazification at Work,” it decried policies that, by keeping Austrians from contributing to the rebuilding of their own society, were having the opposite of their intended effect. He picked as an example the rule that anyone who had held a commission in the Reichswehr, the German army, was barred from entering university: “Tens of thousands of the most capable young men are thus degraded for life for no other reason than that they have done well a job which they had not chosen and which they had been educated to regard as a patriotic duty . . .” (Hayek 1947, Jan 31).13 Hayek also criticized the inevitable arbitrariness of a process that attempted to assess a person’s political reliability: nobody I met in Vienna regarded the treatment of the Nazi criminals as too harsh. If there is any complaint about the treatment of the thousands who have committed crimes it is invariably that the punishment is too slow and too lenient . . . It is this creation of a new pariah class numbering hundreds of thousands in Austria (and millions in Ger13. Hayek 1947, Jan 31, may be found in FAHP 165.42. A contemporary source noted, half-jokingly, that the regulations made it easier for a person at a university to teach than to study (see Stiefel 1981, 182).

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many), who are punished, not for any acts they have committed, but for opinions which they have held (and often even for opinions they merely pretended to hold in order to be left in peace), which creates a problem and a danger which those creating it do not seem to understand.

Such policies were inevitably turning the population against the Allies, hence the title of Hayek’s piece. * * * The rules that Hayek had criticized were relaxed over time and, in typical Austrian fashion, mitigated by generous individual exceptions. In the case of the universities, all people classified as fellow travelers were prohibited from teaching in sensitive subjects, at least temporarily. But the rule included a provision for appeal to a commission at the Ministry of Education that could grant exemptions, if the person in question had not misused their earlier position and was judged to be someone who in the future would wholeheartedly safeguard the independent Republic of Austria, that is, reject the idea of Anschluss. The commission, headed by Otto Skrbensky, the all-important senior civil servant in charge of the universities at the ministry, tended to err on the side of leniency.14 As such, the denazification of the Austrian universities could accurately be described as “light” (see R. Pfefferle and H. Pfefferle 2014). A majority of those dismissed in 1945 were able to reenter the universities and continue their academic careers after 1948. To trace the effects of the denazification process on the Austrian university system one must add another dimension: the fact that within little more than a decade it had experienced three “purges.” We have already seen how the interwar years were a period of tacit discrimination against Jewish and left-leaning scholars, and the Austrofascist regime expelled most socialist teachers. The Anschluss then led to further dismissal of university teachers for “racial” and “political” reasons. The latter group included liberals and leftists, but also Catholics who had been close to the corporate state regime and even rival factions within the Nazi movement. Finally, the third purge occurred when the denazification program aimed to remove those affiliated with the Nazi party or appointed during its regime. When the teachers dismissed in 1938 were reinstated after the war, this tended to benefit the group of Catholic conservative supporters of the corporate 14. On Skrbensky and his fateful influence on the Austrian universities in the postwar period see R. Pfefferle and H. Pfefferle 2014, chap. 1.3.

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state. Most of the others—Jews, liberals, or socialists—if they had survived at all, had emigrated, and there was neither a push nor a pull for their return to Austria. As a result, the postwar “reconstruction” of the Austrian universities ended up simply restoring elements of the former elite.15 For an instructive case study, we need look no further than the University of Vienna in general and its law and economics faculty in particular.16 Economists dismissed after the Anschluss included the Catholic conservative Degenfeld-Schonburg and his assistant Ernst Lagler, Mayer’s former assistant Hans Bayer, who had just been appointed at Innsbruck, Spann and his pupils, in particular his foremost disciple Walter Heinrich,17 and even such opaque figures as Richard Kerschagl at the Welthandel. After the war, although many of these individuals had propagated antidemocratic ideas, some almost indistinguishable from those of the Nazis, most of them were allowed to return to their former positions. Only Spann was too deeply involved—and too well known for his role in the antimodernist onslaught of the interwar period—to be brought back as a teacher. In his case a curious and typically Austrian compromise was struck: he was allowed to remain in his chair but was made to apply for and was granted a leave of absence, a status he kept until his retirement. Most of the younger assistants had been applicants to or members of the NSDAP, and thus belonged to the category of “minor fellow travelers,” who had to go through denazification trials before they could return to university teaching. Included in this group were the three people who would occupy the economics chairs at the Vienna law faculty for the next few decades (and who would have been Hayek’s colleagues, had he chosen to go to Vienna when the opportunity presented itself in the early 1960s). The justifications they offered in their denazification hearings had the common theme that their applications for party membership had been driven by concerns over their careers, and that there were other “special circumstances” surrounding their cases. And there was, of course, Hans Mayer, always in a category of his own.18 After the Anschluss he especially relished the steps taken against Spann; he would later even denounce his old nemesis as, of all things, a “friend of the Jews.” After 1938 he lectured on topics like “German Economic Life” 15. See, e.g., Grandner, Heiss, and Rathkolb, eds. 2005; Fleck 1996; and on the law faculty, Rathkolb 1989. 16. See the respective sections in Klausinger 2016a and 2015c. 17. In fact, we now know that both Spann and Heinrich had for a period been members of the NSDAP. 18. See Klausinger (on Mayer) 2015a and (on the NOeG) 2016b.

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and “Directing the Economy in the NS State.” In an exercise in “völkisch” economics (Mayer 1939) he tried to demonstrate the compatibility of his own value-theoretic approach with the specifically German “system of values,” a paper that caused outrage among Austrian school emigres (see Haberler to Morgenstern, Jan 21, 1940). When he convened the NOeG board in 1943, he described in the minutes his own position as being “national socialist.” One might usefully contrast Mayer’s behavior with that of his near contemporary Richard Strigl. In 1938 Strigl taught at the Vienna Welthandel and was suspended for some time owing to his closeness to the Austrian school, but then was allowed to continue teaching. In his publications during the NS regime he carefully avoided any political topics, sticking instead to strictly theoretical investigations, for example a paper on the Wicksellian process (Strigl 1942). He died, after a long illness, in 1942. In his obituary Hayek (1944c) noted the passing not only of a brilliant teacher, but of the last chance for a continuation of the Austrian school in Vienna, a fine compliment to Strigl but also an unmistakable criticism of Mayer. When the NS regime had gone, not only was Mayer treated as one of the regime’s victims, he was made the chairman of one of the special commissions in charge of the denazification of university teachers. By then Mayer was back to his old tricks. On December 4, 1945, he gave a public lecture at the university on the “Austrian School of Economics.”19 Felicitas was in the audience and went up to talk to him afterward. Mayer not only paid her extravagant compliments (did she not look as if she were Fritz’s sister?), but asked her to send Fritz his greetings and expressed his hope that he might come to Vienna to do a lecture series (Felicitas to Fritz, Dec 4, 1945). When Mises received news from Vienna, he commented dryly (letter to Hayek, Dec 8, 1945), “Mayer is as always in floribus. He probably poses again as an Austrian economist.”

Hayek Reconnects with the Economics Community in Vienna Even before his first visit to Vienna in September 1946, Hayek knew that the Austrian universities had been cut off from any advances in knowledge outside the German Reich. He felt it imperative to acquaint scholars there with recent literature and to provide them with books that had been published abroad, especially those in English. To this end Hayek founded the Austrian Book Committee and became its chairman.20 Other Austrian em19. Announced in Die Weltpresse, Dec 4, 1945, 5. 20. See the correspondence in FAHP 11.7 and Leube 2006, Jan 30.

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igrants involved in the endeavor included his friend Georg Tugendhat and the Vienna-born director of the Warburg Institute, Fritz Saxl. The Committee published an appeal in the English newspapers that was signed by several prominent figures, among them Lord Beveridge, Austria’s preAnschluss ambassador to the UK, and the editor of the Economist, and as a result was able to collect nearly 2,500 books and a considerable amount of money. Unfortunately, attempts to coordinate their efforts with the Austrian bureaucracy revealed only the “appalling inefficiency” of the latter (Hayek to Saxl, Jan 13, 1948). In the end, these activities petered out. Hayek wound the whole thing down in July 1948, once all the funds had been spent. Hayek dealt with some of the library issues on his visits in September 1946 and January 1947. He also met with people on the faculty (though he avoided Mayer) like Degenfeld, the dean of the law faculty, with people from the Institute, and with representatives from government and industry. We recall that after the Anschluss the Institute was downgraded to a branch of the Berlin Institute and placed under the direction of Ernst Wagemann, and that it changed its research focus to the economics of Southeast Europe.21 Soon after war ended the Institute was reconstructed, now under the more comprehensive name of the Austrian Institute of Economic Research (Institut für Wirtschaftsforschung, or for short, “Wifo”). Its new director, Franz Nemschak, led the Institute jointly with Ernst John. Nemschak had been an illegal Socialist who had studied at Graz. After abandoning the idea of emigration to the US (see SPSL 236.2), he found a refuge at the Institute. Though not a gifted theorist, he was a fine manager, and his “level-headed approach” (Morgenstern, diaries, July 4, 1947) was apparently just what the reconstituted Institute needed then and in years to come. In the course of his visits Hayek held some public lectures in Vienna, speaking at such diverse places as the Chamber of Commerce, the British Council, the Economic Section of the Austrian People’s Party, and the Federation of Austrian Industries. He spoke on everything from issues he had dealt with in Road to criticisms of Keynesian theories to assessments of the British economy to his Mill scholarship.22 21. Morgenstern, who was dismissed in absentia, later became aware that two of his former co-workers at the Institute had been members of the Nazi party and would never forgive them (see, e.g., Morgenstern 1976, 807). One of them, his deputy Reinhard Kamitz, left the Institute for the Chamber of Commerce and pursued an academic career at the Vienna Welthandel, where he got a lectureship and in the end was appointed to an extraordinary chair. 22. See reports of these lectures in Kleines Volksblatt, Jan 9, 1947; Welt am Abend, Jan 14, 1947; Weltpresse, Jan 13 and Apr 22, 1947; and Die Wirtschaft, Jan 17, 1948. Only the typescript of the lecture at the Federation of Austrian Industries, “Politische

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Regarding academic issues, the crucial meeting was with Otto Skrbensky, with whom he discussed several topics. It appears that one of these was an offer for Hayek to return to Vienna. Skrbensky had touched on the issue in a letter he sent to Degenfeld in August 1946, noting that the idea for such an offer had come from a “notable place.”23 We do not know how serious this offer was, but we know that Hayek rejected it. He probably told Röpke about it when he saw him in Geneva after his visit to Vienna, because Röpke then reported the incident in a letter to Eucken (Oct 2, 1946). At least in other cases, like that of the psychologist Karl Bühler, there is evidence that the ministry’s (that is, Skrbensky’s) efforts were not very serious (see R. Pfefferle and H. Pfefferle 2014, 64–65). On the other hand, there was also little incentive for such Austrian emigrants as Haberler (at Harvard), Morgenstern (at Princeton), or indeed Hayek (at LSE) to accept a permanent position in Austria, where their research would have been severely impeded by the lack of resources. For example, when Morgenstern was offered the directorship of the still prestigious Kiel Institute for the World Economy, he just used it as a bargaining chip in his negotiations for a better salary at Princeton (diaries, Apr 4 and 9, and Sept 2, 1946). Remarkably, on the same occasion Hayek became inadvertently involved in the so-called Schenk-Adler affair, because he feared that the affair would interfere with the activities of the Austrian Book Committee.24 The affair appears in retrospect to be just another sad example of the lenient treatment of Nazi evildoers in the postwar era. The story involves the library of the renowned musicologist Guido Adler, a scholar of Jewish descent, who had retired as a professor at the University of Vienna in 1927. After the Anschluss his chair was occupied by Erich Schenk, widely regarded as a Nazi protégé. Adler died in 1941 and passed his voluminous musicological library, which became an object of widespread desire, to his daughter Melanie. When Melanie sought to find a safer harbor in Italy, Schenk offered her his help, but only in exchange for the library, which was to be handed over to his Institute as a gift. She rejected the offer, the library was seized by the Gestapo and eventually wound up at Schenk’s Institute, and Melanie Adler became just another victim of the Nazi death camps. In the postwar period Schenk, who had not been a party member, Folgen der Planwirtschaft” (Political Consequences of the Planned Economy), has been preserved (in FAHP 105.24). 23. Otto Skrbensky to Degenfeld, Aug 1946. 24. On Adler and his library see the contributions in Stumpf, Posch, and Rathkolb, eds. 2017, in particular Stumpf 2017; on Wellesz see Wanek 2010, in particular 181– 217.

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easily survived the denazification procedure. Only in 1946 was his role in the acquisition of the Adler library (and in the ultimate death of Adler’s daughter) questioned. Two of Adler’s pupils, Rudolf von Ficker and the composer Egon Wellesz, began to intervene on behalf of the Adler heirs.25 Hayek’s role was that of a go-between, bringing letters back and forth between them and  Skrbensky.26 In the end, Schenk prevailed, in part because crucial documents had disappeared, but also owing to the benevolent handling of the case by the ministry. It took more than sixty years for the case to be reopened and the remnants of the library and papers restituted to the heirs. Given what we now know, Hayek’s point of view at the time looks a little naïve: “I must admit that after prolonged conversations on these problems with the Austrian authorities I really feel much sympathy with their difficulties. Vague accusations of all kinds are made against almost everybody, and when it comes to a question of definite evidence, none is usually forthcoming. I am personally satisfied that the will to punish people guilty of crimes is present, and that all that is needed is adequate proof of what they have done” (Hayek to Saxl, Oct 16, 1946, reprinted in Stumpf 2017, 155n). * * * Around the time of his first postwar visit to Vienna, and perhaps in reaction to what he had witnessed in the academic community there, Hayek hit upon the idea of a reunion of Austrian economists, or perhaps social scientists in general, at a summer school at the University of Vienna. He asked the Rockefeller Foundation for support.27 Hayek’s first list of people to invite included Haberler, Machlup, and Morgenstern among his peers, of the older generation Mises and Schumpeter, and Tintner, Voegelin, and Popper as additional options (Hayek to John H. Willits of the RF, Oct 31, 1946). 25. Wellesz must have been well known to Hayek, because his operas had been the subject of a Geistkreis lecture by Engel-Janosi, who had moved in the same conservative circles as the composer. Wellesz also participated in the 1949 Alpbach seminar. 26. See Saxl to Hayek, Oct 18, 1946; Wellesz to Saxl (copy to Hayek), Oct 22, 1946; Hayek to Skrbensky, Nov 3, 1946, and Feb 1, 1947; Hayek to Wellesz, Feb 5, 1947; and Wellesz to Hayek, Feb 6, 1947, all in FAHP 11.7. Skrbensky’s crucial letter to Hayek, Dec 4, 1946, containing Schenk’s virtual acquittal by the ministry, is reprinted (with annotations by Wellesz) in Stumpf 2017, 156–58. 27. Most of the material on the Vienna reunion will be found in Rockefeller Archive Center (RAC), RF 1.1, ser. 700, 2.15 (“Hayek”); see also 2.13 (“Alpbach”), 2.14 (“Haberler”), and 2.16 (“Morgenstern”).

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In deliberations that went on for more than a year the Foundation added two Americans with an Austrian connection, Ragnar Nurkse and Howard S. Ellis, to the list, and the university proposed Kelsen. Unfortunately, organizing a trip to Austria was no easy task, as a permit from the Allied Forces in Austria was needed and passenger space for overseas transport was both scarce and expensive. Machlup’s case was illustrative: he declined because it would have been very expensive to bring his wife, and because unlike the other three he no longer had any relatives left whom he could have visited in Vienna (Machlup to Willits, Apr 24, 1948). In the end only three made it to Austria, Hayek, Morgenstern, and Haberler, and it was not until July 1948. Over the course of three weeks they offered seminars and lectures on international trade (Haberler), on the theory of value (Morgenstern), and on the theory of money (Hayek).28 Hayek was impressed by the eagerness and intellectual curiosity of the students, and even the ever-critical Morgenstern, who was on his honeymoon, responded favorably to them as well (diaries, Aug 12, 1948). This of course contrasted greatly with their perceptions of the quality of the faculty at the university. Their attitude toward the faculty may have been sensed by their hosts, for contrary to what Hayek was hoping, the event was not repeated. After having interviewed the co-director of Wifo, an official from the Rockefeller Foundation noted dryly that “in his opinion, the University of Vienna was not overly anxious to have visiting professors who would inevitably reveal the present lag in Austrian economic thought” (Norman S. Buchanan, interview with Ernst John, June 16, 1949, RAC, RF 1.2, 705: 8.69).29 After leaving Vienna their European tour continued with three more weeks spent in Switzerland where they participated in a meeting organized by Alfred Amonn. After that Hayek used the interim period, before a visit to Alpbach, for climbing in Switzerland and Austria. * * * The trip to Alpbach, a small Tyrolean village, was surely something to which Hayek was looking forward, for it was to attend for his second year in a row a meeting of the Alpbach seminar, or “International University Weeks” (Internationale Hochschulwochen).30 Founded by two Austrians 28. The typescript of Hayek’s lecture will be found in FAHP 112.14. 29. See also Morgenstern to Haberler, 1949, no date. 30. On the early years of the Alpbach seminar see Wirth 2015a, chaps. 1 and 2; see also 2015b, 4–11.

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in 1945, the Alpbach seminar was designed as an international alternative to the parochial Austrian academic scene, one that sought an interdisciplinary approach (a “studium generale”). Its goal was to aid the reconstruction of the cultural and intellectual life of postwar Central Europe by bringing leading scholars together with students from many countries for interaction in a peaceful, rustic setting. The emphasis on discussion was vaguely modeled on the tutorial system of the ancient English universities and aimed at escaping the hierarchical structures of continental education that had so reduced intercourse between students and professors. Despite the difficulties of travel right after the war ended, a first seminar was successfully held in 1945. After that it was repeated annually, and the number and prominence of the visitors increased steadily, to 250 in 1947 and 350 by 1948. To provide a more solid base for the seminar, in 1947 a formal association, the Austrian College, was founded; in that same year they secured a subsidy from the Rockefeller Foundation. Hayek had been invited to the 1946 seminar (see Hayek to Röpke, Aug 27, 1946), but it was only in 1947 that he participated for the first time. He chaired the economics workshop jointly with the Swiss economist Walter Adolf Jöhr and offered a paper, “Der Mensch in der Planwirtschaft” (Man in the Planned Economy, Hayek 1948c), in which he presented some core ideas from Road. He argued there for the inseparability of political and economic freedom, and against the mistaken view that economic liberalism meant that the state should “do nothing.” Following the meeting, Hayek wrote an enthusiastic report to the Rockefeller Foundation, recommending its support: “Considering the difficult circumstances and the very limited financial means, it is quite remarkable what [has been] achieved . . . The whole thing seems to me one of the most promising experiments of the kind which is now going on in Europe” (Hayek to Willits, Oct 20, 1947). Hayek would become a frequent denizen of Alpbach. We will mention now only the 1948 meeting, where he again chaired the economics workshop but apparently did not contribute a lecture. That year on Hayek’s advice the still little-known philosopher Karl Popper was invited; he too would become a regular visitor in the future. Sitting in the audience of Popper’s lecture on “natural laws and theoretical systems” was a young man named Paul Feyerabend, and this first encounter with Popper would shape his future work. It must have been a heady event for Feyerabend, who later recalled an evening meeting with Hayek, Popper, the biologist Ludwig Bertalanffy, and the theologian Karl Rahner (Feyerabend 1995, 92). And indeed even at this early date Alpbach was attracting some notable figures. The Nobel Prize winner Erwin Schrödinger planned to attend, but he had to cancel for health reasons, replaced by his Innsbruck colleague

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Arthur March. And their choice of invitees was eclectic. They hoped to attract the French philosopher and author Jean-Paul Sartre, but he declined their invitation. The whole concept of the Alpbach seminar was obviously a perfect fit for Hayek, who wrote fondly of it after having attended the 1947 and 1948 meetings: “Many people have dreamt of a place where the simplicity of a mountain holiday might be combined with informal intellectual exchange between scholars and students from many countries. Alpbach is this dream come true.”31 There were many reasons for this. The villages of the Austrian Tyrol had always been his second home. We recall, too, that during the war he had written up a proposal for a residential college, based on the English model, to be sited in Vienna after the war, a goal that complemented the vision of the Alpbach founders. Given his own work on the Austrian Book Committee and on behalf of Tyrol, it is little wonder that Hayek should want  to be part of such a gathering and ultimately become a regular attendee. It was an ideal venue for reconnecting with other like-minded Central European intellectuals, wherever their academic home might be. And last but not least, it was a place that he would be able to see his cousin from Vienna, Lenerl. * * * After returning to their home countries after the 1948 reunion at the University of Vienna, Hayek, Morgenstern, and Haberler wrote a report about their experiences to the Rockefeller Foundation. Hayek’s report provides a window into his thinking at the time about the poor state of the academy in Austria and how it might be remedied. While praising the quality of the best of the students, he lamented the low average quality of the faculty and the lack of resources provided to the scientific institutes. A crucial part of Hayek’s report described the impact of the “three purges” on morale within the academy in postwar Austria. Politically the most serious aspect of this is that in many of the fields in which the students get either no or only very inferior teaching, really eminent scholars are kept in enforced idleness because of some slight association with the Nazi party. The successive political purges have, however, not only left in many subjects the field in possession of second and third raters. Perhaps even more serious . . . is the almost complete 31. The unpublished five-page piece, simply labeled “Alpbach,” may be found in FAHP 103.7.

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lack of men of strong character and convictions. The most frequent type to be found is the competent but uninspired and timid man who has risen to a full professorship only because the outstanding men in his field have been successfully eliminated, but who feels that after years of unjustified neglect his merits have been at last properly regarded and who, in the best of faith, is now determined to keep out all those who in the past have been “unfairly” preferred to him . . . I have come to the conclusion that even the presence of a single distinguished scholar with a strong personality and a spirit of independence in each faculty might completely change the moral and intellectual climate and that consequently this is the point at which any outside assistance might be most effective. (Hayek to Willits [RF], Sept 24, 1948)

Hayek’s remedy for the mediocre state of the university system in postwar Austria, then, was to bring in a few top scholars in each field, people whom others would respect and who would lead by example.32 In his report Hayek recommended, in particular, two scholars “of absolutely first rank” who “for a variety of reasons (frequently political) did not occupy the positions they deserved” (Hayek to Willits [RF], Sept 24, 1948). The first of them, Ludwig Bertalanffy, who was to become famous for his system-theoretic approach and a longtime correspondent of Hayek’s, had been a lecturer in biology at Vienna. After the Anschluss his party membership facilitated a career at the University of Vienna, where he was appointed to an extraordinary chair in zoology, a position he lost after the war. The minutes of his denazification hearing in 1947 reveal a quintessential opportunist (the case of “B.” reported in Knoll 1986, 275–76). The commission in charge nonetheless issued a positive judgment, apparently feeling that his scholarship outweighed any character failures. Even so, Bertalanffy decided not to resume his teaching in Vienna, leaving Austria in 1948. He was well known to Hayek; they had attended the same school, and Hayek would see him after the war when he went to Vienna and Alpbach. Hayek’s second candidate, Konrad Lorenz, had also been part of the wider circles of intellectuals that had surrounded the Hayek family in Fritz’s youth. A pioneer in the field of animal psychology, Lorenz saw his career damaged by the fact that this discipline did not square well with the 32. Note that he seems to conflate in his statements two very different character traits: strong personality and independence of mind with strong scholarship. Evidently these need not go hand in hand, and particularly if one equates having a strong personality with the willingness to confront the Nazi regime, he would have very few examples of scholars to draw on.

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Catholic ideology of the corporate state. This may have been one of the reasons that he entered the Nazi party after the Anschluss. He returned from a Russian prisoner-of-war camp only in spring 1948, when the denazification procedures had effectively ended. Still, he was not welcome at the university, where the best he was offered was an assistantship. He soon left for a position at the German Max Planck Institute.33 Hayek was genuinely concerned about the state of the academy in postwar Austria, as his work on the Austrian Book Committee amply demonstrates. He wanted to improve it and thought that finding the best scholars, no matter what their previous political commitments had been, was the (perhaps only) way to do so. It was too late to bring back the scholars lost in the first purge, not that many of those who survived by emigration would have had any interest in returning anyway. Unfortunately, few of the ones who had lost their jobs in the second purge and, surviving the war, had been reinstated were of very high quality. Finally, the denazification process held no guarantee that the good scholars would emerge; indeed, as Hayek said, it and the reintroduction of people from the corporate state era resulted in an academy in the hands of “second and third raters.” Hayek’s solution was to go for quality, but it was a bold proposition to make in 1948, for it meant considering men like Bertalanffy and Lorenz who, for whatever reasons, had joined the NS party. In any event, his proposals went nowhere. He would make other attempts to reform the system later, but that is a story for another time. Of course all of this was taking place against the backdrop of the denazification hearings of his own brother Heinz. The academic matters discussed above were not just “academic,” they were personal as well.

Heinz’s Denazification Trial As we saw in an earlier chapter, Heinz joined the SA in November 1933 when he was in Rostock and joined the Nazi party while still in China in March 1938. He also had several minor memberships in organizations like the Party’s teachers’ union. These affiliations were the grounds for his dismissal as well as the basis for his denazification hearing. 33. Even in postwar Austria Lorenz’s association with Darwinism might have been the crucial cause that harmed his career. When Lorenz’s (and at the same time Karl von Frisch’s) departure from Austria was debated in the Austrian Parliament, the Communist deputy and former minister of education Ernst Fischer cunningly remarked that, true, Lorenz, the great scholar, had been “a minor Nazi,” yet under current conditions “possibly, his chances would have been better had he been a minor scholar and a major Nazi” (quoted in Taschwer 2015a, 264–65).

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The trial took place on December 11, 1946, and Heinz was found guilty of being a fellow traveler and fined 1000 RM. As was common practice at denazification hearings, he appealed the verdict. At a second trial on July 29, 1947, the sentence was confirmed, but the fine was dropped. For reference, “fellow traveler” was the lightest category of guilty verdict, just below exoneration, and one that permitted those so sentenced to be reemployed (Hildebrandt 2013a, 290–91). In his testimony at the hearings Heinz explained his memberships. He claimed that when he was at Rostock he had been asked to join the Nazi party but refused, that all faculty members who were not members of the Party were then asked to join the SA, and that he did so in order to protect his career prospects. He also said that his sole activities were to participate in sports events. He claimed that he was compelled to join the Nazi party in 1938 in Shanghai after he had been challenged by an official, and that he did so to be able to teach when he returned to Germany. He also pointed out in his defense that he had been considered for an appointment in Hamburg in 1944, but that a local leader of the Nazi teachers’ union considered him politically suspect and had nixed the appointment. He presented evidence at the trial, provided by the rector of the university in Hamburg, in which his name was stricken from the proposal list with the words “politically unreliable” (Hildebrandt 2013a, 288, 290). Before moving on, it is useful to see how Heinz’s actions compared with those of other anatomists and medical personnel in Germany at this time. After Hitler came to power, almost 20 percent of German university faculty were dismissed for being either non-Aryan or politically opposed to the Nazi regime. Of the 233 anatomists who have been identified as working in German anatomy departments between 1933 and 1945, political information is available for 176 of them. Fifty-four had their careers “disrupted” for racial or political reasons. Of the remaining 122, 94 joined the Nazi party, 42 were members of the SA, and 14 of the SS; these last would have been the most dedicated to the Nazi regime. Some had multiple memberships. Only 10 joined no National Socialist organizations, though 9 more had memberships only in “minor” organizations. Those who avoided membership tended to be senior people whose views were known not to threaten the regime and whose positions were therefore secure. It was evident to everyone that one’s perceived support of the regime would affect one’s job security and prospects for advancement. And of course, at least some of the younger faculty would have viewed the dismissal of 20 percent of their colleagues as  improving their own career prospects in a tight, depression-era academic job market (Hildebrandt 2016, 46–47). Something that was not a matter of concern at the trial but that later

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became controversial was the origin of the cadavers that were used in German anatomical institutes.34 In Europe these had traditionally come from a variety of sources: unclaimed bodies from poorhouses, psychiatric hospitals, and prisons; suicides; and people who had been executed. The last were typically looked upon especially favorably by German anatomists, as the time of death would be known so that the removal of tissues could be planned and their “freshness” ensured. Under the Weimar Republic the number of executions had been relatively small (Hildebrandt 2016, 184). All this changed in 1933, when the numbers began steadily increasing. By 1945 approximately 30,000 people had been “legally” tried, sentenced, and executed under National Socialism (Hildebrandt 2013b, 306–9). The use of these bodies by anatomists became common practice under the regime: “all  anatomical departments used the bodies of NS-victims, including bodies of the executed, for anatomical purposes . . . 120 out of 910 bodies received by the anatomical institute in Würzburg between 1935 and 1945 had been delivered from execution sites” (Hildebrandt 2013a, 284, 289). Heinz used cadavers of people who had been executed in his medical research in both Rostock and Würzburg and in training doctors at the medical school in Würzburg. He referred to two bodies of executed people in an article published in 1935, and from 1940 to 1951 he referred to “materials” that had been taken from executed people in fifteen articles. Six of the articles were published after the war was over, so presumably Heinz and other anatomists did not see this as problematical at the time. It should also be noted that in the German medical community (this differed from practices and beliefs in both the US and Great Britain), at this time using “fresh materials” was considered the “gold standard” in medical research (Hildebrandt 2013a, 290; 2016, 238–41). We can now revisit the assertions that Heinz made in his denazification hearings. His claim to have joined the SA in order to protect his career prospects conforms with the observation that the majority of anatomists in Germany who had not been dismissed for political or racial reasons also joined some form of organization. Though it may be that he joined simply for such careerist reasons, it should also be noted that SA membership surged after Hitler became Chancellor in January of that year, rising from 425,000 to over 2,000,000 in just a few months, and nearly 3,000,000 by 34. In Vienna Heinz had studied under Ferdinand Hochstetter, whose successor was the ardent Nazi Eduard Pernkopf. It was Pernkopf’s widely used anatomical atlas whose drawings were based in part on the cadavers of political prisoners that in later years would draw attention to the medical practices of anatomists under National Socialism (Hubbard 2001; Buklijas 2012; Aleksiun 2015).

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the end of the year (Fischer 1983, 6; Bessel 1984, 97). That he joined in November 1933, when Hitler’s wildly popular decision to withdraw Germany from the League of Nations was ratified by the vast majority of German voters, suggests that it may have been something more than merely a career decision. In any case, his letters to Fritz make clear that Heinz had a great deal of sympathy for Hitler and certain of his programs in 1933. Heinz had had to leave Austria to find a job; he found one in Germany and was happy to have one. Hitler’s Germany was, for him, preferable to Austria and certainly to England. Heinz also claimed that his SA activities were principally limited to participating in sporting events. It is evident that he did indeed enjoy physical activity and engaging in sports competition. In a letter to Fritz soon after he arrived in Rostock he said that his daily routine was to spend the day in the lab and then go to the tennis courts until eight or so in the evening (May 28, 1929). On June 27, 1934, Hayek’s mother wrote Fritz from Rostock and described a weeklong SA-sponsored sporting event during which Heinz took part in various marine competitions. It is not surprising that he won an SA sporting medal. That he was not deeply committed to the SA otherwise appears to be corroborated by the fact that his rank in it was modest; he rose to “Scharführer” in 1943, roughly equivalent to the army rank of a noncommissioned officer. In his letters to Fritz, Heinz mostly complained about how Germany had been misrepresented by both his brother and the English press. The fact that he concluded his 1934 letter with “Heil Hitler” would indicate that he still looked favorably on the regime then. His final letter, from 1935, written before he left for Shanghai, is less conclusive. He is angry at his brother for private transgressions, the telling of stories and the like, but his only reference to Germany is to complain that Fritz thinks everything there is bad. Finally, Heinz’s testimony that he joined the Nazi party in 1938 in order to maintain his teaching credentials sounds reasonable. After the so-called Röhm putsch, June/July 1934, the role of the SA was much diminished, so that Heinz’s membership in the SA may no longer have been that helpful and joining the Nazi party may have appeared as a requirement for future academic promotion. As we have seen, its effect on Heinz’s career during the war was limited, anyway. All things considered, it seems that the verdict rendered by the court at Heinz’s denazification trial was a just one. He had been a fellow traveler, someone who looked favorably on the Nazi government in the early years, but he was no active Nazi. Sabine Hildebrandt, who has written the book on anatomy under the Third Reich, puts him in the “pragmatist” camp: someone whose biggest concern at the time was advancing his own ca-

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reer (Hildebrandt 2016, 134). And it must be added (and this is in contrast with his mother, Felicitas), there was never anything in any of his letters about Jews.

Fritz’s Reconciliation Friedrich Hayek had gained an international reputation for his critique of planning, which he said sowed the seeds for totalitarian regimes like Hitler’s Germany. He described the process by which a dictator would dupe the masses and consolidate power in chapters like “Why the Worst Get on Top” and “The End of Truth.” He probably thought of his mother, whom he described, rightly enough, as not an intellectual person, when writing those chapters. He would later tell Charlotte Cubitt that women in particular had been taken with Hitler, and cited Felicitas as a prime example (Cubitt 2006, 51). But he also had a brother, a well-educated one, who had joined the Nazi party. What was Fritz’s reaction to all of this? As we will see, it was mostly to close ranks.35 Correspondence between Fritz and Heinz resumed soon after the war. In the first letter preserved (May 22, 1946), Heinz referred to two former letters by Fritz from Britain and the US.36 Most of Heinz’s letter dealt, apart from the usual family business, with his current job situation and his attempts to restart his academic career by getting through the denazification procedures and by looking out for promising positions. After Heinz was dismissed from his Würzburg post he was allowed for a short period to work in the library, then had to leave the university and found a job as an assistant to a wood carver. It turned out that he not only enjoyed the work—he sent Fritz pictures of some of his carvings, first a Madonna, then a female dancer with a snake—but seems to have developed a quite skilled proficiency at it (see Heinz to Fritz, Oct 12, 1946, and June 12, 35. Notably, Hayek was not alone in his dealings with a brother’s Nazi-tainted past. A similar but apparently more severe case was that of Gottfried Haberler’s brother, the orthopedist Gerhard Haberler. An illegal Nazi and a member of the Germanybased Austrian Legion, he was appointed director of the orthopedic department of the First University Clinic at Vienna after the Anschluss and became a nontenured professor at the university. Dismissed and imprisoned after the war, he could not continue his academic career. To the bewilderment of some observers (e.g., Morgenstern in his diary, July 11, 1947), it seems that Gottfried was very reluctant to support his brother. See the Gauakt Gerhard Haberler and various documents at ÖStA/AdR and AVA. 36. With one notable exception, only Heinz’s side of the postwar correspondence is preserved.

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1947). During this period he also wrote a textbook on the anatomy of the human lung, which would become internationally known as the standard reference on the topic (Hildebrandt 2013a, 289). Meanwhile, he waited to get a date assigned for his hearing. He speculated that the reluctance of the chamber in charge to move things along was due to the reputation of the Faculty of Medicine at Würzburg as “contaminated by Nazis,” recounting to Fritz that all but three members of the faculty had joined the party (Heinz to Fritz, Aug 27, 1946). To try to speed up the procedure, Heinz asked Fritz for a recommendation that he could send to the chamber. Fritz complied. His next letter (Oct 11, 1946) contained the following confirmation (written in English): “At the request of my brother, Professor Heinrich von Hayek in Würzburg I hereby certify that as a result of my well-known antinationalsocialist position I have been repeatedly attacked in the nationalsocialist press and that the position of my brother has thereby been made difficult and his promotion been impeded. So far as is known to me he has [sic] never active as a national-socialist.” While awaiting a trial date Heinz continued to look for vacant chairs in anatomy. There appear to have been serious possibilities at the universities of Kiel, Hamburg, Tübingen, and, most attractive of all, Vienna. Heinz had an important connection there: his teacher Ferdinand Hochstetter, who was now in his eighties (see, e.g., Heinz to Fritz, May 22, 1946). Felicitas made sure to stay in touch with Hochstetter and did not fail on these occasions to draw his attention to Heinz’s aspirations (see, e.g., her letters to Fritz, Dec 17, 1948, and Mar 23 and July 3, 1949). Oddly enough, the open Vienna chair was that of the Anatomical Institute, which had been left vacant through the dismissal of the infamous Eduard Pernkopf. But all this was moot for the moment, as a prerequisite for a chance at Vienna or anywhere else was a positive conclusion of his denazification procedure. Fritz may have discussed the point in his conversation at the Vienna Ministry, and in any case he raised it in a letter to Skrbensky (Nov 3, 1946). Of course, there was nothing directly to expect from the Vienna bureaucracy—Heinz was being tried in Germany, not Austria—but perhaps it was just another step to prepare for whatever the future might bring. The events around Heinz’s trial must also have been in Hayek’s mind when he wrote his “Re-Nazification” paper, because some of the arguments he made there on behalf of fellow travelers have a familiar ring. At the beginning of 1947, that is, after his first trial had concluded, Heinz apparently was considered for an anatomy chair at Freiburg. Heinz asked his brother whether he might promote his case to the Freiburg rector Constantin von Dietze, but Fritz preferred to take the less direct route of turning instead to his friend Walter Eucken (letter, Feb 1, 1947). Fritz’s

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defense of his brother repeated arguments from the trial, with some additional claims: To be quite frank . . . At the beginning of the regime he [Heinz] was so unhappy that in order to evade all these things he went for three years to China. When after his return one or two calls for vacant chairs failed, because he was characterized by the teachers’ unions as “politically unreliable,” he was unfortunately misled to join the party, which turned out as not helpful anyway . . . He was . . . extremely naïve and occasionally spoke a lot of nonsense and possibly he was unfavorably influenced in this regard by his North German wife. But to my knowledge he was never politically active, and I know for certain that in his discipline he spoke out sharply against the national socialist race doctrine and even did not back off in his lectures.37

We attributed Heinz’s motive for moving to China to careerism. Fritz, however, stated here that it was due to Heinz’s disgust with the regime, which by 1935 had begun to show its true colors. Also new in this letter is the claim that Heinz spoke out against Nazi race doctrine, and that in his early enthusiastic period (when he was spouting “nonsense”) he may have been influenced by his German wife. All of this, although apologetic in tone, may be true, but of course we have no real evidence for these claims either way. One part of Fritz’s letter, though, is simply false. Heinz joined the party before his return from China, not afterward. In any event, the endeavor to find a chair at Freiburg came to naught. Heinz became reinstated as nontenured professor on the Würzburg faculty, where he would remain for the next few years. What is preserved of the brothers’ correspondence petered out, though on a conciliatory note: In summer 1947, when Hayek entered Germany for the first time after the end of war to present a paper at Frankfurt, Heinz managed to meet him there. He was impressed by Fritz’s lecture, and Fritz in turn generously left him the honorarium and some gifts for the family. Heinz, in the meantime, had read the German translation of Road and told his brother that he felt himself in “full agreement” (Heinz to Fritz, July 10, 1947). As for Fritz’s other brother, Erich, there were plenty of opportunities to see him and his family during Fritz’s postwar visits to Austria. In particular, whenever Hayek participated in the Alpbach seminars either Erich came to Alpbach or Fritz made a detour to Innsbruck, which could then al37. Hayek’s remembrances of his brother’s alleged Nazi past in Cubitt (2006, 51) run along similar lines.

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low for some climbing tours in the Tyrolean Alps. With regard to Erich’s academic career, as possibly befitted his inconspicuous personality, it followed a much more straightforward path than did Heinz’s (see Gutmann 1987). In 1945 in the process of denazification the chair of Innsbruck’s First Chemical Institute had been vacated and then temporarily filled by Franz Patat, who left the university in 1948. Erich, who had recently been awarded his lectureship, was chosen for provisionally replacing him, and in 1949 became his successor in the chair for inorganic and analytical chemistry, at first as an extraordinary professor. Within a few years Erich’s position was elevated to the rank of an ordinary professorship, and for the rest of his academic life he remained at Innsbruck. From Felicitas’s perspective at least, war’s end brought some improvements in her all-important ties with her three boys. Fritz, though still living in London, was becoming more tightly connected to Vienna (and thus to Felicitas) because of his desire to see Lenerl. Erich again lived in Austria, at a not too distant location. And for Heinz there was still the chance that he would return to Vienna, if only he succeeded in his attempts to secure an appointment at the university, which, as we will see, he eventually did.

· 33 · Mont Pèlerin 1947

It was purely accidental that we managed to get funds for this conference. (F. A. Hayek, Apr 4, 1947, “Discussion on Agenda, Etc.,” Mont Pèlerin Conference, MPSP 5.13)

• While the fate of his family and friends in Austria and Germany and his own academic work gave Hayek plenty to think about at war’s end, this did not diminish in his mind the urgency of continuing to promote the cause of liberalism in a world that seemed to be moving ever steadily toward collectivism.1 What had happened in Britain following the Labour landslide victory in 1945 was illustrative. The Attlee government quickly began fulfilling its election promises, moving forward with the nationalization of various sectors of the economy and with the creation of a welfare state. The Bank of England was nationalized first, and during the 1945–46 parliamentary session electricity, gas, civil aviation, cable and radio communications, and the roadways and railways followed. The coal industry would be next, in 1947. As for the welfare state, in 1946 alone various acts established a comprehensive system of social security (including benefits for unemployment, sickness, widows and orphans, as well as pensions), provided workmen’s compensation, and created a state-run health system that would go into effect in 1948. Other noteworthy steps were the 1946 repeal of an earlier act that had made secondary strikes and mass picketing illegal, and the 1947 legislation on town and country planning, which gave 1. This chapter draws extensively from the editor’s introduction to Caldwell, ed. 2022, a book that reproduces the transcripts from the 1947 meeting at Mont Pèlerin. There currently are two good books in English on the Society that discuss the initial conference: Hartwell 1995 and Burgin 2012. Plickert 2008 is also an excellent source, in German.

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wide-ranging powers to planning authorities. Permission of the authorities was necessary for the development of land, even for improvements to previously existing property—mere ownership was no longer sufficient—and such changes were subject to “development charges.”2 All these dramatic changes were taking place as Britain was desperately trying to survive financially as it made the painful transition from a war economy to a (heavily indebted) peacetime one. Soon after Japan surrendered in August 1945 the United States precipitously ended the Lend-Lease program, and to survive Britain had to negotiate a $5 billion loan that required them to open up their markets by phasing out the system of imperial preference and tariffs on American goods and, in 1947, allowing the convertibility of the pound to dollars. Demobilization was being pursued slowly because of housing and food shortages, but this in turn led to manpower shortages, particularly in the vital coal industry, where proposals to direct labor were discussed.3 Wartime rationing and other controls remained firmly in place and would not be lifted until the mid-1950s. During much of the period the Hayek family received monthly packages of food from the States, sent by Fritz Machlup’s wife, Mitzi.4 Public disenchantment grew, especially with shortages, but as time went on also with some of the nationalization schemes. Workers understandably were concerned more about welfare than about whether they and their bosses were private or state employees: jobs were jobs and managers were managers after all. Life in “Austerity Britain” was often pretty grim (Bew 2016, 371–409; Kynaston 2007, chaps. 4–8; Zweiniger-Bargielowska 2000). As we saw in chapter 31, Hayek had begun formulating plans, assembling academic allies, and contacting potential funders for his proposed Acton-Tocqueville Society even before the fighting ended. He would persist in these efforts over the next two years. His success was a surprise at the time, and the society that ultimately emerged from his efforts would become one of his most significant contributions to the cause of liberalism in coming decades.

2. Hayek would offer a critique of such charges in a three-part article in the Financial Times; see Hayek 1949b. 3. Thirlwall (1987, 101) notes that Kaldor was among those calling for government direction of labor. L. H. White (2012, 177) suggests that Hayek’s arguments in Road to Serfdom may have convinced Evan Durbin to oppose such proposals when he served in the postwar government. 4. See various tabulations of items and their cost in FMP 43.16. Dried and canned fruit, nuts, and tinned meats, including Spam, were typical items on the lists.

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Hayek Sets Up a Meeting When Hayek first met Albert Hunold in October 1945 on his trip to Zurich to give a lecture at the university, the latter was then the deputy director of one of the Swiss banks. Hunold was the person who had agreed to try to raise some funds for a journal to be edited by Hayek’s friend and wartime correspondent Wilhelm Röpke, who arranged the introduction. We recall that what concerned Röpke most in his wartime writings was how the past thirty years of war and economic and societal dislocation had everywhere undermined confidence in foundational Western values and principles. Like Hayek, he abhorred that the world was turning for solutions to collectivism, a trend that he thought posed a lethal threat to Europe’s cultural inheritance. Though an economist, he had emphasized in his writings the moral and indeed spiritual dangers that he felt were threatening Western civilization at its core. The journal he wanted to start would provide a forum for discussing alternatives to collectivism for shaping the values and policies of Europe as it rebuilt. To signal its purpose of reclaiming and reconstituting the Western heritage in all its dimensions, his journal would be called, simply, Occident. Röpke’s putative financial backer was a strange bird. Over a long and ever-changing career Hunold had been a schoolmaster, had gotten a doctorate in English literature but ended up, briefly, as an economics professor, and had been everything from a ski instructor and radio announcer to the secretary of the Zurich stock exchange (Bartley interviews, Feb 10, 1983). Not himself wealthy, he was exceedingly well connected.5 A year after their initial encounter Hayek was passing through Zurich again, this time on his way back to London from his first postwar visit to Vienna. His Swiss friend was now in yet another post, serving as the chief spokesman for the Swiss watch industry. Hayek asked him about how plans for Röpke’s journal were going and was told that the funds Hunold raised were not sufficient to finance it, but still available. Perhaps Hayek could use them for a preliminary meeting of the society that they had talked about on his previous trip? That, anyway, was the story as told by Max Hartwell in his history of the Mont Pèlerin Society (Hartwell 1995, 30). According to Hunold’s account only about half of the funds had been raised, but the journal was also aban5. Among Hunold’s connections was the Swiss businessman and politician Hans Sulzer, at the time president of the Swiss Chamber of Commerce; during the war Sulzer was blacklisted by the Allies for his Swiss firm’s dealings with the German Reich. See Franc 2018.

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doned because the publisher they had chosen had started another journal, Kyklos, whose neoromantic editor (Edgar Salin) offended Hunold’s sensibilities. He had wanted to find another publisher, but Röpke demurred, so the journal was put on hold (MPSP 5.15). Hayek added still more nuance to the story, reflecting the viewpoint of his friend Röpke: that the plan had collapsed when Hunold insisted on complete editorial control over the journal, which Röpke refused and which led to a break between the two men. In any event all this worked to the benefit of Hayek’s project, for it ultimately provided the seed money for the first meeting. Hayek enjoyed telling the story, because it involved his reconciling Röpke and Hunold so that the money could be repurposed. He apparently relished the irony that he brought together the two people whose joint actions later led him to resign the presidency of the Society and nearly caused its collapse (IB 119–20; Bartley interviews, Feb 10, 1983). Having secured a promise from Hunold of funding for the meeting itself, Hayek returned to his American benefactor Harold Luhnow at the Volker Fund. Their relationship had evidently improved since his first ambitious attempt at fundraising faltered; Hayek had after all been pivotal in bringing Aaron Director to Chicago to undertake the Free Market Study. He began his letter by acknowledging the wisdom of Luhnow’s earlier expressed concerns: “I am still slowly pursuing the idea of an Acton-Tocqueville Society, and I am now rather in agreement with you that before one attempts any more formal organization one should try to get the prospective members together for a discussion meeting to see whether sufficient agreement on aims and method can be established to make a more ambitious plan worth while” (Hayek to Luhnow, Oct 28, 1946). He then noted that there was a prospect that certain individuals in Switzerland would finance the costs of the actual meeting. The only real stumbling block now was travel expenses, especially for the Americans he wanted to invite. Would the Volker Fund be willing to cover the traveling expenses, if not for everyone, then at least for the Americans? Only a week later came the very welcome reply: “We would have a definite interest in making a major contribution to defray the expenses of the American representatives to a preliminary meeting for an Acton-Tocqueville Society” (Luhnow to Hayek, Nov 4, 1946). Next came a flurry of letters back and forth between Hayek and a variety of interested parties. Even a cursory reading shows that it was a very delicate balancing act; the whole thing could have collapsed at multiple crucial junctures. Hayek was adept at negotiating: he was ever the diplomat, but when it counted quite willing to make his position clear. Because the meeting would be held in Switzerland, Rappard and Röpke were key par-

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ticipants who needed fully to be onboard. He sent a letter to each of them to make sure of their approval and, doubtless recalling Röpke’s reaction to Hunold’s attempts to control the publishing of Occident, assured them that the funders had agreed to go ahead with “no strings of any kind” attached (Hayek to Rappard, Nov 23, 1946). That certainly was true when he wrote, but as we will see, soon enough Luhnow began raising some uncomfortable questions. Given the rhythms of academic calendars Hayek decided that Easter week, which in 1947 was in early April, would be the best period for the meeting, so time was short. He had to figure out whom to invite and how to word an effective invitation, one that would attract the key people to come. He sent a draft of a circular letter of invitation to Röpke and Rappard, soliciting their feedback. In December Hayek heard back from Hunold that the Swiss funds for the conference had been secured, and so accordingly sent Luhnow a copy of the draft that included a list of the invitees. Before hearing back from Luhnow Hayek sent out the circular letter, dated December 28, to fifty-four people, noting the purpose and date of the proposed conference and the possibility that travel funds would be available for those coming from America, and inviting a quick response (MPSP 5.4).6 On December 31 he left for a two-week trip to Vienna. While he was away a letter arrived at his LSE office from Luhnow. Characteristically blunt, he informed Hayek that he had gotten “a violent reaction” from certain Volker Fund directors about some of the names on Hayek’s list. Though he did not identify who was objectionable, he summarized that “some of the reactions that I have had on one or two of your suggestions are such that I know the Directors of the Volker Charities Fund would not be interested in paying their travelling expenses anywhere” (Luhnow to Hayek, Jan 6, 1947). To resolve the situation he proposed that a screening committee of four or five people be formed to vet the recommendations, and the Volker Fund would then pay the travel costs for those from the States who passed the test. Any others would need to pay their own way. This was, of course, potentially disastrous. Hayek did not know who was so objectionable to Luhnow and the other Fund directors, but in any event the invitations had already been tendered with an implied promise of travel 6. Hartwell (1995, 31) incorrectly states that there were fifty-eight names on the list. Hayek sent at least some of the letters out prior to December 28. Frank Knight noted that his was postmarked Dec 22, and Harry Gideonse commented, “Must I ascribe it to the miracles of this technological age that it arrived here on December 27 and was dated on December 28?” (Knight to Hayek, Dec 31, 1946; Gideonse to Hayek, Dec 27, 1946).

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funding for those in the States who accepted.7 Equally important, if the meeting was to be held in April there simply was no time to set up a committee, gather their suggestions, and then decide whose travel could be funded. We do not know how long the letter sat unread while he was away, but it is easy to imagine a reaction of sheer panic when on his return to London he finally opened it. On January 17 he cabled Luhnow: “If you could provide travel expenses for the following eleven American members Brandt Director Friedman Gideonse Graham Hazlitt Knight Kohn Machlup Mises Stigler some of whom may not in fact be able to attend Vevey conference would appear secured and important opportunity to discuss Chicago investigation created. Letter follows Hayek.” In the follow-up letter, dated the same day, he defended some of the people who he thought might have met with disapproval (Brandt, Gideonse, and Kohn) and made some recommendations for a potential steering committee, but also clarified two key points: that the meeting would barely be worth having if the Americans could not come, and that if the meeting date were delayed the Swiss funding might disappear. Both points were true, but they also implied that Luhnow needed to make the decision about travel funding now, without the benefit of a steering committee. The tactic worked. In his next letter Luhnow agreed to fund the travel for all eleven people.8 7. Bizarrely, it appears that Hayek cabled Hunold from London on Jan 11, 1947, saying: “American traveling cost secured stop may I post definite invitations to maximum forty two with offer free say [sic—should be stay] mont pelerin april firs [sic] to tenth Hayek.” This was evidently premature, but also raises the question: Who sent the cable from London for Hayek, who was in Vienna? Anyway, after he read Luhnow’s letter he wrote to Hunold to let him know that in fact the funds had not been secured. Though Hayek still expected Luhnow to come through, there was a chance he would not, and if that happened, he wondered whether it would be possible to pay for some of the travel out of the Swiss funds (Hayek to Hunold, Jan 22, 1947). 8. In Hayek’s cable, “the Chicago investigation” refers to the Free Market Study. Hans Kohn, a historian from Smith College, was the only one of the eleven named in the cable who did not ultimately attend. Burgin (2012, 101) states that in response to Luhnow’s abrasive letter, “Hayek quietly excised the most offensive names from a subsequent version of the list.” This is incorrect. There were six people from America on Hayek’s original list whose names were not included in the subsequent cable. Two were journalists, John Davenport of Fortune and Max Eastman of Reader’s Digest. They were not in Hayek’s cable because if they came, their way would be paid by their employers. This was indeed the case for Davenport, and though Eastman ultimately was unable to come, Reader’s Digest sent and paid for its European correspondent, Paris-based George Révay, in his stead. We know from a letter that Hayek sent to Luhnow that two others, Henry Wriston, president of Brown University, and William Orton, an economist from Smith College, turned down the initial invitation (Hayek

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To his credit, Hayek also made clear to Luhnow that he should not expect any quick payoffs from the meeting. “What seems to me most urgently needed is that those who are capable of gradually evolving a philosophy of freedom which will appeal to the people of our time, should be able to do so in collaboration and full knowledge of their respective efforts” (Hayek to Luhnow, Jan 17, 1947). Tension between those who wanted the Society to maintain a more public presence with respect to policy matters and those who adhered to Hayek’s original vision of simply bringing together scholars from many countries who would quietly work to reconstruct the foundations of a philosophy of freedom would arise again and again in the early years of the Society. As for Luhnow, he was not prepared to give Hayek an entirely free hand. He requested that invitations to join the conference be extended to eight more people, plus Leonard Read and Loren Miller as “observers.” He also conjectured that Jasper Crane, an executive at DuPont Chemical whom Hayek had met on his 1946 trip, would come at his own expense if invited. Hayek was again in a bit of a jam, because he had hotel accommodations for only six more people. Luckily, two of the people listed had declined previous invitations, so Hayek sent invitations to six, then as some declined, added others. In the end those on Luhnow’s list who ultimately attended were the journalist Felix Morley, Leonard Read, F. A. “Baldy” Harper, and Orval Watts, all from the recently established Foundation for Economic Education (FEE), and Loren Miller from the Detroit Bureau of Governmental Research. Herbert Cornuelle, also at FEE, was a late addition. Regarding Crane, Hayek let Luhnow know that the conference organizers had all previously agreed that invitations should be extended only to “people who are in the first place scholars and writers, in order to avoid any impression that the conference has been instigated by any business interests” (Hayek to Luhnow, Feb 5, 1947). But they also allowed that people who were acquaintances of the organizers could be personally invited as observers, and if this suited Crane, he could come. In the end he did not.9 to Luhnow, Feb 5, 1947). Hayek attempted a second invitation to both people, but they again declined (Wriston to Hayek, Feb 13, 1947; Orton to Hayek, Feb 17, 1947). Friedrich Lutz, at Princeton, declined because coming would conflict with his teaching obligations (Lutz to Hayek, Dec 28, 1946), and the invitation sent to Howard Ellis of the University of California, Berkeley, got lost in the mail. By the time he heard about the meeting from Fritz Machlup, it was too late for him to rearrange his schedule (Ellis to Hayek, Feb 5, 1947). No names were excised from Hayek’s original list. 9. Crane had written to Loren Miller in September 1945 about the importance of writing an American “bible for free enterprise,” and wrote again in May 1946 about

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Luhnow was not the only one providing Hayek with critical feedback on his choice of invitees. Both Ludwig von Mises and Karl Popper took strong, principled, and diametrically opposed stances on the matter. Mises sent Hayek a letter in which he noted having reservations about Brandt, Gideonse, Eastman, and especially Röpke, the last of whom he considered an “outright interventionist” (Dec 31, 1946).10 Accompanying it was a fourpage typed addendum titled “Observations on Professor Hayek’s Plan” that laid out his objections with his usual uncompromising clarity. Attempts to stop collectivism had failed because its opponents had adopted middle-ofthe-road positions that appeared as reasonable compromises but in fact made matters worse. All problems attributed to markets by critics were in fact the result of interference with the market process. Perhaps his most pointed line was: “He who wants to preserve freedom . . . must not protest that he abhors laissez faire”—which of course is just what Hayek had been doing since 1933. For Mises, “Laissez faire does not mean: let the evils last. It means: let the consumers, i.e. the people, decide—by their buying and their abstaining from buying—what should be produced and by whom.” Mises shared the “Observations” with at least one other person, Henry Hazlitt, who let Hayek know (Hazlitt to Hayek, Jan 3, 1947). At the other extreme, Karl Popper thought that “it would be advantageous, and even necessary, from the very beginning, to secure the participation of some people who are known to be socialists or to be close to socialism” (Popper to Hayek, Jan 11, 1947). Though Mises initially hesitated, in the end both he and Popper attended the meeting. Finally, there were those who, as Röpke had done earlier, expressed concerns about calling the organization the Acton-Tocqueville Society. William Rappard noted that for those on the continent who knew them, their names “evoke not only the ideals of lib-

how impressed he was with Hayek after having had a long lunch with him. He would end up being instrumental in raising funds for the first American meeting of the Society, at Princeton in 1958. For his part, in a letter to Luhnow Hayek described Crane as “a nice and sensible person.” Crane’s relationship with Miller, Read, Hayek, and the Society is explored in Phillips-Fein 2009, chap. 2. 10. Mises and Röpke had been together at the Geneva Institute in the 1930s, so were well familiar with but did not much appreciate one another’s views. In his 1942 book, Röpke had advocated a “third way” in which “everything was balanced.” To prevent competition from becoming a “social explosive,” it had to exist within a “sound political and moral framework” (Röpke 1950 [1942b], 176, 179, 181). All of this was anathema for Mises. For more on the sometimes fraught Mises-Röpke relationship, see Kolev 2018.

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erty . . . but also, perhaps on account of their noble birth and their Catholic faith, something reactionary” (Rappard to Hayek, Nov 29, 1946). Luckily for Hayek’s sanity, most of the work for the final organization of the meeting could be left in Hunold’s capable hands—even his critics later unanimously praised his organizational skills. The conference would run for ten days—as Hayek explained in his letter to attendees in March, this would allow for more interaction outside of the formal sessions, a critical part of the mission. Hunold’s choice for the meeting venue, the Hôtel du Parc, on Mont Pèlerin near Vevey overlooking Lake Geneva, was ideal in many ways: in addition to the stunning views, it was centrally located (for the Europeans) and, being in a country that had remained neutral during the war, was undamaged and itself a sort of “neutral territory” for discussants from many countries. Hunold also arranged outings that have since become such an integral part of all Mont Pèlerin Society general meetings. On Thursday the group would take cars along the lake to a site of considerable meaning and charm, the Château de Coppet where Madame de Staël held her famous salons in the company of people like the early French liberal Benjamin Constant. One imagines that Hayek took the opportunity to entertain his traveling companions with the story of another famous visitor to Coppet, the “megalomaniac visionary” Comte Henri de Saint-Simon, whose bizarre behavior Hayek had described in such delicious detail in “The Counter-Revolution of Science” (Hayek 1941b). On Saturday the group would travel by train to Schwyz to visit the famous monastery and abbey of Einsiedeln, founded in the tenth century. As it was the Saturday before Easter, in addition to a tour the group would hear the Salve Regina chanted, witness the resurrection service, and be treated to an organ concert (MPSP 5.4, 5.6). As the meeting dates approached there were plenty of last-minute details that required attention. Hayek’s recently married secretary, Dorothy Salter Hahn (her husband, Frank Hahn, would go on to teach economics at Cambridge), came along to take notes at the sessions. Hayek worried about the fact that only two women, Hahn and Veronica Wedgwood, would be present (some wives also accompanied their spouses, but they did not attend the working sessions) and asked Hunold if he could think of others to invite, but nothing came of it (Hayek to Hunold, Feb 4, 1947). Four people who were scheduled to attend were for various reasons unable to do so. The no-shows were Luigi Einaudi, then governor of the Bank of Italy; Jacques Rueff, a Colloque Lippmann attendee who in 1947 was president of the Agence Interalliée des Reparations; Charles Rist, a French monetary economist and critic of Keynes who with Charles Gide wrote a text on the history of economic thought; and the German historian Franz Schnabel,

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author of a massive history of Germany in the nineteenth century. The final total was thirty-nine conferees.11

The Participants So who were the thirty-nine people who came to the first organizational meeting of the Society? Hayek’s original list of invitees included (excepting Hunold) only academics and writers, and he knew nearly all of them, professionally, personally, or both. There were in the first instance the Swissbased hosts and their compatriots: Hunold, Rappard, and Röpke. Added to this was Hans Barth, a philosopher and sometime journalist from the University of Zurich who was an acquaintance of Röpke’s. We might also include in the Swiss contingent Bertrand de Jouvenel, a French political philosopher and journalist who had fled France for the safety of Switzerland in 1943. Hayek had first met him in London after the war (Jouvenel to Hayek, Jan 1, 1947). Jouvenel had a colorful if checkered past. At age sixteen he began what would turn into a five-year affair with his famous stepmother, the writer Colette, and in the early 1930s he traveled across America with his then lover Martha Gellhorn, the novelist and war correspondent who later would marry Ernest Hemingway (Knegt 2017, 221–22). Jouvenel’s own political journey was similarly peripatetic. A progressive intellectual in the 1920s— an early book was titled L’économie dirigée (Jouvenel 1928)—he was a critic of the nationalism that had led to the slaughter and destruction of the Great War, and accordingly a great advocate of European cooperation, in his case especially between France and Germany. In the 1930s he was frustrated by the French government’s failure to combat the depression and increasingly enamored of the strong leadership of men like FDR and Hitler, the latter of whom sat for an interview with him. In 1936 he joined the Parti Populaire Français, the closest thing to a French fascist party, but resigned in 1938 at least in part to protest the Munich agreement that gave Germany

11. A full list of the participants may be found in Hartwell 1995, 45–46. In the 1967 reprinting of his 1947 welcoming address, Hayek listed only 36, and Stigler (1988, 143) repeated this number, evidently drawing on Hayek’s list. Hayek reduced the number from 39 to 36 because four of the people were supposed to be in the category of “observer,” namely, Herbert Cornuelle, Henri de Lovinfosse, George Révay, and Felix Morley. Probably because of his prominence, Hayek included Morley on his list. To further complicate things, the editor of the 1992 Collected Works edition added Lovinfosse back in, but not the other two, bringing the number to 37. Innset (2020) used this number.

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the Sudetenland.12 After the June 1940 armistice divided France in two, he continued to write favorably about the prospects of Franco-German reconciliation. In his memoirs Jouvenel claimed that at the same time he was working as an intelligence officer for the French secret service. In November 1942 the Allied landings in North Africa led to the German and Italian occupation of Vichy, by which point Jouvenel had soured on his earlier vision and begun supporting the local resistance. He was arrested and held by the Gestapo for two days, after which he went into hiding and, in September 1943, escaped across the border with his wife, Helene (Knegt 2017, 53–58; Mahoney 2005, 10–12). So how did Jouvenel find his way to Mont Pèlerin? He did not need to go far: the village of Saint Saphorin where he settled is one of the towns at its base. While living there he finished his erudite and provocative tome Du pouvoir (On Power) (Jouvenel [1945] 1948), and at some point was befriended by Wilhelm Röpke. Jouvenel’s remarkable book combined (sometimes speculative) history, ethnography, evolutionary metaphors, political philosophy, and much else, portraying power as an almost metaphysical force. He began by pointing out that the sort of “total war” that had been waged twice in the past thirty years would have been unimaginable in earlier times. What had changed to make such mass destruction possible? Throughout time authorities had always strived for power and the ability to command others, but were limited in the resources to do so. The power of kings was associated with their person. Representative government and the system of checks and balances were meant to challenge the prerogatives that attached to such powerful individuals, but they also brought with them new avenues for gaining and exercising power, now in the name of the nation rather than the king. Numerous cultural, economic, and political changes in the nineteenth century—industrialization, urbanization, and the gradual emergence of mass democracy—brought with them the ability of states to tax and to conscript their citizens. These provided untold new resources to exploit. Though still in the hands of a few, power was now spoken of as if it were in the hands of all the people, and therefore the old system of checks and balances was thought no longer to be necessary. 12. Soucey (1998) and Knegt (2017, 13–34) review debates among historians of France as to the nature and extent of French fascism. Jouvenel ended up being a test case of sorts. Accused later of having been a fascist, in 1983 he sued the historian who made the claim for libel. At the trial Henry Kissinger, Milton Friedman, and Raymond Aron testified on his behalf. The court split the difference by finding in Jouvenel’s favor but awarding him only a nominal amount in damages. As they were leaving the court, Raymond Aron had a heart attack, dying within hours (Knegt 2017, 20; Soucey 1998, 141).

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Hayek (1992a [1948, Nov 16]) would later summarize the danger that these developments posed in his laudatory review of the English translation of the book: “power has an inherent tendency to expand and where there are no effective limitations it will grow without bounds, whether it is exercised in the name of the people or in the name of the few. Indeed, there is reason to fear that unlimited power in the hands of the people will grow farther and be even more pernicious in its effects than power exercised by the few” (249). Despite his troubling past, the messages in Jouvenel’s new treatise would resonate with those about to gather in Mont Pèlerin. To return to the other attendees, the people to whom Hayek was closest were, of course, his old friends from the Vienna days, now living in the States, Mises and Fritz Machlup. But he knew almost all of the others coming from America as well. Frank Knight, Aaron Director, and Milton Friedman were by then all at the University of Chicago, which had been Hayek’s home base for his 1945 trip and half of his 1946 trip. Harry Gideonse, by 1947 the president of Brooklyn College, had in 1939 published an extended version of Hayek’s “Freedom and the Economic System” (Hayek 1939i); Hayek had met with him twice when he passed through New York on his 1945 trip. Hayek may have encountered Frank Graham, an international economist based at Princeton, when he visited Oskar Morgenstern and Friedrich Lutz there on his American trips. The only American Hayek definitely had not met prior to the meeting was George Stigler, then at Brown University for a year but moving to Columbia in the fall.13 Stigler would teach there until 1958, when he was brought to the Graduate School of Business at Chicago. He had gotten his PhD at Chicago in the 1930s, writing under Frank Knight, and knew Friedman well from their days together there and from their war work in New York and at the University of Minnesota, so though not then based at Chicago he was very much part of their contingent (M. Friedman and R. Friedman 1998, 53–54, 146–49). There were other émigré scholars who, like Machlup and Mises, had left their own countries in Europe at various points in the 1930s. The two Hayek was closest to were the Austrian philosopher of science Karl Popper and the Hungarian chemistry professor and polymath Michael Polanyi, the latter of whom he first met at the Colloque Lippmann in August 1938. Polanyi and Hayek had the same nemeses among the British intelligentsia, people like the Webbs and such “men of science” as J. D. Bernal, as Polanyi 13. Stigler (1988, 142) stated that he had not met Hayek before the meeting, but Hayek apparently knew of him early on: he was one of the people whom Hayek had recommended to Röpke to serve on the editorial board of Occident (Hayek to Röpke, Oct 14, 1945).

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made evident in his collection of essays The Contempt of Freedom (Polanyi 1940). Polanyi had left Germany in 1933 to take a position at the University of Manchester. Hayek had met Karl Brandt, an economist specializing in agriculture who had left Germany for the New School and later for Stanford, when he visited that university in 1946. They discussed the ActonTocqueville Society on that occasion (Brandt to Hayek, Dec 31, 1946). Finally, there was Erich Eyck, a German lawyer and historian who had left Freiburg in 1938, eventually settling in Oxford. Hayek had published a laudatory review in Time and Tide of Eyck’s scathing book on Bismarck and had recommended him to Röpke as a potential contributor to Occident (Hayek 1945, Jan 13; Hayek to Röpke, Dec 5, 1945). A chief goal of the conference was to introduce liberals from the various European countries not only to their counterparts in America, but also to each other. Britain was represented by three economists, all of whom were of course well known to Hayek: his closest friend, Lionel Robbins; Stanley Dennison of Cambridge; and John Jewkes of Manchester. France would have been well represented had Rueff and Rist been able to come, but even without them there was the economist Maurice Allais and law professor François Trévoux. Italy would have had two representatives had Einaudi not canceled; the other was Carlo Antoni, a philosopher and historian. Though more were invited from the area, the Scandinavian countries fielded only one representative each. Trygve Hoff, the editor of a liberal magazine named Farmand and fervent opponent of planning represented Norway;14 Carl Iversen, an economist and political scientist, Denmark; and Herbert Tingsten, a political scientist who had also recently become the editor-inchief of the Swedish newspaper Dagens Nyheter, Sweden. Hayek had visited Copenhagen and Stockholm in January 1946 and seen both Iversen and Tingsten on the trip (Hayek to Röpke, Jan 17, 1946). Finally there was Walter Eucken, the only representative from Germany who had actually spent the war there. The other category of people on Hayek’s original list were “writers,” principally members of the press and, again, mostly people he knew. There was Henry Hazlitt, by then an editor at Newsweek, whose glowing endorsement of The Road to Serfdom had gotten the American edition off to such a strong start. John Davenport of Fortune magazine also attended, and he too had written an admiring review. As noted earlier Max Eastman, who had done the Reader’s Digest condensation of Hayek’s book, could not come 14. Hayek had been working on getting a book of his translated into English just before the war began; see FAHP 75.7.

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but was replaced by the European editor George Révay. The Oxford-trained historian and sole female participant, Cecily Veronica Wedgwood, was deputy editor at the British weekly Time and Tide, which had been an outlet for a number of contributions by Hayek: in 1945 alone he published seven pieces there. Even though he had written books Hoff was not a professor, so he too belonged in this category, and Tingsten did some journalistic writing in his capacity as newspaper editor. The only person that Hayek did not know among the writers who attended was Felix Morley, who had been suggested by Luhnow.15 Morley had previously been editor of the Washington Post and in 1944 had helped found the magazine Human Events. Someone who was not on Hayek’s list and neither an academic nor a newspaperman was Henri de Lovinfosse, the founder of a fairly large (about 1,300 workers) blanket and cloth manufacturing firm, S. A. Manta, in Belgium (Lovinfosse to Hayek, Mar 4, 1947). A friend of Röpke’s, he had received an invitation from Hunold only in March, probably with the intent of increasing the representation of conferees from European countries (MPSP 5.5). And what about the men whom Luhnow had recommended be added, as either participants or observers, presumably to report back to him but also, perhaps, to ensure that “real liberalism” was adequately represented? Surely the first among them, on paper at least, was Leonard Read, the president of the newly established Foundation for Economic Education. In spring of 1945 Read left his post as manager of the Los Angeles Chamber of Commerce for the National Industrial Conference Board, an institution dedicated to educating Americans about the basic principles of economics, something he deemed essential in postwar America. After eight months he quit, finding their requirement to tell “both sides of the story” when it came to issues of economic policy too constraining. One of his jobs at the Board had been fundraising, and he came to know several influential and wealthy industrialists. One of these was David Goodrich of the B. F. Goodrich Company, who put him in touch with others of like mind. Read attracted enough funds to create an organization that would promote the study of economic principles in ways more congenial to his own and his backers’ predispositions. The Foundation for Economic Education opened its doors in March 1946. Its first offices were a couple of rooms in the building where B. F. Goodrich 15. In a letter on Feb 5, 1947, Hayek told Luhnow that Morley was someone he did not know personally, implying that he had met the others mentioned in the letter, which included Read, Harper, Watts, and Miller.

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was located in New York City, but by July it had moved into a mansion estate about a half an hour north of the city, in Irvington-on-Hudson.16 Read soon brought in Orval Watts, who had served as his chief economic counsel when he was at the LA Chamber of Commerce, as the chief economist and Herbert Cornuelle to be his executive assistant. A little later Baldy Harper, a marketing professor and economist who had been teaching at Cornell, also joined the group. The story is told that Harper decided to leave Cornell after a trustee of the university had suggested that he remove Hayek’s Road to Serfdom from his syllabus (Sennholz 1993, 64–73; Blundell 2015, 27; cf. Doherty 2007, 149–69; Nash 2006, 27–32).17 The most intriguing character among the foundation men was Loren “Red” Miller. One of the many hats that Luhnow wore was that of chairman of the board for the Civic Research Institute in Kansas City. Miller worked there for a while, and soon after they met Miller began to influence Luhnow to turn the focus of the Volker Charities Fund away from local projects and toward the support of free market causes. Miller later became the director of the Detroit Bureau of Governmental Research, an agency that was part of the privately funded “good government” municipal reform movement, but  he continued to be a key adviser for Luhnow. Even from that rather modest posting, it seems he had his hand in everything. We recall that Miller was the person who set up the initial meeting between Luhnow and Hayek in April 1945. He also helped Leonard Read raise the funds necessary to purchase the mansion in Irvington-on-Hudson for FEE. Hayek agreed to place Miller along with Read on the “advisory committee” overseeing Aaron Director’s work on the Free Market Study. Herb Cornuelle, whom Read hired to be his executive assistant and who came to the 1947 meeting, had worked for Miller as a trainee in Kansas City and later at the Detroit Bureau (Doherty 2007, 182–83; Hayek to Luhnow, Aug 26, 1946). In addition to Luhnow, Miller advised other big-time funders of free market causes, among them J. Howard Pew of Sun Oil (co-founder with his siblings of the Pew Charitable Trusts in 1948) and Jasper Crane, who 16. As Read’s biographer Sennholz (1993, 72–73), notes, high federal income and estate taxes, real estate levies, and the near impossibility of finding and keeping service personnel resulted in a buyer’s markets for estates outside of New York after the war. The purchase price for nearly seven acres and four structures was $40,000. As an aside, Caldwell grew up in a house built on the grounds of a former estate on Long Island, William D. Guthrie’s “Meudon,” which had been sold to a developer, then partitioned into two-acre plots, one of which his parents bought and built a house upon. 17. As Doherty (2007, 651n34) notes, Baldy Harper in fact had a full head of hair. The nickname had been given to him by fraternity brothers in college, and it stuck.

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had recently retired from DuPont Chemical. Pew and Crane would go on to underwrite the Freeman magazine in the 1950s, FEE’s most important outlet for advocacy. Miller also helped develop people who would work for foundations. Dick Ware was employed by Miller at the Detroit Bureau from 1946 into the 1950s, and on leaving went on to run the Earhart Foundation, where Miller was one of the original trustees. Through Miller’s introduction, Ware (and Ware’s wife) attended the 1949 Mont Pèlerin Society meeting (Doherty 2007, 180–83; Miller to Hayek, Apr 2, 1949; Ware to Hayek, Aug 5, 1949). Miller had multiple reasons to attend the first meeting. Luhnow could not attend, so he was there to represent him and to see whether the Volker Fund’s monies had been well spent. Aaron Director would be there, so he could also inquire into how the Free Market Study was coming along. He also wanted to identify who among the various people in attendance were “sound,” the sort who might be worthy of further support.18 Friedrich Hayek would be among those who passed the test. In a year’s time Miller would use the connections he had made with Director to start the ball rolling to bring Hayek to the University of Chicago.

Hayek’s Agenda Even had the meeting at Mont Pèlerin been a one-off affair, it probably would have been worthwhile, given liberals’ fewness in number, simply to introduce those from a variety of countries to one another. In his invitation acceptance letter, Milton Friedman remarked on “the number of names on your list that are unfamiliar to us” (Friedman to Hayek, Jan 2, 1947). Making those introductions was evidently one of Hayek’s premier goals. But he also wanted to form a society, which was far more ambitious. Such an organization would require a statement of principles, a set of commitments on which all members would need to agree. Having witnessed the fractious discussions that had taken place among supposedly like-minded men at the 1938 Colloque Lippmann, he could not have been sanguine about the prospects for any sort of quick agreement. It was not that disputes were unhelpful, of course, or something to be avoided. The whole point after all 18. Ludwig von Mises started teaching at NYU in February 1945, his salary wholly financed by outside funds. Though the exact sources of funding are obscure, at least part of it appears to have been paid by the Volker Fund. By 1946 Mises was speaking so frequently at FEE that they were required to list him as an employee. Mises was an ideal academic spokesman for their views. For more on this, see Hülsmann 2007, 845–51.

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was to begin the process of arguing out the finer points of how to constitute a new liberalism for the postwar world. But he did not want things simply to explode. The combination of strong personalities and strongly held beliefs (Mises and Knight come immediately to mind) made the danger a real one. Even were such obstacles overcome, people would need not just to agree to some statement of principles but to commit to carrying out the goals of the organization, whatever they might be. But what should they be? Hayek wanted to get a discussion among leading liberal intellectuals going, but he knew that some people, and not just those from the foundations, wanted to have a more public-facing society, one that would attempt to enter the public forum and shape policy debates. Finally, if a society was formed, there would need to be future meetings. Such gatherings, and international travel to them, would require substantial outside funding, and Hayek had just seen how hard that was to come by. We know that in the end the Society was formed, but at the time the outcome was anything but certain. The commitment of the people involved must be credited, but also the direness of the situation they confronted. In the spring of 1947, the prospects for Europe looked very bleak indeed. The devastation at the end of the war is difficult today to imagine. The intensification of strategic-area bombing in the last year, and the inevitable carnage and destruction that accompanied final military assaults, killed hundreds of thousands and reduced city after city to ruins. There were massive flows of desperate refugees fleeing war zones, soon to be followed by the forced exodus of millions of ethnic Germans from newly liberated countries. Finally, there was all manner of retributive violence, in some places carried out by the conquering military forces (especially in areas taken over by the Russians), in others by fellow citizens eager to punish collaborators. By 1947 things had improved, but pressing geopolitical concerns, economic insecurity, political instability, and a looming humanitarian crisis created a sense of hopelessness and with it the potential for further upheaval. Chief among the many problems was: What to do with Germany?19 The eastern part of that country had been occupied by the Soviet Union, and the west by the US, Britain, and France. In the immediate postwar period the mantra that had been established at the Big Three meeting in Potsdam was the four D’s: denazification, demilitarization, decartelization, and democratization. Reparation payments for the Soviets and demilitarization went hand in hand, as German factories in industries that could support 19. The next few paragraphs draw extensively on Bark and Gress 1993, vol. 1, part 1; Judt 2005, chaps. 3 and 4; and Naimark 2019. The last examines Stalin’s strategies in different countries following the war.

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war efforts that lay in its zone were dismantled and shipped east. All four powers nominally agreed on the eventual goal of a unified German state that could be treated as a single economic entity, but the four-zone structure evidently undercut any progress in that direction. US attempts to break the logjam led to a joining of the American and British zones on January 1, 1947, but neither the Soviet Union nor France was interested in joining, and the creation of the Bizone had few effects on day-to-day life in Germany. For two years the Allied foreign ministers had been meeting, but they were no closer to agreement over the future status of Germany and Austria. Until those questions were resolved, any sort of postwar recovery would be painfully slow, not just for Germany but also for the rest of Europe, which needed an economically viable Germany to help spur its own recovery. The situation as it existed in the spring of 1947 was clearly unsustainable. Under the occupation regime, the Allies were responsible for feeding the German people. Prices were controlled and a rationing system set up; it was essentially a command and control economy. The amount of food provided was insufficient to feed the population, but it was still costly for the Allies. The desperate conditions were further exacerbated by the weather. The winter of 1946–47 was brutal, the coldest since 1880. Roads and rail lines across the continent closed for weeks, throttling any sort of nascent recovery. There was a shortage of coal, and even when it was available it was difficult to deliver. The horrible winter was followed by a summer of drought, causing food production to fall in some places by 50 percent and more. The possibility of mass starvation was real. The potential political consequences of the stalled situation were equally dire. The scholars and writers gathering at Mont Pèlerin were not sanguine, of course, about the nearly universal embrace by European governments of collectivist economic and social policies. But in 1947 their concerns went far beyond this. The Communist Party was gaining strength in Italy and France, where the potential for civil unrest grew with each strike and violent street demonstration. Meanwhile in occupied Germany (and in Austria, as we saw) the torpid pace and apparent arbitrariness across zones of the denazification process had become widely resented. It is no wonder that Stalin, whose minions were sowing unrest in multiple countries across Europe, was in no hurry to resolve the German question. The democracies of the West were under increasing pressure, and the longer the Soviets delayed, the greater the chances that the other Allies would simply pull out, leaving all the spoils to them. The situation was certainly well understood by the Europeans gathering at Mont Pèlerin. Jouvenel would later put the matter precisely: “Doubtless you feel as I do that we are now hovering on the brink. The Russian menace

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from the outside, the Communist menace from the inside, and to defend Europe against this double offensive, the Socialists whose every idea tends to disorganize and weaken the Occident” (Jouvenel to Hayek, Mar 9, 1948). Hayek himself had witnessed not only the destruction, but also some hopeful signs. In 1946 he visited Germany to give a lecture on themes from The Road to Serfdom. He entered the lecture hall through a small opening in a burned-out pile of rubble, only to be greeted by a room full of eager students. This took place while the German translation of the book was still banned there (at the insistence of the Russians, as one of the four occupying powers), but on the trip he discovered that samizdat copies had been circulating. This confirmed his view that there was a thirst in Germany for ideas, if only the ham-fisted policies of the occupying forces could be gotten out of the way. The Americans would have been less aware of all this, though as Milton Friedman recounted, the active black market that he and George Stigler encountered as they passed through Paris at least made it feel more vibrant than London (M. Friedman and R. Friedman 1998, 159). The conferees may have been meeting in luxurious surroundings, but their purpose was clear enough. What they did not know was that the logjam was about to break. Soon after their meeting, American Secretary of State George Marshall returned from the Moscow meeting of the foreign ministers convinced that the Russians were simply stalling and had little concern about the continued deterioration of Europe. Two months later he would give a speech at Harvard that proposed a European Recovery Program, or Marshall Plan, signaling America’s willingness actively to assist in the rebuilding of Europe. Within a year the money was appropriated by Congress and the process begun. That the assistance was turned down by Moscow as well as other countries that would soon be within its orbit is often taken to mark the beginning of the Cold War. But in early April 1947, none of this could be foreseen. If the main point of Hayek’s agenda was to form a society that would provide the intellectual foundation for a new liberalism to confront the many problems besetting the postwar world, there was also an actual agenda of topics that he wanted to discuss. He explicitly mentioned five in his invitation letter and again in his February letter to those who had accepted, with a tentative schedule of when each would be taken up in the first week. Hayek’s proposed topics were “Free” Enterprise or Competitive Order, Modern Historiography and Political Education, The Future of Germany, The Problems and Chances of European Federation, and Liberalism and Christianity, every one of them, evidently, touching on a subject of deep concern to him. Topics for the second week’s sessions would be determined

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by the conferees. If the decision was positive to form a society, a statement of principles would also be formulated.

The First Week: Hayek’s Sessions At 9:30 on the morning of April 1, the group gathered for the opening meeting. William Rappard gave a welcoming address, and in it asked why the modern world had rejected Adam Smith’s two great contributions, his sound economic analysis and his demonstration of the links between freedom, constructive effort, and wealth. Rappard’s answer was that after thirty years of warfare and economic catastrophe the great mass of people were exhausted, caring more about security than about either freedom or growth. The point of the conference was to start the process to reverse that trend: “May it prove to be for both continents the starting point of an intellectual, economic and political renaissance without which it would seem well nigh impossible not to despair of the future.”20 Hayek followed with his own welcome, thanking both attendees and sponsors, and explaining how he had come to organize the conference. He emphasized his interest in bringing together not just people from different countries but also people in different disciplines, not just economics but fields like law, philosophy, and history. (He also apologized that, despite his best efforts, economists were overrepresented, another perennial problem for the Society going forward.) He read out the names of people he invited who, though supportive of the goals, could not come, remembering also two with whom he had first discussed the idea and who had since died, Henry Simons and Sir John Clapham. He noted the presence of some sympathetic members of the press, but also emphasized that it was a private meeting so that anything said during the discussion was to be treated as off the record. He then proposed some procedures for the following days—the conference language would be English, a standing committee would be formed, time would be devoted to assigning topics for the second week and chairs for all the sessions, and any decisions about moving forward would be postponed until later (Hayek 1967c). 20. Rappard’s paper also contains some methodological musings on the relationship between economic science and normative claims for liberalism. Papers prepared for the conference, like Rappard’s, may be found in MPSP 5.12, while Hahn’s notes on opening talks (when papers were absent) and on subsequent discussions may be found in MPSP 5.13–14. See Caldwell, ed. 2022, for transcripts both of papers delivered at the meeting and of summaries of the discussions that took place at the sessions.

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By modern conference standards the schedule was exceedingly civilized. Morning sessions did not begin until 9:30, afternoon sessions at 4:30, and evening sessions at 8:30. Thursday afternoon was devoted to the trip to Coppet, and after the Friday afternoon session the group did not convene formally again until Monday afternoon. Evidently all the free time was designed to promote interaction outside the formal meetings. Sessions would open with either a paper or remarks by whichever person had been given responsibility for it. Discussion then ensued, details of which were preserved in shorthand notes taken by Dorothy Hahn. Though remarks are attributed to individuals in her notes, these were not verbatim transcripts but summaries of what each person said. The afternoon session began with Hayek reading his paper “‘Free’ Enterprise or Competitive Order” (Hayek 1947 [2022a]).21 The title was meant to emphasize the difference between a system of laissez-faire, free enterprise, and his own preferred system, one in which the state and the legal framework work in tandem to make competition as effective and beneficent as possible. To be sure, even under free enterprise there was some minimal role for the state, which provided institutions for the protection of property and enforcement of contracts, and the prevention of violence and fraud. These, though, were not enough. Exploring what constituted a proper competitive order was of course a chief goal of the conference, but clearly, and right from the start, by making the distinction he was distancing himself from Mises and other advocates of laissez-faire, which presumably included Hazlitt as well as all of the foundation people. Hayek emphasized too the importance of building the intellectual foundations of liberalism and (provocatively, given his audience) quoted in full J. M. Keynes’s famous passage at the end of the General Theory about the importance of the “gradual encroachment of ideas” that policymakers distilled from the writings of some “academic scribbler of a few years back” (Hayek 1947 [2022a], 108).22 Recognizing how effectively collectivists had staked out what appeared to be the moral high ground, Hayek insisted that what must be sought in a reconstituted liberal creed were “reforms which can be fought for by unselfish men, within a program for freedom” (109). 21. This was the title that Hayek used in his mailings to the conference participants and in the agenda at the meeting, but the manuscript copy had “and” in place of “or,” and that is the title it was ultimately published under in Hayek’s 1948 collection Individualism and Economic Order. 22. It is interesting to consider whether Keynes would have been on the list of invitees had he still been alive. Had he been there, some lively sessions would have been even livelier, but his presence probably would have been polarizing in ways that would have been unproductive.

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His next step was to point out some problems with the free enterprise view that he opposed. Defending property rights was not enough, for example, without acknowledging that many of the benefits to society occur only when there is a diffusion of property as well. Parroting “freedom of contract” likewise accomplished little when both judge-made law and legislation sometimes altered contracts in ways that restrained trade and protected incumbents. He noted how the concept of limited liability and other laws that applied to corporations aided the growth of business monopoly, while laws granting unions privileges and protections similarly assisted labor monopolies to form. Such ad hoc adjustments should be replaced by a legal framework that supported and bolstered the competitive order. In addition to a proper legal framework, and in an implicit bow to Henry Simons, he asked to what extent monetary management to forestall cyclical unemployment might be pursued using a fixed rule. He also asked what provision should be made for the unemployed and the unemployable poor. About halfway through he added that “it seems to me highly desirable that liberals shall strongly disagree on these topics, the more the better. What is needed more than anything else is that these questions of a policy for a competitive order should once again become live issues which are being discussed publicly; and we shall have made an important contribution if we succeed in directing interest to them” (112). He would get his wish in the discussion session to follow. But first there was further commentary on the topic by Director and Eucken.23 Director like Hayek felt that liberalism as currently conceived was incapable of responding adequately to real challenges that had arisen in the areas of monopolies and combinations, cyclical instability, and income inequality. Because there was no adequate liberal framework for addressing these issues, ad hoc remedies that caused their own problems were typically offered in their place. If Hayek’s talk focused on remedies that involved the legal framework, Director’s focused more directly on economics and on specific policy responses. Given that he was supposed to be working on the Volker-funded Free Market Study, his position in the lineup of speakers was probably intentional. Hayek wanted to showcase Director, and for his remarks to reveal both his abilities and the direction of his thinking. Director performed his task admirably; his systematic presentation reads in parts like a summary of a mainstream introductory economics text of today on market failures and their possible remedies, though with a strong normative emphasis on his preferred policies. Monopoly power 23. Eucken understood but did not speak English well, so Hayek translated for his friend, a service that he later recalled fondly. See Hayek 1992g [1983c], 192.

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can be reduced by opening domestic markets to international competition, by using antitrust, and by changing patent law to reduce the length of time patents are protected. Legal prohibition of cartels and interlocking directorates was also essential, and in some instances placing limits on the size of firms might be warranted. Special legislation that had allowed labor unions to escape limits on restraint of trade should be abolished. Echoing Hayek and his friend Henry Simons, Director thought that monetary rules should be used to prevent the cycle, with overall price stability as the guide. Previous attempts to reduce income inequality had resulted in a series of ad hoc measures that favored specific groups: minimum wage laws, price supports in agriculture, protection of specific trades, and so on, all of which should be replaced with policies more consonant with a liberal order. The reduction of monopoly and support of education would help to mitigate inequalities, but these needed to be supplemented by a program to improve the physical well-being of children from poor families, a progressive income tax system, and payments to low-income households to ensure a minimum level of income. In his remarks Walter Eucken spoke of the willingness of various groups in Germany to discuss competition policy and the reality on the ground that confronted them—a heavily controlled economy that was equivalent to a world of monopolies. His anecdotes and institutional details provided a nice complement to the more programmatic statements of Hayek and Director. General discussion waited until the evening session. That event might have been retitled simply “Mises versus the rest,” though both Hazlitt and Miller made brief comments in support of Mises’s positions, and “the rest” did not always agree with one another. Mises had some justification to feel a little prickly. After all, in a session posing a choice between free enterprise and a competitive order, it might have been nice to have among the opening speakers at least one person who was willing to defend free enterprise. In any event, Mises’s comments were predictably direct and pithy. Those favoring antitrust want the state to control other monopolies, yet the state’s own monopolies (like the US Postal Service or the New York subway system) make deficits, not profits. Why think it would do better in the area of monopoly management? Furthermore, why do people attack monopolies instead of the government policies—e.g., patent law, tariffs—that lead to them? Everyone opposes the corporate form, but it provides many benefits, and its only privilege is that the rights of its creditors are limited. As for income redistribution, the government was already taking 70 percent of the income of the upper classes (actually, at that time the top marginal tax rate in the US was 91 percent, but he may have been estimating the total

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tax burden rather than the marginal one); where was the additional amount supposed to come from? As for tax policy, if taxes were simply low enough, one wouldn’t even need to consider it. Mises’ objections were not successful. People wanted to discuss alternative policies, to find out which ones might best cohere with a liberal vision, not the reasons why policies were unnecessary. Both Hayek and Robbins intervened, mostly to clarify the various positions under discussion, but at times things got testy. Harry Gideonse thought Mises was answering only the questions he wanted to answer, not those he was asked, and Frank Graham became even more agitated: “Perfect freedom exists in the jungle. There is no law there. I think if we carry out the suggestions of Professor Mises we shall be in the jungle. We are here to find the middle road between the jungle and the jail . . .” And so it went for the rest of the evening. This was probably the session at which Mises supposedly “stood up, announced to the assembly ‘You’re all a bunch of socialists,’ and stomped out of the room” (M. Friedman and R. Friedman 1998, 161), though that is not recorded in the minutes.24 The session was sufficiently acrimonious that Veronica Wedgwood, who chaired the morning session the next day, said that she suspected the organizer had chosen to put a session on the uncontentious subject of “Modern Historiography and Political Education” with a woman in charge next in order to allow things to cool down. Wedgwood had by 1947 established her reputation as a historian with volumes on the Thirty Years’ War, Oliver Cromwell, and William the Silent. Her books were well researched but also well-written, attracting a readership well beyond the academy. Hayek was using the word “historiography” differently from the way it is used today, to mean not the methods of writing history, but rather the more popular sort of history that Wedgwood wrote. She was the perfect chair for such a session. We have over the course of this book reviewed Hayek’s frustration with the way that history had been practiced, especially his blaming the German historical school for undermining the quest for truth and encouraging relativism. But he also opposed the supposedly “scientific” Marxist notion that there were inevitable laws of history (chief among them that capitalism was doomed to destroy itself) and the claim that ideas were unimportant, just ornamentation when compared with the true movers of human 24. Friedman is the source of this widely repeated anecdote, but did not say when it occurred. It evidently could have happened at later sessions, but Lionel Robbins wrote to his wife on April 3 that Mises “attacked us all calling us Socialists and Interventionists,” which suggests that it happened at this one (Howson 2011, 662).

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history, changes in the mode of production and in the social relations of production. Finally, there was the view taken by professional historians like Herbert Butterfield, that historical narratives should not draw moral conclusions, that Whig history of any stripe must be avoided. Hayek alluded to such concerns in his opening address, but the specific focus of the session was what role more popular history should play in influencing political education. He probably had in mind that the study of history might reintroduce liberal ideas not only in Central Europe, but in England as well. Wedgwood focused on the question of whether “serious” professional historians should cede the writing of the more popular kinds of history to generalists and propagandists. In her view, a competition among many types of historians would be the best guarantee against the misuses of history that were everywhere apparent. Both Erich Eyck (who spoke of the role of nineteenth-century German historians in glorifying the Prussian crown, promoting the German Empire, and destroying liberal doctrine) and Hayek (who questioned both value-free history and the notion of inevitable laws) tried to introduce additional subjects, but not altogether successfully. Much subsequent discussion turned on philosophical issues. Can history tell us what really happened, or does all history require selection and interpretation? How do, and how should, values enter into historical writing? What is a fact? Though such questions are interesting, they were not what Hayek had in mind. He would have to wait until a later meeting, when the papers that were published in Capitalism and the Historians (Hayek, ed. 1954) were first presented, to advance the cause of challenging the progressive monopoly on how the past gets portrayed. If the first session was predictably stormy, and the second vaguely disappointing, the third, on “The Problem of Germany,” ended up being the most memorable of the meeting, this due to Walter Eucken. It was a risk, Hayek knew, particularly for the Americans who would have known little about him, to invite a German who had stayed in Germany during the war to the conference (Hayek 1992g [1983c], 192). They would not have known of the courage he showed during the war or of the peril he had faced just two years earlier. Röpke gave the lead talk, with the more senior, white-haired, and distinguished Eucken speaking second. Both emphasized that the occupation that followed the war essentially substituted one totalitarian regime for another. The effects of the various restrictions on the German population had been disastrous. Both thought that currency reform and the lifting of controls on prices and production in the western zones were the most important immediate steps to be taken, with the question of integration with the East to be faced later. (Röpke thought such integration less necessary; Eucken thought it important both politically and economically.)

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What made Eucken’s comments so powerful, even when read today, was his vivid description, made all the more poignant because delivered in calm and measured tones, of everyday life under the occupation. Because rations were incapable of sustaining human life, an illegal black market had sprung up. Brandy was used for larger transactions, cigarettes for small ones, but for all that, almost all trade was local. Survival often depended on home production of potatoes and other vegetables. In a dig at Lord Beveridge, whose name had become equated with full employment as national policy, he deadpanned: “Full employment prevails, and an enormous amount of work is done with very little result. In a short conversation I had with Lord Beveridge in a room below freezing point he asked, what do people do? My answer was that they spend their time going to the countryside to barter, with the return of an excursion being infinitesimal, such as single potatoes or a half a pound of grain. A thousand people thus achieve in a day what a single trader could do in a few hours.” His summary was bleak: “the German economy is undergoing a progressive primitivization and now corresponds rather to the economic system of the 6th and 8th centuries . . . At the moment Germany is half a corpse.” Eucken was also the first speaker in the discussion session that followed that evening. Another contributor was the agricultural specialist Karl Brandt, who supplemented Eucken’s claims by reviewing the decline in daily caloric intake for Germans since the war ended, concluding that the average was less than 1,000 per person (of course not all were able to attain the average). In reminiscences about the first meeting, both George Stigler and Milton Friedman recalled the affecting scene of Eucken taking meticulous care in the peeling of an orange, the first he had seen in years (Stigler 1988, 146; M. Friedman and R. Friedman 1998, 160). But as Friedman went on to add, “More important, he made vivid what it was like to live in a totalitarian country, as well as in a country devastated by war and by the rigidities imposed by the occupying authorities” (160). If the people assembled needed a personification of what they were there for, and a depiction of the world they sought to avoid, Eucken provided it. He quickly became, in Hayek’s words, “the star of the conference.” Eucken was made one of the vice presidents of the Society and would play a key role in recommending who from Germany should be invited to future gatherings (Hayek 1992g [1983c], 192; Kolev, Goldschmidt, and Hesse 2020, sec. 2.2). The two sessions on “The Problems and Chances of European Federation” were the least successful of the week. Federation had been a topic of extensive discussion just before the war, driven in part by Charles Streit’s Union Now and by fears over German territorial aggression, and Hayek and especially Robbins had been active participants. Hayek had raised the

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topic again at the end of The Road to Serfdom, in part because he thought that a federation could serve as yet another check on national governments, especially in the area of trade. Finally, at war’s end both Hayek and Röpke recommended a kind of federalist “United States of Germany” as a way of restoring that country while keeping it from redeveloping into an aggressive military power (see Röpke 1946 [1945b] and Hayek 1946d). In their vision, single German states might qualify to enter the union by demonstrating appropriate “behavior” with the hope that ultimately the federation would integrate into the system of the other Western democracies.25 Though a few of those assembled still thought that some form of federation in Europe was desirable—Maurice Allais, who had earlier advocated a federalist Atlantic Union, was perhaps the most enthusiastic—many did not, and virtually everyone (even Allais) agreed that current obstacles to it were formidable, rendering the discussion purely theoretical. On the morning of Good Friday the topic turned, fittingly, to “Liberalism and Christianity.” Hayek felt it was essential for the preservation of liberalism that its traditional antagonism toward Christianity be overcome. This was not simply a nod toward the role taken by certain active members of the church in Germany in resisting Hitler. Liberal political parties in most European countries were a dead letter, leaving those that had affiliations with the church as the only real alternatives to the social democrats and communists. Christian democratic parties, although infected by the prevailing favorable attitude toward planning, also tended to be more conservative. If they could be convinced to look on certain liberal doctrines with sympathy, there would at least be room for coalitions to grow. Hayek had originally planned to have someone sympathetic to his views lead off the discussion, like William Orton (his first choice), Franz Schnabel, or Michael Roberts, but none of them ended up coming to the meeting (Hayek to Orton, Feb 5, 1945). So he turned to Frank Knight. This was a dicey call. In his letter accepting the invitation to the meeting Knight had warned Hayek against “snuggling up” too closely to the Catholic church, for “if one says he is a Catholic and a Liberal, he either doesn’t know what he is or places some other value or interest above telling the truth!” (Knight to Hayek, Dec 31, 1946). Was a civil discussion of the topic possible with Knight as the lead speaker? 25. On the German question see also Hayek 1945, Jan 20, Mar 24, and June 23. In 1943–44 Luigi Einaudi had written two works advocating European federation, the second of these while in exile at Rappard’s Institut. Parts of each work are translated in Einaudi, Faucci, and Marchionatti, eds. 2006. Had Einaudi been able to attend the meeting, perhaps the discussion would have been more fruitful.

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It turned out to be one of the most interesting sessions. Knight’s extraordinary opening remarks, imperfectly captured by Hahn’s notes, wandered far and wide. He began with the assertion that man is a religious animal, then asked whether liberalism could be formulated so as to be compatible with religion. (He thought not.) Next he offered a broad historical tapestry, ranging from the early days of Christianity in the Roman Empire through the Reformation to its role in America. The tensions he identified were well known: that between the scientific search for truth no matter where it might lead and belief that was dictated by faith, and that between the liberal’s insistence on tolerance of divergent views and the natural intolerance toward heretical views exhibited by the religious. Those conflicts all spoke against the chances of any easy reconciliation between religion and liberalism, but others spoke equally resolutely of its necessity. Once again Eucken drew on his own personal experience, arguing that there was no room for religious belief under a totalitarian regime, that only under a liberal system, precisely because of its dedication to tolerance, would Christianity be permitted to survive. While acknowledging the historical tension that had existed between the two, he asserted that in a world that seemed headed toward collectivism, liberalism was a friend rather than a foe of religious belief. Hayek added in his comments that the antagonism between them was more an accident of history than essential, and noted that it was a Catholic magazine in England which had offered the first positive review of The Road to Serfdom. Frank Graham, who agreed with Knight that it was not so much a question of getting liberals to tolerate Christians as vice versa, made the telling observation that religious groups tend to support tolerance most fervently when they are in a minority. Given that in the current world the religious were in a minority, it might be possible for liberals to enlist their support. Eucken closed the session with a quiet and powerful affirmation of his own faith, rebutting the view that Christians would come to liberalism only out of self-preservation, and again recounting his experience and those of the men he had known—some of them now dead—in the resistance: their religious conviction had given them the strength to resist. Despite some occasionally fractious exchanges, the first week was deemed sufficiently successful that the assembled group decided to take the next steps. A committee of six was formed to write up a statement of principles. Perhaps predictably, the first try produced a document that was both too long and yet still missing bits that certain people wanted included. (Graham wanted it noted that liberals believe in the solidarity of all human beings; Friedman wanted it said that liberalism was a progressive philosophy with humanitarian aims.) At that point the drafting of the doc-

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ument was turned over to Lionel Robbins, a wise move. Asked if he could have a new statement ready the next morning, he said no, only by the next afternoon, and of course it was. The new document was briefer—six points rather than ten—and, with the goal of achieving broad support, quite general. Everyone but Maurice Allais signed it.26 There were also discussions of the purposes of the Society (a forum for discussion and the dissemination of ideas; the possibility of a journal was also raised), its membership (to be determined by invitation), and, most entertainingly, its name. Suggestions ran the gamut from names of individuals (Acton-Tocqueville of course; Director suggested “the Adam SmithTocqueville Society”) to descriptions of its function (Morley came up with the rather laborious “International Society for the Study of Freedom in Society”) to invocations of the classically heroic (Robbins offered “the Protagonist Society” and Popper “the Periclean Society”). When Karl Brandt proposed “the Mont Pèlerin Society,” Popper responded, “That is meaningless.” It was sufficiently inoffensive that the group ultimately adopted it.

The Second Week: Economics and Russia At the end of the first week the substantive agenda for the second week was also determined. Given the preponderance of economists at the meeting, and the failure to get very far in the discussion at the very first session of the meeting, it is unsurprising that four of the five sessions in the second week were on economic policy: “Contra-Cyclical Measures, Full Employment, and Monetary Reform”; “Wage Policy and Trade Unions”; “Taxation, Poverty, and Income Distribution”; “Agricultural Policy”; and “The Present Political Crisis.” The last topic was suggested by Karl Popper and referred to ongoing concerns with how to deal with Russia. The discussions in the sessions of the second week are fascinating to follow, both for their substance and for the way that they reflected tensions that would repeatedly recur in later meetings of the Society. The first session focused on macroeconomic policy. All agreed that assigning to governments the responsibility for producing full employment by the use of Keynesian demand management was dangerous, especially if Lord Beveridge’s definition of “full employment” (around 3 percent unemployment) was taken as appropriate. That way lay inflation, as well as a temptation for further government overreach when its unrealistic goal 26. Both the original and the final statement of aims are included in Hartwell 1995, 41–42, 49–50. Allais disagreed with the group’s stance on private property, this on vaguely Georgist lines. See Burgin 2012, 257–58n85.

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went unrealized, through directing labor, interfering with wage bargains, fixing prices, and so on. Alternatively, it was asked what changes might be made in monetary and financial institutions to reduce uncertainty and minimize the likelihood of a business cycle. A movement to a commodity reserve standard to provide the anchor that gold once provided, and the imposition of a 100 percent reserve requirement on bank deposits to make the banking sector less volatile, were among these. A second set of issues was whether a rejection of Beveridge’s full employment policy also implied a rejection of Keynesian demand management policy in a downturn. Robbins (who had moderated his criticism of Keynesian policy prescriptions during the war) insisted that in addition to pushing for greater wage flexibility, the government might time its capital expenditures so as to mitigate the cycle—he did not use the phrase “with shovel-ready projects” but could have. This brought the predictable reply from Milton Friedman that it was difficult to get the timing of such expenditures right, and that getting them wrong could exacerbate the cycle. Friedman argued that a system of monetary rules combined with a rearrangement of the tax system to make responses automatic rather than relying on discretion best reflected the liberal creed. Such debates are today familiar territory to economists. The only outlier in the discussion was Röpke, who continued to tout his own unique hybrid of Austrian and Keynesian policy. There was another way in which he was different from the rest: he wanted to inquire what social philosophy a concept like Beveridge’s full employment implied. No one responded to his question; this was a discussion about economics and only economics, an implicit limit that surely grated on Röpke’s nerves! Similar sorts of tensions were on display in the session on wage policy, and even more in the one on agricultural policy. In both cases, cultural differences as well as differences in institutional constraints that were seen as blocking possibilities for reform held center stage. Fritz Machlup did a masterful job introducing the main questions to be addressed regarding wage policy. He noted the contradiction between strong unions and calls for full employment. His proposed liberal policy was to avoid cyclical unemployment via a proper monetary policy, to avoid regional pockets of high unemployment by encouraging labor mobility, and to reduce restrictive entry practices (e.g., closed shop laws) by unions. Other ways to reduce union power—by limiting the size or geographical scope of a union—might also be considered. This immediately brought protests that such steps, though useful in theory, could not possibly work in the speaker’s country. There is no labor mobility in Switzerland, said Rappard. Other Europeans were split between simply encouraging dialogue between workers and management—Rappard and Lovinfosse favored this route, while Knight

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thought it unrealistic—and having some neutral party, usually the government, in charge of setting wages.27 No consensus was reached. There was even more resistance to a “one size fits all” agricultural policy. On one side were those who felt that agriculture was truly different from other ways of making a living, and certainly from industry. For Röpke it represented a way of life, and indeed an end in itself, one that would provide a bulwark against “the proletarian nomads of industrialization.” He favored a set of policies that would support the survival of the family farm. Others had less romantic views of the agricultural life, but still insisted that the sector was afflicted with special problems that demanded intervention. It seemed both unfair and inefficient that a bad growing season or two could put even good farmers out of business. Brandt, the agricultural specialist, felt that changes in credit policy—higher interest charges in good times, lower ones in bad—could help avoid such problems. The opposition here included Loren Miller, who riposted with one of the most quotable lines of the conference: “Why shouldn’t everyone be insured against the vicissitudes of the market, if farmers can be insured? What would be the sum of all the interventions which have been suggested during the conference? Wouldn’t that be a planned economy?” On this point Hayek supported Miller, noting that if one considered problems only one at a time, it was hard to keep one’s mind on the general principles of liberal policy that they were seeking. And indeed it was at this session that his plea that the conferees ignore existing political constraints was itself most ignored. Robbins, doubtless reflecting knowledge he had gained in his years of wartime government work, added that sometimes the best that a liberal economist could do, when faced with an illiberal government, is to advise on the least harmful way to achieve the illiberal aim. A Hippocratic oath of sorts for liberals in government, it actually captures rather well the general self-image of economists. The final session on economic policy, “Taxation, Poverty, and Income Distribution,” was very much the Milton Friedman show. In his opening talk he reiterated that a rules-oriented monetary policy had the best chance of securing macroeconomic stability and that the remaining problem of poverty could be handled by combining progressive taxation with a negative income tax (though he did not call it that) that kicked in below a certain level of income.28 This simple change in the tax system was all 27. Lovinfosse, it must be noted, was probably the only person present who might have been involved in management-labor negotiations. 28. As Burns forthcoming shows, Friedman had come up with the idea of a negative income tax as early as 1939.

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that was needed; all the other programs that were designed to combat poverty could, and should, be eliminated.29 Dorothy Hahn’s notes recorded a barrage of questions that followed. In a classic Friedmanian performance, he answered each objection with a short, crisp reply. Hayek raised the objection to Friedman’s proposal that “Freedom not to work is a luxury which the poor country cannot afford.” His solution was to provide a governmental labor service, under semimilitary conditions, that paid below the prevailing wage for those who would otherwise be unemployable. Thus when Hayek sometimes during this period said that he favored a “minimum wage,” he was not thinking of the standard policy of a support that would keep wages above the equilibrium level. Rather it involved a wage that was set below the prevailing wage (and hence one that would not have much effect on the wage structure) paid to people with the goal of keeping them working. In any event, no one took him up on it. These four sessions bring out the fault lines apparent in later meetings: between economists and the more philosophically minded, between those looking for general principles and those focused on culturally sensitive, country-specific solutions to particular policy problems, between the Americans and the Europeans, between the academics and the foundation representatives. The final session had fewer disagreements, but also fewer answers. What was the appropriate liberal response to the Soviet Union’s intransigent postwar stance? Liberals believe in the rule of law, in trade, peace, and tolerance. What to do when facing an uncooperative, illiberal regime? The policies of appeasement toward Nazi Germany had produced horrible results. Was the West in danger of making the same mistake again? Some—Frank Knight in particular—insisted on the importance of dialogue. But in spring 1947 not many others were prepared to follow him. Popper averred that he was “quite sure that Russia understands only the language of threats,” and Lionel Robbins intoned that “You only get further with the Russians if you treat them as though they are not human beings.” Michael Polanyi seconded his conclusion. On the final day a “Memorandum of Association” was adopted and the Society formed. Hayek was made president, and five vice presidents were chosen: in addition to Eucken, these were Jewkes, Knight, Rappard, and Jacques Rueff. Director would serve as secretary, and C. O. Hardy as treasurer. In November 1947 the Society was incorporated in Chicago. This was preferable to London because, as Hayek pointed out, currency controls 29. The similarity to Director’s proposals on these topics in his comments in the first session should be noted, though Director also discussed corporations and antitrust there. Both reflect Simons’s influence.

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in England would have made transacting the business of the Society difficult (money could come, but not go out). So Hayek had pulled it off, the first meeting anyway. He had shown considerable skill as both a fundraiser and a scholar who could attract similarly talented scholars to join him. But he also demonstrated a knack for keeping people with disparate views in conversation with one another. He expressed his own views, to be sure, but just as often he would try to clarify the debate and, by a keen ability to float above the fray, keep the conversation flowing. Pictures at subsequent meetings often show him beaming, enjoying the intellectual repartee, engaging his guests as a host at a dinner party might. The German economist Leonhard Miksch would note in his diary about the 1949 Seelisberg meeting of the Society that Hayek “remains very discreet and smiles his friendly Viennese smile, both diplomatic and ambiguous” (quoted in Kolev, Goldschmidt, and Hesse 2020, appendix). A very apt summary. Of course, if the Society was to have something more than a paper existence, there would need to be more meetings, which would take more money. And indeed for the first two decades the Society would have perennial problems with funding. Uncharacteristically, Hayek failed to convey to Harold Luhnow the words of thanks that all the participants offered to his foundation on the final day of the meeting. His gaffe, as he admitted in a later letter, was caused by his having spent the four weeks following the meeting in Europe before returning to London, where so much work awaited him that he simply forgot. After apologizing, Hayek closed with the hope that he might come to the States in the spring of 1948 to see how Director’s Free Market Study was proceeding, and that if he did, he could have a “quiet discussion” with Luhnow on a number of important questions (Hayek to Luhnow, Nov 4, 1947). Hayek wanted a “quiet discussion” because the things he had to discuss were delicate. After the meeting at Mont Pèlerin, Hayek went for the third time since September 1946 to Vienna. As we will see, it was then and in a fourth meeting with her in Alpbach in September 1947 that he began to finalize his plans with Lenerl. He would seek a job in the United States, and if he were successful, he would finally be in a position to divorce Hella and marry her.

· 34 · Hayek Looks for a Job

Hayek is looking for a divorce in order to marry his early love whom he has seen again in Vienna. What kind of affair! He has two daughters [sic] & his wife is quite acceptable. (Oskar Morgenstern, diaries, March 26, 1947)

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An Initial Decision Is Made Though he had been able briefly to visit Vienna for the first time in September 1946, it was on his second trip, during the first two weeks of January 1947, that Hayek met privately with Lenerl and discussed what might lie ahead.1 As he later put it, it was on that trip that they recommitted themselves to having some kind of future together (Hayek to Luhnow, May 9, 1948). But exactly what kind of future was it to be, and how exactly was it all supposed to work? Certain things might be easier to manage in 1947 than they would have been before the war when the matter was first raised, but there were still many obstacles to overcome. Both would of course need to divorce their respective spouses. If both spouses were willing to grant them their wishes, it would be a bit tricky legally but still ultimately possible to get the divorces. But how willing were they? Lenerl’s husband, Hans Warhanek, as Hayek recounted, was always the perfect gentleman about everything. He had known for a long time that Lenerl wanted to be with Fritz and was prepared to let her go whenever the time was right (Cubitt 2006, 141, cf. 285; Hayek to F. A. Mann, July 10, 1950). Hella though was still very much in love with her husband and wanted to 1. Fritz must have been surprised to find out that over the years he had not seen her Lenerl’s hair had turned gray—we know this because he asked Hunold to get a hairdyeing lotion as a gift for her (Hayek to Hunold, Dec 24, 1947).

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keep the relationship and the family together. True, he had first brought up the question of a divorce before the war, but their time in Cambridge had been idyllic. Because of the impossibility of travel, they had spent more time together as a family than ever before. One could not blame Hella for thinking that perhaps the experience had led Fritz to change his mind. For his part Fritz knew that Hella hated confrontation, preferring to keep up pretenses, and he was much the same: their daughter Christine would later say that “To their credit, there were never any overt rows . . . I didn’t realize how bad things were until quite late on” (Christine interviews, Oct 12 and 14, 2012). His desired path would be that at the appropriate moment, he and Hella would have a quiet, painful, adult conversation, by the end of which the inevitable conclusion would be evident, and they would reach a mutually satisfactory agreement for an amicable separation. But how to get to that point was only one of many challenges. A further complication was that in both cases children were involved. Lenerl’s were older so in that respect less problematical: Max would turn twenty-three in April 1947; Hans had just turned twenty. Max though continued to be sickly, so at times might require his mother’s attention. As for the Hayek family, Christine was not yet eighteen, and Laurence only twelve. The one way that the war had been a godsend for Fritz was that it had allowed his children to get a bit older, thereby lessening somewhat the trauma, shame, and expense of a divorce. Regarding the costs of support, he was committed to maintaining Hella and the children at the standard of living that they had always enjoyed. The break whenever it came was certain to provoke a scandal, especially among Fritz’s colleagues and friends at the School and in Hampstead Garden Suburb. Divorce laws had loosened a bit in England in the late 1930s, but the stigma attached to it was still severe. Minimizing the fallout from that must have been particularly important to Fritz, for the sake of Hella and the children, but also evidently for his own reputation. He was the one initiating the split, the one who felt he was in a failed marriage from which he had to escape, but he knew both that Hella felt quite differently and that most of his friends from the School considered the marriage a normal one. That Hella had been such a good wife to him, taking care of his every need to ensure that he could concentrate exclusively on his work, would not have gone unnoticed. Then there was the question of where to live. Given Lenerl’s limited command of English, a German-speaking country would be preferable. But where? The two most obvious countries, Germany and Austria, seemed impossible. Switzerland may have offered an alternative, but would any job there pay enough for Fritz to maintain two households? Were Lenerl to

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consider relocating to an English-speaking country, their settling in London was certainly a possibility, though as a place to live it left much to be desired. Physically it was still in terrible shape: reconstruction was proceeding slowly and rationing was still firmly in place. And the censure over Fritz’s having divorced his wife to marry another woman would have been acute there. Not really the best way to start out.2 The United States was another evident possibility. The Road to Serfdom, especially after its condensation in Reader’s Digest, had made Hayek something of a public figure there, and he was acquainted with people with both academic connections and money. It was far enough away from London and Vienna to allow some escape (at least for Fritz and Lenerl!) from the inevitable gossip and sidelong looks. And it was probably the only place that could pay a high enough salary to allow him to provide for his family in London. To be sure, his opinion of “American culture” had probably not improved much since his first visit there in 1923–24; if anything, the 1945 publicity tour only reinforced his earlier judgments. But as long as he had sufficient funds to come back to Europe on a regular basis, it probably offered the best solution to a delicate problem. He had had nibbles in the past. At the end of his 1945 trip he had gotten a telegram from one Claude Robinson, president of the Princeton-based Opinion Research Corporation, trying to lure him to America (Robinson to Hayek, May 3, 1945).3 When he got back to England Hayek sent a letter 2. Though, bizarrely, Hayek apparently discussed a variant of this plan at some point with Hella, at least according to Christine: Mother told me that, now I don’t know at what point this was, that he had the brilliant idea, that she should go back to her family in Vienna and the new Mrs H 2 would come and live in England . . . she would have moved into the house there, and God knows what would have happened to my mother and us. Alright my mother was desperately upset but I wouldn’t be at all surprised if he hadn’t suggested that, not a bit, because, you see, FAH would be comfortable . . . Minimal disruption and so on. But what he didn’t realize is, that, again, with the opinion on divorce and so on at that time and their knowledge of the background, his colleagues would have cut him dead, as Lionel did when it happened. The idea of her living happily at Turner Close as mistress of the house and so on. I can see him thinking, you know, it would be nice, life would go on comfortably . . . I can just see it. (Christine interviews, Oct 19, 2012) 3. Robinson founded the corporation together with George Gallup in 1938, but Gallup left the firm in 1939. Robinson knew of Hayek because he had chaired Hayek’s talk before the Union League Club in New York earlier in his visit. Nash (2006, 30n111) notes that Robinson was among the “associates” who helped Leonard Read found FEE.

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thanking Robinson for his interest but said that he felt a “strong moral obligation” not to let the London School of Economics down at this critical juncture, when so many professors were still in government posts, or to leave Europe when the next few years would be so important for its survival. He left open the possibility that at some point he might be interested in coming to the States as a visiting professor (Hayek to Robinson, May 19, 1945). On his second trip to the States in 1946 Hayek managed to include a side trip to Princeton, arriving on May 20 and leaving the next day. Robinson is the only person listed in his appointment book, but with no meeting time noted. We do not know if they actually met and, if so, what might have been discussed, as there was no subsequent exchange of letters. Hayek spent about five weeks (in April and early May) of the 1946 trip in Chicago, where he had frequent meetings with Frank Knight, John Nef, Edward Shils, and Henry Simons as he brokered the deal to bring Aaron Director there. Nef, an economic historian, had earlier in the year pressed the Economics Department to consider hiring Hayek when they began considering candidates to replace Jacob Viner, who in March 1946 departed for Princeton University, and Simeon Leland. The department showed little interest, with invitations going instead to John Hicks and Albert Gailord Hart (who turned them down) and George Stigler (who after a campus visit was vetoed by the university president, Ernest Colwell). Finally Milton Friedman was hired and would start at the university in the fall (Mitch 2016, 1720–22, 1727). Nef also floated Hayek’s name before the Committee on Social Thought, but he was opposed there by the philosopher Mortimer Adler and Professor of Natural Sciences Joseph J. Schwab (Nef to Adler and Schwab, May 4, 1946). We will learn more about Nef and the Committee presently. Hayek found out a little about what had gone on during his trip. He was told by Henry Simons before leaving Chicago that political fallout from The Road to Serfdom kept him from being considered by the Economics Department, a story later repeated by Nef in his autobiography but downplayed by Friedman (Hayek to Director, Aug 3, 1948; Mitch 2016, 1729; Nef 1973, 237–38; Ebenstein 2003a, 174). Hayek himself had personal experience with the reaction of Chicago political scientists to his book—his interview with Charles Merriam in 1945 had had moments of real antagonism, and Merriam’s department had just hired Herman Finer, the author of the antiHayek manifesto The Road to Reaction—so he probably was unsurprised that there seemed to be little enthusiasm for him at the university. Hayek would later speculate that he was opposed by “the econometricians,” which probably meant members of the Cowles Commission, which was then located there (Hayek, Shehadi interviews, 24). Among these multiple rea-

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sons, that the department wanted to hire a more formally adept economist was probably the decisive one, especially given the individuals to whom they actually made offers. In any event, all this took place in 1946, before he had even seen Lenerl in January 1947. A few months afterward, Hayek was at the April meeting in Mont Pèlerin, where he may or may not have had some discreet conversations about job prospects in the States, though none of these, of course, would have mentioned anything about his wanting to move in order to start over again after a divorce.4 At this point he was still just trying to think his options through. Which makes it all the stranger that Oskar Morgenstern should record in his diary in March, before the Mont Pèlerin meeting, that Hayek was planning to divorce Hella to marry his “early love.” How could Morgenstern come to know this? Hayek had only just seen Lenerl in January. It is inconceivable that Hayek himself would have told Morgenstern. They were not particularly close—notice that in his diary entry Morgenstern got the sex of Hayek’s children wrong. In early 1950 Morgenstern was among the small group of Vienna acquaintances to whom Hayek sent a confidential circular letter informing them of his divorce plans, an unnecessary gesture if Hayek had told him of his plans in early 1947. So how did Morgenstern surmise all this? We simply do not know, but it seems that there are two possibilities. The first is that someone from Vienna had told him. On the same day as the diary entry he notes that he got a letter from his family in Vienna. But how could they have known? The Viennese rumor mill is a formidable machine, but even so, this was a very private matter. Yet one supposes it is still possible that Lenerl let it slip to a friend, who told a friend, and so on. There is another remote possibility. The fact that Morgenstern, Friedrich and Vera Lutz, and now Jacob Viner, all friends of Hayek, and Claude Robinson, who had tried to get him to come to the States back in 1945, were by March 1946 all located at Princeton may have caused Hella to think that, were Fritz to escape their marriage by moving to the United States, he would most probably try to go to Princeton. So perhaps it was Hella who two months later sent Morgenstern, the only person at Princeton whom she would have known personally from their Vienna days, a letter telling him of the possibility.5 In 4. He told Hella in a letter in December 1948 that he had not thought he could find a position in the States that would pay enough until the 1947 Mont Pèlerin meeting. Though there is no documentary evidence, we suspect that Loren Miller may have told him of the possibility of Luhnow’s funding a position, if he found a suitable one. 5. Klausinger suggests that had this occurred, Morgenstern probably would have mentioned in his diary that Hella was the source of the information. But Morgenstern does not say how he came to find this out.

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any event, if she wrote to him, no letter survives. So why do we even suggest it? For one reason alone: as we will see, it was a tactic that Hella would use later to try to prevent Fritz from leaving her and taking a job in Chicago.

Hayek Begins His Job Search Hayek’s first documented efforts to sniff out job possibilities began in summer 1947. Because he apparently did not know yet just what he wanted to do, they were somewhat desultory. He indeed began at Princeton, writing to Jacob Viner asking whether there were any possibilities at the Institute for Advanced Studies. The Institute had been founded in 1930 with the express purpose of providing a place that scholars could interact and undertake research without the usual university obligations of teaching and service.6 Though founded and run independently, the Institute had close ties with Princeton University. There were three schools within the Institute—Mathematics, Humanistic Studies, and Economics and Politics—and one of the most important people in the last was the economist Walter Stewart. Stewart had been on the Institute’s board of trustees earlier in the 1940s and was also chairman of the board of trustees of the Rockefeller Foundation, which provided some of the funding for the Institute (Yohe 1982, 584). Stewart was visiting England when Hayek wrote, and Viner suggested that he contact him (Viner to Hayek, June 9, 1947). Hayek’s reply was telling. The Institute was particularly attractive to him because it carried no teaching obligations and because it would allow him to devote all of his time to the scientism project he had begun in the war years. (Viner had effusively praised the “Counter-Revolution of Science” essay when it appeared in Economica in 1941, so Hayek’s mentioning of this, though reasonable, was also surely strategic.) But even so, he declined to contact Stewart in England, as he anticipated a rather prolonged process. Hayek had asked Viner about the Institute only because he had heard that they might be looking for an economist; otherwise he would simply have waited until his next trip to the States to begin his inquiries. Meanwhile he asked Viner “to hold a watching brief for me and to let me know should a suitable opportunity arise” (Hayek to Viner, July 13, 1947). At this point, having no real plan, Hayek was in no hurry. He wrote to Viner from Switzerland, where he was spending about three weeks with Hella, mostly climbing, though they also stayed with the Hunold family in Zurich for a 6. At the time, e.g., Albert Einstein and John von Neumann were members of its faculty.

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few days. The latter was apparently a pleasant visit: Felicitas was happy to hear that Hella had had a nice time with her new Swiss acquaintances (Felicitas to Hella, Aug 24, 1947). Afterward Hella returned to London. Fritz went briefly to Innsbruck to see Erich and his family, then on to Alpbach to attend his first seminar there. The three weeks Fritz spent in Alpbach in 1947 ended up being quite significant. We already noted how impressed he was with the students and with the whole idea of such a gathering. But a much more consequential detail is that he met Lenerl there. His weekly appointment book, beginning on August 24, has ALPBACH written in bold capital letters at the top of the page for the next three weeks. And for the first two of those weeks, the letter L is inscribed in the center of each day’s space. Alpbach allowed Fritz and Lenerl their long-awaited extended rendezvous away from the prying eyes of family members and acquaintances that they had so long desired. Though we cannot know exactly what went on, from what happened next it seems evident that they finalized the plan for Fritz to take active steps to find a job in the States. Hayek spent the rest of the summer vacation traveling, getting back to London on October 6, two days before the beginning of the term. Only a week later he was writing to Luhnow at the Volker Fund saying that he would like to come to the US the following spring to see how the Free Market Study was going and that he hoped also to find time to meet with him. A few weeks later he let Loren Miller know of his willingness to move permanently to the States. In a subsequent exchange he clarified that his reasons for wanting to leave Europe were personal, not political, but did not go into details. He also emphasized that his preferred strategy for the defense of liberty was to undertake research (not write popular tracts) that would allow him to meet the arguments of the progressives, a route that was best pursued in a place where he would be unburdened by teaching obligations (but not someplace like FEE). As such, a post at the Institute for Advanced Studies at Princeton was the “one position in the States which I would take without hesitation” (Hayek to Luhnow, Oct 14, 1947; Miller to Hayek, Nov 16, 1947; Hayek to Miller, n.d. and Nov 22, 1947). By the end of 1947, then, he knew the kind of position he wanted, had identified Princeton as the most likely place to provide it, and let one of the two key foundation people know of his desire to move there. The next spring he firmed up the details of his 1948 American visit. He would depart England on the Queen Elizabeth on March 20, and after a fiveday voyage arrive in New York, then go on to Chicago (to check on Aaron Director’s progress with the Free Market Study), Detroit (to see Miller), Princeton (to check out job prospects), then Baltimore and Chapel Hill,

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giving lectures at various of the stops to help finance his journey. One goal of the trip, though, went unmet. Despite sending four additional letters to Luhnow attempting to set up a meeting, and even extending his departure date for sailing home, they were unable to see each other. The “quiet discussion” in which Hayek would reveal exactly why he wanted to come to the US would have to wait (Hayek to Luhnow, Nov 4, 1947, Feb 4 and 18, Mar 18, 1948). Before the trip Hayek also apparently had the painful conversation with Hella, telling her of his plans, assuring her that he would accept a new job only if it would allow him to provide for her and the children in the manner in which they were accustomed—he calculated that this would require a salary of $15,000 a year—and asking her if she would give him a divorce if he found one. Though since the late 1930s she had maintained that she would not consent, this time she apparently agreed to his proposal. Perhaps she thought that he would not be able to find such a handsomely paid position, and perhaps he had pushed her so hard that she thought it easier, for the time, to acquiesce. But as he would later frequently claim, from then on he was operating under the assumption that if he found the job, Hella would go along with the split (see, e.g., Hayek to Robbins, Mar 7, 1950). On his visit to Princeton Hayek met with both Walter Stewart and the director of the Institute for Advanced Studies, J. Robert Oppenheimer, and told them of his interest in coming there. In Detroit he had an equally important meeting with Loren Miller, a person who he knew had Luhnow’s ear. These conversations yielded a plan. Even before Hayek began his return voyage to England, Luhnow had written to Stewart offering to pay Hayek’s salary at the Institute if he were given a position there. Unfortunately they were unreceptive, the sticking point being that it was unprecedented for an outside foundation to dictate how funds were to be used—that is, to pay the salary of a specific Institute faculty member (Oppenheimer to Luhnow, May 25, 1948; cf. Stewart to Hayek, May 28, 1948). Hayek did not give up on Princeton; he also tried Viner to see if the Economics Department there might have him under the same sort of terms, but got the reply that “for several reasons” he doubted the prospects would be good (Hayek to Viner, June 11, 1948; Viner to Hayek, June 24, 1948). On his return to England Hayek decided it was time to do by letter what he had hoped to do in person, to divulge to Luhnow why he was trying to come to the States and why he could do so only if he was paid the fairly extravagant salary of $15,000 a year. The crucial letter was dated May 9, 1948 (so written right after he returned) but mailed only on June 5, as an accompaniment to a note saying that Viner was still feeling out possibilities at Princeton.

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Hayek explained how the tragedy that he was about to describe was “not of recent date but the dominating factor of the greater part of my life.” He had married his wife “on the rebound” only after the person “who had been my most intimate friend since early childhood” had married someone else. By the time they discovered that “only a series of incredible misunderstandings” had been the source of the mistake, both had children, so resolved to wait until the children had grown older to do anything about it. Despite his move to England in 1931 they had remained in close contact, with her becoming his partner “in all his intellectual work.” At the outbreak of the war, “the two marriages had even then long become purely formal and merely an endeavor to preserve homes for the children and for some time the obstacle for a solution had been that I did not feel entitled to leave my family unless I could assure them the continuation of their standard of life, home, and educational facilities which they had a right to expect and which for me was financially impossible” (Hayek to Luhnow, May 9, 1948). After “eight years of separation, complete for the greater part of the time,” only in the winter of 1946–47 had he been able to see Lenerl again, but since then they had met several times and reviewed the situation. Lenerl had indicated her willingness to start a new life with him, and the possibility that the Iron Curtain might come down “this side of Vienna any time” had given everything a new sense of urgency. But the postwar rise in prices and taxes had made him even less able than before to afford providing for his family after a split. He then told Luhnow why he was sharing all of this: “All this will explain, I hope, why I could not consider a move except at a comparatively high salary and the assurance of permanency. Even at the $15,000 which I calculated to be necessary I should personally not be better but considerably worse off financially than I am now—at least so long as my children are dependent on me. But that does not matter so long as I am able to fulfil my obligations, live modestly and visit Europe from time to time so that we both can see our children” (May 9, 1948). Hayek knew, of course, that Luhnow was a religious person who might “feel conscientious scruples” about enabling a divorce, so he ended the letter with the hope that Luhnow would not, having been told the facts, withdraw his support: “Although this would be a dreadful blow, I do not wish to avert it by even indirectly deceiving you.” Hayek’s letter accurately portrays the situation as he saw it in 1948.7 7. Evidently Hella would not have shared his views, and especially not the idea that, by 1939, the marriage had long been seen by them as simply a formal one. He also claimed that he and his cousin found out that there had been a misunderstanding only after both couples had children, but all later accounts indicate that it had happened earlier.

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There is only one false note: It is hard to credit his claim that Lenerl had been a partner in all his intellectual work in the 1930s, though his saying that suggests that he saw her as more of an intellectual partner than he did Hella. It was essential for Hayek to let Luhnow know why he was asking for such a large salary and to make sure that his plans would not cause the man to withdraw his support. This was why he tried so hard to arrange a one-onone meeting on his trip. His fear that Luhnow might find his behavior unacceptable was not without grounds. Richard Ware, who at the time was working with Loren Miller in Detroit, later described Luhnow as “a Christian scientist” who “stands as straight as a barber pole, moral and ethical to the nth degree” and said that Miller had to convince him not to drop Hayek.8 He apparently was successful, for soon after Hayek’s letter arrived Luhnow thanked him for explaining his personal problems and assured him that “The older I get the less prone I am to pass judgment, particularly when I am not in the position to know all the details” (Luhnow to Hayek, June 10, 1948). So Hayek was good to go. All he needed was an acceptable place to take him. Before moving on, it is mete to pause and consider just how important a role Loren Miller played over the years in all of this. He was the person who set up the first meeting between Hayek and Luhnow in April 1945, which ultimately led to the Volker Fund’s financing the travel costs of the American scholars to the first Mont Pèlerin meeting in 1947. Miller was the person whom Hayek first told of his desire to move permanently to the States. After they met in Detroit in April 1948, it was through Miller’s instigation that Luhnow made the offer to pay Hayek’s salary at the Institute for Advance Studies. And if Ware’s account is to be credited, it was Miller who got Luhnow to keep supporting Hayek even after it was clear that at least a part, and perhaps a big part, of the reason Hayek wanted to come to the States was to get a divorce and start life with a new wife. Their meeting in

8. This is from “The Richard Ware Interviews,” an unpublished transcript of interviews done by David Levy and Sandra Peart in October 2008. Ware, who died in October 2015, was apparently in the deliberations with Miller and Luhnow when it was decided that the Volker Fund would finance the travel of scholars to the 1947 Mont Pèlerin Society meeting and fund Hayek’s Chicago salary, more on which anon (Ware to Hayek, Sept 20, 1984). In the interview Ware said that Hayek’s first wife had sent Luhnow a letter telling him of Hayek’s affair with the hope that he would cut him off. This may be true, but if so we do not know when it happened, as we have no confirming evidence. We thank Levy and Peart for sharing the Ware interview with us.

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Detroit also prompted Hayek to pen one of his most well-known pieces, to which we now turn.9

The Intellectuals and Socialism From our discussion in Detroit has resulted an article on “The Intellectuals and Socialism.” (Hayek to Miller, Sept 30, 1948)

• It appears that Hayek hoped to do more work on a planned “Postscript” for The Road to Serfdom on his 1948 trip to the States. The “Postscript” was never completed, though parts of it were worked into the preface to the 1956 paperback American edition. Other parts, mostly those in which he reacted, sometimes quite peevishly, to critics like Charles Merriam, Alvin Hansen, and Herman Finer, were wisely dropped. And some parts, in handwritten notes, inform the arguments he made in “The Intellectuals and Socialism.” Indeed, two such handwritten pages carry the date April 17, 1948, so were written the week after Hayek had his meeting with Miller.10 Hayek began his now-classic article by noting the widely held belief, one particularly prevalent in the United States, that intellectuals have very little influence on day-to-day politics. Though doubtless true, it ignores the power that intellectuals exercise over longer periods of time to shape public opinion. Socialism provided an example; it was never a workingclass movement but rather a construction of theorists that was later popularized by intellectuals. So who are these intellectuals? Hayek used the lusciously memorable phrase “secondhand dealers in ideas” to describe them. The group included not only “journalists, teachers, ministers, lecturers, publicists, radio com9. In the late 1940s Hayek was working on books that would end up being published in the early 1950s. In 1948 he published a collection of mostly previously published articles (Hayek 1948a) and of course numerous book reviews. “The Intellectuals and Socialism” stands out as his most important new piece from the period. 10. The “Postscript” may be found in FAHP 106.10. The early part of the folder contains pages that are typed, occasionally interspersed with handwritten additions, and frequent in-text corrections or rephrasing, perhaps undertaken while on the trip. Toward the end are pages of handwritten text, some extensive, some only a paragraph. We believe that on the trip Hayek turned away from the “Postscript” project to start developing the ideas found in “The Intellectuals and Socialism,” then never returned.

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mentators, writers of fiction, cartoonists, and artists,” but also professional people like scientists and doctors whose positions carry authority (Hayek 1997 [1949a], 223). Such people are not specialists in the areas in which they, in their role as intellectuals, offer their opinions. True scholars as well as practical men are disdainful of intellectuals, because they offer opinions on topics on which they have no expertise. But to hold them in contempt is to underestimate their power. What predisposes intellectuals to socialism? Though often dismissed as simply “a pernicious bunch of highbrow radicals,” most of them are driven by honest convictions and good intentions (227). They generally share two traits: the tendency to judge all issues in terms of some generally accepted set of ideas, and the urge to apply ideas that have been successful in one realm to new areas, places where unfortunately they can do more harm than good. A key example is the application of engineering techniques successful in controlling nature to the design of societies. Such conscious direction of society of course fits hand in glove with socialism. This should sound familiar: it was one of the principal points in Hayek’s “Scientism” essay. How best to counter such arguments? It will not work to criticize intellectuals by examining the specifics of various issues; rather they must be shown that their general conceptions are fallacious. That task will not be easy: “the effective refutation of such errors will frequently require further intellectual advance, and often advance on points which are very abstract and may seem very remote from the practical issues” (227). The obstacles facing liberals who wish to undertake such an endeavor are multiple. Socialists are comfortable engaging in long-run speculative thinking and in criticizing the current institutional setup. They propose a vison for the future that they contrast with the inequitable society in which we all live. Liberals tend to take the current situation as a starting point, then offer suggestions for adjustments at the margins. This makes them appear as apologists. When the rare liberal does engage in speculative thinking and attempts to envisage a society built on liberal principles, he is viewed with suspicion by practical men, “because he is unwilling to identify the existing order with the free system at which he aims” (234). The adverse reaction provoked by Henry Simons’s Economic Policy for a Free Society was offered as an example. This reference was a bit of inside baseball. The readers of “The Intellectuals and Socialism” would not know that as Simons’s book was being readied for posthumous publication in late 1947, Hayek had alerted Luhnow to the fact that “the Read group” at FEE and Aaron Director had butted heads over it. The people at FEE felt some of the proposals made by Simons were collectivist. Director, who edited the volume, made his own position

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on Simons clear in a letter to Read: “If his work contributes to fostering collectivism he shares this distinction with the author of The Wealth of Nations” (Nov 24, 1947; Hayek to Luhnow, Dec 8, 1947). Agreeing with Director, Hayek saw Simons’s book as “just the kind of work which is required to get discussion started on the fundamental issues” (Hayek 1997 [1949a], 234n6).11 Hayek’s peroration was a call to arms: we must be able to offer a new liberal program which appeals to the imagination. We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia, a program which seems neither a mere defense of things as they are nor a diluted kind of socialism, but truly liberal radicalism which does not spare the susceptibilities of the mighty (including the trade unions), which is not too severely practical and which does not confine itself to what appears today as politically possible . . . The main lesson which the true liberal must learn from the success of the socialists is that it was their courage to be Utopian which gained them the support of the intellectuals and therefore an influence on public opinion . . . Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. (237)

* * * Hayek’s essay became a beacon to liberal intellectuals of all stripes in the coming years, but at the time it had a more prosaic function. The conversation with Loren Miller that prompted Hayek to write the article doubtless focused on questions of strategy for how best to defend liberalism. In setting up the 1947 meeting of what would become the Mont Pèlerin Society, Hayek had told both the people he invited and funders like Luhnow that he favored a long-run strategy, that the first goal of such an organization should be to rebuild the philosophical and intellectual foundations of a new 11. Notably, in a 1983 discussion of law and economics at Chicago, Director, Friedman, and Stigler felt it necessary to defend Simons against Coase’s claim that Simons’s 1934 Positive Program for Laissez-Faire, which was reprinted in Economic Policy for a Free Society, was a “highly interventionist pamphlet” (see Kitch, ed. 1983, 178). They pointed out that when it appeared it was interpreted as an antiinterventionist tract.

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liberalism. Only then could liberals influence the “secondhand dealers in ideas” and be positioned to compete with the socialists. “The Intellectuals and Socialism” was his case for staying on that course and was aimed in part at funders like Luhnow who might be impatient for more immediate and practical results. But it was not just the funders whom he needed to convince. Some of the members of the Mont Pèlerin Society, not just “the Read group” but some of the academics too, wanted to turn it into a more publicly facing organization, with a house journal that would promote liberal causes and make policy pronouncements. Hayek’s vision that it be a discussion group of like-minded individuals who would collaborate in rebuilding liberalism was not universally shared. And indeed it was this latter group that Hayek first hoped to influence. After completing the paper he sent a copy to Aaron Director on August 8, asking him in his capacity as secretary of the Society to distribute it to the membership. He was probably anticipating that the topic would come up at a meeting of the directors of the Society scheduled for September 19 in Basel. Unfortunately, Director apparently never got the paper, for Hayek had to send him a follow-up about it (Hayek to Director, Sept 22, 1948). The topic was broached at Basel. Karl Brandt worried that without immediate action, the world risked being inundated by collectivism, and Jacques Rueff urged the creation of a “liberal manifesto” to counteract that of Marx and Engels. Hayek, Eucken, and Antoni demurred, arguing that the Society’s main function was scientific, not political. The debate would not be settled until the 1949 meeting.12 Another reason for Hayek to write “The Intellectuals and Socialism” at this particular point in time was to make the case for his own specific research program. The paper made clear that the best use of his time and energies would not be writing popular pamphlets at a place like FEE. He wanted to be located at a research institution in the United States that had few teaching commitments so that he could devote all his attention to scientific research. Accordingly, he arranged for copies to be sent to both Miller and Luhnow (Hayek to Luhnow, Sept 26, 1948; Hayek to Miller, Sept 30, 1948). The arguments that Hayek made in “The Intellectuals and Socialism” had an outsized influence on the direction taken by the Mont Pèlerin Society. If Rueff’s suggestion that the Society produce a liberal manifesto for outside consumption was rebuffed by Hayek in Basel, his own little paper could be viewed as an alternative, though internal, manifesto for the So12. The minutes from the 1948 meeting of the directors may be found in MPSP 6.1.

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ciety, one that spelled out the way it would go about its business in future decades. It also turned out to be persuasive to at least a subset of the people who funded the cause of liberalism. Richard Ware, who went on to become president of the Earhart Foundation, wrote to Hayek on the eve of his retirement from that post the following poignant lines: I attended my first [MPS] meeting in 1949 in the company of Miller. In 1951 I became associated with Earhart and Relm Foundations and you know of their continuing interest in your work, in your students, and in the Society. You may not know that your essay on “The Intellectuals and Socialism” has been the philosophical basis for the Foundation’s grant-making activities. I recite the foregoing to note the role you and your scholarly work have unknowingly played in thirty-eight years of my professional life of forty-three years. For this I am grateful. (Ware to Hayek, Sept 20, 1984)

John Nef and His Committee Loren Miller’s role in shaping Hayek’s future, substantial to this point, was still not over. Indeed, his next effort would be the most consequential of all. In this he would be aided by the cosmopolitan Chicago economic historian John Ulric Nef. Nef was very much a child of Chicago, and indeed, of the University of Chicago, for his father had been recruited to set up the Chemistry Department when the university opened its doors in 1892. Born in 1899, he had a childhood blending elements of tragedy and the sublime. After his mother died when he was nine, his father took on the responsibility of raising him with considerable vigor, taking him to Europe each summer where they would spend their time visiting art museums and attending musical performances. These early trips bred a lifelong fascination with the continent and England, and with the arts. In 1915 after his father’s death the social philosopher George Herbert Mead became his guardian. Nef soon was introduced to his guardian’s niece, with whom he immediately fell in love. Unlike Hayek, after graduating from university (Harvard) he married his childhood sweetheart, and between the small amount left to him by his father and her own considerable inherited family wealth, he instantly became independently wealthy (Nef 1973, 5–6, 10–13, 18–22). This allowed the couple to explore Europe at their leisure. They spent five years there, with extended stays in Vienna, Paris, and London. In addition to reading, improving their language skills, collecting art, imbibing new cultures, and meeting all sorts of influential people with his wife, Nef

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worked on his thesis, a historical study of the British coal industry. His efforts caught the attention of R. H. Tawney, Hayek’s LSE colleague, who became his friend and mentor, supervising the work that led to his getting a PhD from the Brookings Graduate School in 1927. A few years later Nef was hired by the Economics Department at the University of Chicago (Nef 1973, 28–102, 189–90; Mitch 2015, 216). By the end of his first decade at Chicago, Nef was beginning to chafe under its approach to higher education. Chicago had an undergraduate curriculum, but much greater emphasis was placed on graduate education, which (apart from the five professional schools) was run through four divisions: Physical Science, Biological Science, Social Science, and Humanities. Within each of the divisions were departments, all vying with one another for resources. The departmentalization and resulting acute specialization of graduate study, something that was happening everywhere in the States, offended Nef’s sensibilities. His own educational journey had been gloriously eclectic and open-ended, with plentiful opportunities to explore new areas of interest. As a teacher at Chicago, he lamented that such interdisciplinary engagement at the graduate level had become structurally impossible. Concerned about the future of civilization as the world went to war, he felt that there had never been a greater need for studies that, drawing on multiple disciplines, might serve better to integrate human understanding and knowledge (Nef 1973, 8–9; McNeill 1991, chap. 2). Nef sought an institutional solution to the problem, and in this he found an ally in the university’s president, Robert Maynard Hutchins.13 In a series of conversations in 1941–42 Hutchins, Nef, Social Science Division Dean and anthropologist Robert Redfield, and Frank Knight cooked up a plan for a separate course of graduate study that would be self-consciously interdisciplinary in nature. Initially faculty would be drawn from existing departments, but after 1946, when it was given permission to make hires, Nef (sometimes assisted by his wife’s wealth) would be able to recruit additional people from the outside. In the end they called the new entity the Committee on Social Thought, “because nowhere in the University are there studies in social thought” (Nef 1973, 9, 183–85; cf. Mitch 2015, 217, 221). Echoes of how the Mont Pèlerin Society got its unprepossessing name! Nef was that most unusual of middle Americans, a sophisticated and cosmopolitan scholar who was at home conversing in a variety of languages and thoroughly familiar with continental culture. His art collection, on display in his Dorchester Avenue apartment, was legendary. Feeling increas13. A couple of years later, as a result of a reorganization of the central administration, Hutchins had the post of chancellor, and Ernest C. Colwell the post of president.

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ingly isolated intellectually from his colleagues—one historian claimed that Nef “disdained the narrowness and philistinism of his colleagues in economics and history”—he sought to create a special place within the university where a select group of graduate students and like-minded faculty members could discuss all manner of social, economic, historical, scientific, humanistic, moral, and indeed even artistic subjects (Nef 1973, 55–56; McNeill 1991, 120). It is no wonder, then, that John Nef had tried so hard, if unsuccessfully, to get the university to hire Hayek in 1946. When another opportunity came in 1948, he was in a much better position to see things through. The speed with which the next steps were taken was extraordinary. Once it was clear that Hayek’s and Luhnow’s efforts at Princeton had little chance of success, Loren Miller went to Chicago and let Aaron Director know that Hayek was interested in finding a job in the United States. Director passed this information on to Knight and Nef. Nef immediately sent a memo to the other members of the Committee on Social Thought, noting that Hayek might be interested in coming to the US, and that “a wealthy American” would be willing to pay his salary to join the Committee, so what did the others think? (Nef to Committee on Social Thought, July 1, 1948). Two days later he could report back to Knight and Director that he had had only favorable responses from the other members.14 Director wrote to Hayek, letting him know that conversations had begun and that Nef was “very enthusiastic” about the possibility of an appointment on the Committee (Director to Hayek, July 14, 1948). In his reply Hayek assured him that “if there were an opportunity I should not wish for a more congenial atmosphere.” The reasons he had not considered Chicago a possibility were Simons’s previously expressed view that there would be opposition to his appointment, that Chicago would not pay the kind of salary he would need, and that “the famous clause in the Chicago contract about extra earnings would be rather an obstacle.” But now that the “admirable Luhnow” was willing to pay his salary, he would be grateful if Director would make further inquiries (Hayek to Director, Aug 3, 1948).

A Mishap in Alpbach All further communication about the matter would have to await Hayek’s return to London in September. Hayek was enjoying his summer on the continent. He spent about three weeks in Vienna, then after some time 14. It may have helped that Mortimer Adler, one of the opponents from 1946, was no longer on the Committee.

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in Switzerland stayed for two weeks in Obergurgl, a favorite village in the Ötztal Alps in Tyrol that he had discovered in the 1930s. He often worked when he was in Obergurgl, writing up his ideas al fresco when the weather was nice. After Obergurgl, and before attending the meeting of the directors of the Mont Pèlerin Society in Basel, Hayek had another three-week stay at the Alpbach seminar. There are virtually no entries in his datebook during the period, but it is safe to assume that this was because most of the time not spent in discussion with students was spent with Lenerl, and also, incredibly, with Christine, his then-nineteen-year-old daughter. Christine was happy to accept her father’s invitation to go to Alpbach because, from her perspective, it was an all-expenses-paid trip to the mountains where she would get to meet lots of smart young people. The memory was a vivid one in part because it was the first time that she had seen her father interacting in a professional setting, and she was amazed to see him so  relaxed, engaging in intellectual give-and-take, talking and laughing with people: in short, being a very different man from the dour individual, the “prof in the study,” that she knew from home (Christine interviews, Oct 14, 2012).15 But she was also puzzled why her roommate was an older woman instead of one of the young female students who were in attendance. When she made inquiries, she was told that Professor Hayek had arranged it, and that the woman was his cousin. That is when Christine put two and two together, and as she later recounted with alternating expressions of incredulity and outrage, “. . . he really, he really, really showed . . . he had no idea. You do not invite your daughter to join you at the summer school and arrange for her to share a room with your mistress!” (Christine interviews, Oct 14, 2012). Though Christine in her interview is quite clear that her first trip to Alpbach was “the disaster time,” she was unable to remember what year it took place. Contemporaneous correspondence, though, suggests that it must have been in 1948.16 It makes a certain sense. In the summer of 1948 Hayek

15. He was surely more relaxed than he had been while teaching in London, simply because the students were mostly European and the language spoken was German. 16. In the fall of 1948 Hayek’s mother, Felicitas, mentioned that she had received a letter from him sent from Alpbach, but that Christine had not written, unless the letter had somehow gotten lost, perhaps in the disorderly room (Felicitas to Fritz, Oct 14, 1948). She learned about the clutter in the room from Lenerl, who told her a letter had been in the process of composition but just as likely ended up under the bed as in the letterbox. This suggests Lenerl and Christine shared a room, and Lenerl thought her a tad untidy. Caldwell, who visited Christine on numerous occasions, can testify that her flat was in a state of delightful but permanent disarray.

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believed that he had Hella’s acceptance that if he were to find a suitable job, they would get divorced. He was not sure when that might happen, but he may have thought that this would be a good way for Christine to get to know the person he would someday probably marry. Of course, Christine did not know the extent of his plans at this point. For her, Lenerl was simply her father’s Viennese girlfriend, someone she probably vaguely knew about from hushed discussions at home or the occasional letter from Vienna. She could not imagine why her father would be so obtuse as to arrange for them to share a room. Either on this trip, or possibly on a later one, both of Lenerl’s children accompanied her to Alpbach, and Christine wondered whether they were trying to set her up with the younger son, Hans: I first met Hans in the summer school at . . . Alpbach and sort of looking back I think they had some idea that we might get together, I don’t know but, father, again, you see my father had absolutely no idea! Did he not know that I would, never, ever in this life marry a foreigner! The very idea that I would live anywhere else but in England, I think that must be mad. But again you see he would have no idea, absolutely none. (Christine interviews, May 20, 2013)

It is hard to disagree.

Closing the Deal—Almost Once Hayek got back to London he wrote to Director to ask what was going on regarding job possibilities at Chicago, to Luhnow to apprise him of the Chicago possibility and of his interest in it, and to Miller to thank him for his help (Hayek to Director, Sept 22, 1948; Hayek to Luhnow, Sept 26, 1948; Hayek to Miller, Sept 30, 1948). Little did he know how far things had already advanced. In early September Director had let Nef know of Hayek’s interest, and Nef began preparing the way with other members of the Committee and with the university administration (Director to Nef, Sept  2, 1948). By the time Hayek wrote to Luhnow, the latter had already met with Chancellor Hutchins to discuss the matter. Within a month Luhnow and Hutchins exchanged letters indicating that the Volker Fund would pay Hayek’s salary for ten years, and it was done (Hutchins to Luhnow, Oct 19, 1948; Luhnow to Hutchins, Oct 20, 1948). On October 26, 1948, Nef wrote Hayek extending an offer to join the Committee on Social Thought. The terms were generous. Hayek would receive a tenured chair at a salary of $15,000 a year, with no specific teaching obligations. The expectation was that he would “contribute to the general work to which the Commit-

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tee on Social Thought is committed,” broadly defined as “the unification of knowledge.” How Hayek would do that was up to him (Nef to Hayek, Oct 26, 1948). The only caveat was that as a new faculty member, he would be subject to the (in)famous 4-E clause: any remuneration he received for new books, lectures, broadcasts, and so on once he joined the faculty and until he left it would belong to the university. Their hope was that Hayek would accept and be able to begin work the next academic year, in the fall of 1949. Hayek’s return post was for the most part effusive. The offer was “more than merely attractive. It is a scholar’s dream . . .” He then excitedly told Nef of his planned research—further work on the Abuse of Reason project, a book on the relationship of John Stuart Mill and Harriet Taylor as revealed through their correspondence, and “a book on the place of mind in the universe of nature in which I elaborate certain ideas only sketched in ‘Scientism.’” New research included an exploration of the ethics of equality, and perhaps some more work in economics, on Keynes or on the “economic calculus” (Hayek to Nef, Nov 6, 1948). It was appropriate that Hayek spent time letting his future colleague know the work he had done and intended to do. But there was also a point to Hayek’s laying out in detail the projects that he had been undertaking. Hayek wanted desperately to get out from under the dreaded 4-E clause. He offered a host of reasons why he hoped it might be waived, but with little effect. In his return post Nef let Hayek know that the university was unable to make any exceptions regarding the 4-E clause, but reminded him that it would not apply to work substantially undertaken before he arrived, and promised that the university was willing to provide a loan or perhaps even an outright gift if any sort of emergency travel was ever necessary. In his next letter Hayek all but accepted the offer: “While I am naturally disappointed that you see little chance of having the 4-E clause modified or suspended for a time, I shall not make my acceptance dependent upon this . . . I shall now be making all my plans on the assumption that I shall be joining you towards the end of next September” (Hayek to Nef, Nov 25, 1948). He would let a couple of friends and the School’s director know of his plans. There appeared still to be some details to be worked out—an estimate of taxes he would owe, funds for moving his library—but a reasonable person might consider it a done deal. A couple of weeks later he wrote to Luhnow, thanking him and saying, “Apart from formalities my taking up the post next September can therefore now probably be regarded as definite” (Dec 11, 1948). Why only “probably,” Luhnow must have wondered. What does probably definite even mean? If he did wonder, Luhnow doubtless thought that

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Hayek might still try to hold out for a modification of the 4-E clause. But that was not the direct cause of hesitation. What had happened? His correspondence gives us a hint: even before he wrote to Nef “all but” accepting the offer, Hayek had begun seeking legal advice (Mann to Hayek, Nov 23, 1948). The answer was as simple as it was devastating. When Fritz told Hella of the job offer from Chicago, she replied that she had changed her mind about giving him a divorce, had herself sought legal counsel, and had been assured that he could not get a divorce in England against her will. She was not willing to discuss the matter further. Hayek’s happy plans were all about to go up in smoke.

· 35 · 1949—Hayek’s Annus Horribilis

She always imagines that if one doesn’t talk about it, then everything can still turn out fine! (Felicitas to Fritz, Oct 14, 1948)

• Had everything gone according to plan, in September 1949 Hayek would have left London for his new position at the Committee on Social Thought at the University of Chicago. Things did not go according to plan, and as a result by spring 1949 both Fritz and Hella were on the verge of nervous breakdowns. One might say that the problem was, as it had been in earlier episodes, an absence of communication, but that is not quite right. By refusing to talk to him, Hella was sending perhaps the clearest message possible. Here is how it unfolded.

The Initial Confrontation In early October 1948, even before the offer from Chicago had been received, Fritz wrote his mother, Felicitas, to tell her what was going on. If his well-thought-out plans succeeded, soon enough he would have a new job, and she would gain a fourth daughter-in-law. Though Felicitas was glad to hear that he was happy and that Hella had agreed to give Fritz a divorce, she also was distressed about Hella’s tendency to avoid talking about the momentous changes that lay ahead. Hella’s letters to Felicitas were filled with anecdotes about travels and reading, but she would mention the impending separation only when begging Felicitas not to tell anyone about it, ever, without exception. Given that the fateful announcement was no longer far away, Felicitas was hoping it would not be too hard on her, but she also seemed worried about her reaction to the coming news (Felicitas to Fritz, Oct 14, 1948).

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Fritz was either hopelessly naïve or prone to wishful thinking himself if he thought that things would go smoothly, and Felicitas was wise to inject a note of caution into his reveries about the future. Hella was someone who dreaded and therefore avoided direct conflict. Until she apparently acquiesced earlier in 1948 to his proposal, she had simply refused to talk about the matter. Once he came home with the news that an offer had been received, she reverted to her previous position. The fact that she had in the interim sought legal advice indicates that all that time that she was thought by others to be ignoring the inevitable, simply hoping things would turn out well in the end, she was in fact preparing for the worst. Hella’s unanticipated response was of course distressing to Fritz. He immediately reacted by checking out his own legal options, in particular the prospects for obtaining a quick divorce once he got to Chicago. The initial finding was not good. The grounds for enforcing a divorce in Illinois were strict. One needed to establish a cause, and none of those listed remotely applied. Hayek directed his solicitor, F. A. Mann, to explore possibilities in other states. Reno, Nevada, known throughout the world as a place where it was easy to get a divorce, was discussed. Mann, though, wondered whether a divorce granted there would be considered valid in a jurisdiction like Illinois and concluded that it was probably better for him to consult with an American lawyer before offering any further guidance (Hayek to Mann, Dec 11, 1948; Mann to Hayek, Dec 14, 1948). Things were beginning to get complicated, and potentially costly. Though Hella declined to debate the matter, there appears to have been at least some discussion between them—we know this because Fritz tried to offer some reasons for taking the steps he was proposing, and to respond to some of her complaints and recriminations, in a remarkable letter, in German, dated December 21, 1948, that he gave or sent to her shortly before leaving for Vienna at the end of that month.1 The letter lets us work out some of what must have been said between them. Strangely, in the beginning part of his letter he seemed to make the argument that his going to Chicago alone would be good for the family. In view 1. This is an essential document, one of the few pieces of primary evidence of what went on between Fritz and Hella during this fraught period. It was typed, but this appears to have been done later, because the typed document contains the contents of both this letter and another he would send Hella from America over a year later. The break between the two letters is not marked, so at first we thought that the typed document represented one letter. A similar error was made in the discussion in Hoover 2003, 192–95. Once we found the handwritten copy of the letter from America, however, we could then separate it out from this first one.

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of his own political convictions (he had not expected things to deteriorate as quickly as they had under the new Labour government) and in view of his current and prospective salary, he now regarded England as a dead end. They were just barely making ends meet. The Chicago job offered him the possibility of making some decent money, which would make it possible to maintain the family at the level they had long enjoyed. However, this did not mean they should come with him. Hella and the children would be better off staying in England, not being dragged along with him to a foreign country, though the children might of course take advantage of his being there later if they so wished, perhaps to come to study. He hoped to have a good relationship with them after his departure, to see them each year when he came to Europe, but that too was in her hands. All of this suggests that at some point Hella had proposed that all of them come with him to America. This evidently was not what Fritz had in mind, but it also suggests the possibility that Fritz may not have been completely clear with Hella as to why he was looking for the new job. That communication between them was less than perfect is further confirmed by the fact that she apparently felt deceived by his pretending to have a good family life all through the war years and immediately afterward. She also blamed his insistence on taking this irrevocable step on Lenerl, whom she accused of having used their reunions in Vienna to convince him to abandon his wife and family. Fritz’s letter was made necessary by Hella’s unwillingness to speak further with him about these matters. From his perspective, the facts (a word he would repeatedly return to over the course of the next two years) were simple: he was leaving in September 1949, just ten months away, to take a new job, and they needed to talk about how to manage the break. He preferred an amicable split, where they would live quietly together until the time came, maintaining a friendly relationship for the sake of the children. Her refusal to discuss matters was not only making a low-profile separation impossible but destroying him mentally and physically; he felt on the verge of a breakdown. If she continued with such behavior, he would have no alternative but to leave home before then. That, of course, would cause a public scandal and make things much harder on everyone, but he was prepared to do it. He was begging her to let him leave peacefully. He admitted that he had tried to make life as bearable as possible for Hella during the war, not to deceive her but because he had always (then and now) wanted the best for her. But she must have known that his desire for Lenerl never waned through all those years. Now that a permanent reunion was possible, he could not carry on any longer with the current situation—the thought of doing so would destroy him. He pointed out that

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she could not prevent a separation or, in America, a divorce. All that opposing things now would do was to turn something that could be managed quietly into something sensational, difficult, lengthy, and financially intolerable, which ultimately would ruin both of them, emotionally and financially. Responding to Hella’s worries over whether he was even going to return from his trip to Vienna, he assured her that his plan was to return, though he hardly knew why. But he was not going there to see Lenerl. The whole reason for the trip was to get some rest because he was physically and emotionally near collapse. Furthermore, his trips to Vienna had not changed him. He was the same person he had always been, it was just that through all their life together, Hella knew only half of him. In any event, Chicago had made him the offer, and he had let both Lionel and LSE Director Carr-Saunders know of it. The only reason he had not already left the house in the face of her intransigence was the children. He realized she could use such a step to turn them against him forever. She could cause all of them to perish emotionally, quite a responsibility, so she should think carefully about her decision. What can we say about this extraordinary document? First of all, despite his references to “the facts,” his tone throughout is desperate and despairing, alternately plaintive and threatening, clearly the work of a man very near the end of his rope. Fritz evidently wanted a complete, clean break and was determined to get it, but he also was hoping and perhaps even expected to have an amicable split, one that would be kept out of the public eye. Her refusal to grant him that or to talk further about it was a devastating development for him. There were several reasons for him to want to keep things friendly and quiet. Though the social sanctions against divorce were gradually loosening in England, especially among the educated classes, it was still considered improper, especially if children were involved. Tongues would inevitably wag. But of course, such things were a matter of degree. A failed marriage, where both partners agreed to separate discreetly, was one thing. A man enforcing a divorce against an unwilling wife in order to marry another woman was quite another. The consequences could extend well beyond his personal reputation. Though he had dropped vague hints, no one at Chicago knew that he planned to divorce his wife and remarry, as far as he knew. If suddenly a public spectacle were to erupt, their offer of employment might be withdrawn, and Luhnow might sour on him as well. Finally, from everything we know about Hayek, he was constitutionally unprepared for the whole turn of events. Over the course of his academic career he had gained a reputation as someone who, however unpopular his own views (and to be a liberal in postwar England was the very definition

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of holding unpopular views), always stuck to the merits of the argument, never allowing things to get personal. He somehow failed to realize that divorce is inevitably personal. That Hella had taken away the possibility of having any discussion of the merits of the argument truly must have been the most maddening aspect of all for him. Where was Hella in all this? She was married to a smart, articulate man, and she had always been (to use Christine’s apt phrase) a dutiful and supportive “professor’s wife.” She had followed him to England, a foreign country where she knew no one, and had taken complete charge of house, home, and family, tending to his needs and keeping everything on an even keel. She did so willingly and without complaint, even when Fritz would leave for long periods, sometimes four months at a time, to pursue his career. She wanted only to keep on with that quiet, undisturbed home life. Throughout the marriage Fritz had been the one with total control, something Hella appears not to have minded. Her husband was good with words and arguments, so she was not about to go head to head with him in a debate. Silence was truly her most effective weapon in this regard. Fritz obviously wanted Hella to believe that he was adamant about his decision and would go forward with it, no matter the cost. But it surely must have occurred to him that if a costly court battle became necessary, he might not be able to provide for Hella and the children as he had planned. Leaving under such circumstances really would constitute abandoning them. Though he felt compelled to do what he was doing, Fritz was not proud of his actions. Even though Hella had gone back on her word, he was not going to leave unless he could fulfill his own promise to maintain her and the children at the level to which they had become accustomed. Any self-respect that he might salvage was tied up with his keeping that promise. We may note as an aside that blaming the whole episode on Lenerl’s machinations, which Hella did, became the accepted narrative in later decades within the Hayek family. There was a simple reason for this: It made it easier for the children to (at least partially) forgive their Pa.2 The poor naïve man, like so many before him he had been lured away from the bosom of his family home by a heartless and manipulative siren. But from everything we have learned, it appears that Fritz was both the instigator and the 2. As Caldwell was leaving one of his first interviews with Christine in Cheswick, while they were standing on the balcony outside of her door, she suddenly said in a wistful quiet voice, “Poor old Pa. I hope you won’t be too harsh on him.” She had earlier expressed her anger at him, at times quite unvarnished, for his actions, and for being taken in by the likes of “the second Mrs. H.” She seemed to Caldwell to be struggling with her feelings, to be both blaming him but forgiving him. Seeing Lenerl as the villain of the piece made it all much easier.

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one who actively pursued a course of action that led to the events of 1949 and beyond. The family narrative seems at best incomplete. Hella did not want Fritz to go to Vienna after Christmas for an obvious reason: Lenerl was there. Fritz protested that his only reason was to have some time away to regain his mental and physical health. This appears to be true. He was without question near to having a breakdown. His appointment book, very uncharacteristically, has no London entries after December 19, and only two appointments during the ten days he was in Vienna, where he stayed until January 9. A letter from Felicitas after he returned shows, again uncharacteristically, that he stayed with her during the visit, not at a hotel. He really was recuperating, though it appears that Lenerl at least saw him off at the train station (Felicitas to Fritz, Jan 11, 1949). On the same day that his missive to Hella was dated, Fritz also wrote to Nef, asking him to delay a little further the announcement of his appointment. He still planned to come, he said, but “there are some frightfully difficult family problems and responsibilities involved for which I must see a clear solution before irrevocably committing myself” (Dec 21, 1948). As it turns out, finding “a clear solution” would take quite a bit longer.

Winter and Spring 1949: The Nadir Never have I seen a man in such pain and despair. (Lionel Robbins to Esca Hayek, date unknown)3

• Though it is hard to believe, things got worse in the spring. No longer exhausted but only somewhat revived, Fritz got back from Vienna to find that none of the news awaiting him was good. Having contacted a lawyer in the States, his solicitor had been advised that a “Reno divorce would involve many difficulties and dangers” and that if he still wanted to go ahead, Hayek would probably need to go there first before taking up residence in Chicago, “and then see what happens” (Mann to Hayek, Jan 3, 1949). Fritz also had figured out that his income taxes would be higher in America than he had anticipated and that his pension would be smaller. As to his threat to leave the house if she continued to be uncooperative, Hella responded on his return that were he to leave, she was in such a parlous state that she would have a mental and physical breakdown, in which case he would be forced 3. Esca reported that Robbins had said this, describing Fritz in spring 1949, in an unrecorded conversation with Caldwell on October 16, 2012.

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to return to take care of the children. Given her precarious condition, she insisted that they not discuss it further. To ensure this, she announced that she would no longer be in the same room with him alone, moved out of their bedroom to avoid having to see him at night, and ended all sexual relations.4 By the end of January Fritz had told his mother about Hella’s mental fragilities. Felicitas encouraged him to stick to his plans because otherwise Hella would be strengthened in her resolve to disrupt them, then noted confidentially that Lenerl, who not wanting to be pushy had said nothing directly to Fritz, agreed with her. She also wondered whether it might be possible to at least have a quiet conversation with Christine to explain what was going on (Felicitas to Fritz, Jan 24, 1949). Given all the new bad news, Fritz did not keep to his plans to remove himself from the house, and he certainly did not have a quiet conversation with Christine. The people in Chicago were waiting for his letter of acceptance, so he had to tell them something. Right after getting back to London he wrote to Chancellor Hutchins, apologetically explaining that he still had to resolve “some exceedingly difficult personal problems . . . connected with the health of a member of my family,” concluding that “I cannot yet yet [sic] exclude the possibility that at least for next year I may find it impossible to undertake what I so much wish to do” (Hayek to Hutchins, Jan 13, 1949). The carefully chosen phrase “at least for next year” introduced the possibility of delaying when he would come to Chicago, a new gambit. Hutchins passed the news on to Nef, who wrote to tell Hayek of his concern and to assure him that there was “absolutely no hurry” for him to reach a final decision: if he couldn’t come in the fall, “we will welcome you whenever you come” (Nef to Hayek, Jan 21, 1949). That was the first piece of good tidings Hayek had gotten since receiving the job offer, but he also knew that his vague references to the ill health of a family member were not going to suffice going forward. Worse, word of his impending job move had somehow leaked out, and he had begun to get congratulatory letters from people about it. Only the foundation people, Luhnow and Miller, knew he was planning to separate from his wife. It was time to widen the circle a bit. On February 7 Hayek took the plunge and wrote to Nef, explaining the long history that had led to this moment, then noting the recent unanticipated development that Hella “not only suddenly refuses me a divorce but 4. Christine both told Caldwell in an unrecorded conversation that her mother moved into a separate bedroom, and wrote this in pencil on a copy of one of the letters her father had sent Robbins (Fritz to Lionel, Mar 7, 1950) which she gave to Caldwell. Cubitt (2006, 64–65) noted the end of the sexual relationship.

1949—Hayek’s Annus Horribilis 703

that she has also so completely broken down physically and mentally under the impact of what had been a long contemplated solution, that while she remains in that state I cannot really consider leaving the children in her charge and still less leaving her alone. I just do not know when or whether I shall succeed in overcoming this difficulty which may well prove fatal to all my hopes.” He then shared the new information he had received about income taxes and his retirement. He left unsaid what was doubtless on his mind: that were he to go through a costly divorce, it would make his financial straits that much worse. His closing lines, a handwritten addition to his typed letter, are a poignant revelation of Hayek’s state of mind: “I am sure you will understand how difficult it has been for me to write this letter and also that the conflicts and struggles of these last weeks have got me into a state where I sometimes really do not know what to do. I feel under too profound a debt to you to conceal the facts which must explain what would otherwise appear altogether unaccountable behavior, and yet I hate burdening you with troubles which, though they interfere with, have no connection with the cause for which I so very much wish to work with you.” He asked Nef to share his letter with Aaron Director, and with the chancellor if he thought it appropriate.5 In a sympathetic reply, Nef told Hayek that he would see what could be done to relieve the financial constraints, repeated that he could delay his coming if he needed to do so, and suggested that they try to meet up when Nef came to Europe later in the spring to talk things over in person (Nef to Hayek, Feb 18, 1949). Though this was welcome news, Fritz’s physical and emotional condition continued to deteriorate over the next few months. His letters to Vienna were morose, complaining of the strain and of how he would never be able to be happy again.6 Felicitas managed to make things worse by telling her sister of Fritz’s poor health, which prompted Beate to write Hella to tell her 5. There is a memo indicating that he shared the letter with Director, but no evidence either way regarding Hutchins (Nef to Director, Feb 17, 1949). Hayek may have already shared some details with Aaron Director in a letter he enclosed with Hayek to Director, Jan 15, 1949. 6. To be clear: these letters do not survive. We are inferring Fritz’s mental state from Felicitas’s responses in her letters to him, and from later comments he made about how awful things had been for him that spring. At the time, he told Fritz Machlup, in a rather understated way: “I have myself had a very unquiet time recently and have in addition not been too well” (Hayek to Machlup, Jan 16, 1949). His later letter to Director Carr-Saunders (Feb 16, 1950) was more forthcoming: “I fear it must have been only too obvious last winter that I was not my normal self and I am convinced that if things had gone on as they then stood, I should never again have been of any use.”

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she needed to take better care of her husband! At one point he tried another letter to Hella and received this in reply: “I have received your letter. As I said before I am not prepared to discuss the matter any further or talk this over again and again. If you wish a good family life as much as I do I am ready for it at any time, without words” (Hella to Fritz, Mar 11, 1949). It was probably around this time that Fritz let Lionel know confidentially what was going on, which prompted his later description of Fritz’s existential pain and anguish. By late spring Hayek seems to have all but given up. When his solicitor wrote at the end of March asking where things stood, he let him know that he had no immediate plans to do anything. His mother’s well-intentioned letters probably only made matters worse, as she kept complaining about the weirdness of Hella’s letters, planning for future vacations and talking about everyday matters, as if nothing was amiss. It does appear, though, that Felicitas and Lenerl, often commiserating over the situation and Fritz’s poor health, were getting to know each other better. It appears too that Erich’s wife, Edith, was brought into their confidence, though apparently Heinz was kept in the dark until the following year. Finally, it was around this time that Felicitas began to write Fritz not at home but at LSE, so that she could discuss the divorce and Hella’s behavior without fear that Hella would find the letter and read it.7 Hayek met with Nef at the end of April and again in early May at the Reform Club, and there was a little bit of good news in the interim: whenever he might come, Luhnow was willing to provide Hayek with up to $1,000 to move his library and $1,000 annually to visit the continent. But the main point of the meetings was for Hayek to tell Nef the bad news that unless something changed, he was not going to be able to come to Chicago in September.8 They came up with an alternative plan: he would try to get permission from LSE to visit Chicago for a quarter before starting any permanent appointment. They also discussed some more pleasant topics. Hayek enthused about the Alpbach summer school, the very sort of gathering that both would enjoy. In a tragic gesture well worthy of the author of Andromache, on the day before his fiftieth birthday Hayek wrote a short letter to Luhnow, letting 7. Felicitas to Fritz, Feb 6, Mar 23, Apr 29; cf. also Nov 11, 1949. Felicitas mentioned Edith’s having become close friends with Lenerl in Felicitas to Fritz, June 9, 1949. It was only just before the divorce that his mother suggested to Fritz that he might tell Heinz what was going on (Felicitas to Fritz, Apr 28, 1950). 8. He let both Frank Knight and Aaron Director know around the same time (Hayek to Knight, Apr 20, 1949; Hayek to Director, May 2, 1949).

1949—Hayek’s Annus Horribilis 705

him know that he would have to postpone going to Chicago in September. He emphasized that “nothing but plain but bitter duty” and “nothing short of clear moral obligation” had forced the decision. Luhnow replied that he understood (Hayek to Luhnow, May 7, 1949; Luhnow to Hayek, May 13, 1949). Fritz also let Felicitas and Lenerl know. His mother asked him to be brave and not to consider taking any imprudent steps in his desperate moment. She also imprudently told him that Lenerl was so distraught that she did not want to do anything but withdraw into her shell for a while (Felicitas to Fritz, May 8, 1949). In short, there was despair all around, but he hoped telling Hella that he would not be leaving for Chicago in September would at least stabilize her mood. If her mood improved, she still did not trust him. In early June Hayek heard from Nef again, who asked if there had been any new developments. He wrote back, saying that he still hoped to arrange to come to teach for a quarter sometime during the 1949–50 academic year but would not get a final confirmation until the fall. He asked Christine to post the letter, and the ever-alert Hella, seeing the name of the recipient, took note of the address. The same day that her husband wrote to Nef, so did Hella. Fritz had told her that his plans to go to Chicago in September were canceled. Fearing this was a lie, she wanted Nef to know what the consequences would be if her husband were to leave. Whatever he has written to you now, please believe me if I say that his going away and leaving us here alone would be such a disaster that I can hardly face life every day anew with that constant danger hanging over us. We have two children, a girl of twenty, a boy of fifteen. We all love him, and want nothing than to be able to be allowed to live with him. He is all the children and I have, what are we to do without him? The thought that he should not be here anymore, that he should not come home in the evening and sit with us and talk to us, that the time when we should see him happy and content and smiling should be gone forever is unbearable. If you ask me why I am writing this, I don’t know, except that I still hope that we can yet be saved. (Hella to Nef, June 4, 1949)

The anguish in this letter is heartbreaking, but it also shows how radically different were the views of Fritz and Hella of the situation confronting them. The only thing they shared was a deep sense of despondency and gloom. Her description of their family life does not ring true, certainly not at the time she was writing, nor for any recent period. Perhaps she was fantasizing, thinking of their time in Cambridge, or simply being strategic, trying to tug at Nef’s conscience, or some strange combination of both. But

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of course we cannot know that, or the effect of Hella’s letter on Nef. In any event, the plaintive and pained note has sat in his “Hayek” folder all these decades, a silent witness to the torturous events unfolding in the first half of 1949 in the Hayek household.

A Summer on the Continent Under the circumstances, it is perhaps unsurprising that Fritz spent most of the summer traveling on the continent. His first major stop was in Seelisberg, Switzerland, where he attended the first official meeting of the Mont Pèlerin Society. It was not an easy meeting to organize, especially given the distractions that Hayek was facing. The first blow came at the end of 1948, when Charles O. Hardy, the treasurer of the new Society, died. Luckily for the Society Aaron Director was on hand to step in, and ultimately one of his Chicago colleagues, Allen Wallis, agreed to replace Hardy. Another pressing concern was the question of financing. Hunold had come up with another fine venue and funds to pay for the conference itself, but raising money to pay travel costs for the American conferees was again problematical. Hayek was reluctant to approach the Volker Fund a second time: he thought that Luhnow might have lost enthusiasm for the Society as a result of negative reports from the FEE contingent about the 1947 meeting, and in any event he was about to give him the unpleasant news that he was not going to be able to come to Chicago in the fall. Hayek doubted FEE itself would want to help and worried that if they did, they might pay only for their own people. Karl Brandt and others reached out to various foundations, with meager results. In the end there was a conference, but only seventeen of the original conferees were present. Some new scholars from the States came, among them Lutz, Kohn, Haberler, and Alfred Schütz, but only Mises and Director were there as repeats. The foundations on the other hand were well represented, with Read, Harper, Cornuelle, Miller, and Richard Ware all in attendance (MPSP 6.2). The meeting was probably most notable for the increase in the number of German and French scholars there. Walter Eucken was Hayek’s invaluable guide to whom among the Germans to invite (Kolev, Goldschmidt, and Hesse 2020, sec. 2.2). Though Brandt was unable to attend, he submitted a memorandum that proposed various changes in the provisional bylaws suggesting a much greater scope for political action by the Society. His proposed changes were debated but, as the minutes of the meeting laconically reported, “in the end

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the provisional By-laws were approved as printed” (MPSP 6.2). As Hartwell summarized, this decision determined the nature of the organization going forward: “The Society went on to study principles, not problems as such; the Society did not issue manifestoes or devise political agendas; it did not have an official publication (although some proceedings were published, and later a Quarterly and Newsletter for members); it did not seek institutionally to have political influence . . . And so the Society became an academy, a learned society and not a pressure group” (Hartwell 1995, 84). After the Seelisberg meeting Hayek appears to have focused on regaining some equanimity. He took a ten-day trip to Spain with Lenerl, and also spent time in the old familiar places where he saw family and friends: the Ramsau in Schladming, and Innsbruck. From August 19 through September 8 he sojourned once again in Alpbach, where he saw both Lenerl and his daughter Christine. The stark transition from the heat of Spain to the cold of Alpbach left him with a cold. The timing was bad, because he had been invited by one of the summer school organizers to present a preview of the work that would become The Sensory Order. The reaction of Hayek’s host, the Vienna physicist Felix Ehrenhaft, to his Alpbach lecture was memorably captured by Paul Feyerabend (1994): “During the discussion he rose, bewilderment and respect in his face, and started in a most innocent voice: ‘Dear Professor Hayek. This was a marvelous, an admirable, a most learned lecture. I did not understand a single word . . .’” (256).9 After Alpbach Hayek spent a week in Switzerland, and on his way from Zurich through Paris to London he encountered for the last time his cousin Ludwig Wittgenstein, who had come to Vienna to see his dying sister Mining (Hayek 1992a [1977a], 180–81; Monk 1990, 518). Hayek’s Alpbach lectures helped prepare him for what was ahead, for over the summer he finalized his plans with Nef to spend the winter quarter at Chicago, where he would run a seminar called “The Place of the Mind in the Natural and the Social Sciences.” The winter quarter ran from early January through mid-March, and the first meeting of Hayek’s course was scheduled for 11:30 on Tuesday, January 3, so he would need to plan to get there by January 2 at the latest. The university would pay him $5,000 plus $1,000 travel expenses, the funds being provided by Luhnow (Nef to Hayek, Aug 16, 1949). After his visit to America, his fourth in six years, he would as he had in the past return to the LSE and to Hella.

9. For a translation of Hayek’s (1949c) lecture, titled “What Is Mind?,” see Hayek 2018c.

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“Domiciliary Intent” Or so everyone in England—Hella and the family, Robbins and other colleagues at the School—was led to believe. But clearly, over the summer Fritz and Lenerl decided that the American trip would allow Fritz to explore and perhaps act on other possibilities. Accordingly, on September 28, literally the day he returned to London, he contacted his solicitor. Over the course of the next few months, and after consultation with American attorneys, a strategy emerged. As we have seen, if Hayek simply took the Chicago job he could not enforce a divorce against an unwilling partner because of the strictness of the laws of the state of Illinois. Nor could he take the job there and get a divorce in a state that had more flexible laws, because if it were contested, something Hella could be expected to do, Illinois would not accept the divorce as valid. The best chance of success was for Hayek to establish domicile in another state, get divorced, and only afterward accept the new position at Chicago. Crucially, Hayek needed to avoid any appearance that he was establishing domicile in another state only in order to get the divorce, with the intent of becoming domiciled in Chicago. In a phrase, he needed to avoid the appearance that he ultimately wanted to live in Chicago, which of course was exactly what he wanted to do: Chicago was indeed his “domiciliary intent.” So how to manage this deception? In the best of all worlds he would avoid all contact with Chicago and tell no one of his plan to take a job there. Of course, he learned this only after he had agreed to go there for the winter term, so that trip was still on, but he would need to leave immediately after it concluded. The next steps would be to sever ties with LSE and London while securing another university teaching assignment in a state with liberal divorce laws. These moves would serve as prima facie evidence of “domiciliary intent” outside of England and Illinois. Finally, and only after the divorce had been finalized, he would accept the job offer from Chicago.10 This strategy if successfully implemented would allow Fritz to get his divorce. But it also involved a considerable amount of subterfuge. He had to deceive Hella, who would balk if the trip appeared to be anything other than the usual American visit. He could not tell his colleagues of his plans; they needed to think he was taking an unpaid leave, not leaving in order later to

10. The plan arose after Mann, Hayek’s London solicitor, consulted with Walter Herzfeld, a New York attorney. The key letters are Herzfeld to Mann, Oct 21 and Nov 4, 1949, and Mann to Hayek, Nov 8, 1949. As we will see, the Herzfeld letter advising these steps would come up again later in the divorce drama.

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quit. And he would have to put off accepting the offer from Chicago until his path to divorce was clear. So all through the fall Hayek acted as if he planned to remain at LSE. He participated in discussions on the Professorial Council to determine the future direction of the School as if he were to play a part in that future. As far as Robbins and Director Carr-Saunders knew, he might use his time away to sniff out other job prospects, but such activities were always a possibility. They assumed that the Chicago plan had been laid to rest. Meanwhile, he needed to assure the people in America—Luhnow, Nef, Hutchins—that the plan to come to Chicago permanently was still on, just facing some delays. And he needed to secure a temporary teaching post in a state that had liberal divorce laws. His best hope for finding one was to attend the annual meeting of the American Economic Association. As luck would have it, they were being held in New York City at the end of December 1949, his first port of call. Hayek took a quick trip to Vienna December 14–20, where he touched base with his mother and Lenerl, then returned to London to pack up.11 He departed for the States by plane on Wednesday, December 28. We will give Hayek’s daughter Christine the final word about the parting. Her memory is clear: as the door closed behind her father, her mother turned to her and said, simply, “He’s not coming back.” Christine then said, “And he didn’t. [Caldwell: That must have been quite a shock.] True right it was” (Christine interviews, Oct 12, 2012). A fittingly prophetic finish to a perfectly horrible year.

11. We might note that his datebook on December 19 carried an entry “Hans W.” that was crossed out.

· 36 · Hayek versus Hayek

The Die Is Cast Hayek made good use of his time in New York. He arrived on Thursday, December 29, taking a room in the Commodore Hotel, the same place that the American Economic Association was meeting. While there he slipped a note under the door of one Harold Dulan, the chairman of the Department of Economics and Business at the University of Arkansas, asking whether they might hire him as a visiting professor for the spring quarter. Dulan said yes. The next day he had a session with his New York lawyer, Walter Herzfeld, whom he informed of his success at securing a future visiting professorship in Arkansas. On Saturday he lunched with John Nef, who was in New York for a day, and he was able to tell him of his other meetings and assure him of his plan to come permanently to the Committee on Social Thought. On Sunday, New Year’s Day, he visited Mises, perhaps informing him privately of some of what was going on. The next morning he was off to Chicago, arriving the day before his class started. By January 5 Herzfeld had written to him saying an Arkansas divorce would take about three months to execute.1 1. See Ebenstein (2003a, 168–69) for the story about Hayek slipping a note under Dulan’s door. See Nef to Hayek, Jan 5, 1950, where Nef noted he was “deeply moved” by Hayek’s assurance, and Herzfeld to Hayek, Jan 5, 1950, for Herzfeld’s analysis of the Arkansas divorce law. Hayek’s meeting with Mises is noted in his appointment book. As noted in the introduction, all correspondence relating to the divorce and certain parts of the Hayek family correspondence in the Hayek archives were closed to the public at the time of this writing, though we were provided access to it. There were several folders. That which came from Hayek’s own records was in dated folders (e.g., 1948–49) typically labeled “Divorce Correspondence FAH,” whereas Hella’s papers were in dated folders labeled with the name of the law firm she consulted, namely, Stephenson, Harwood and Tatham. Interestingly Hayek initially consulted with John Witt at that firm, only to find out that he was Hella’s solicitor! He then switched to F. A. Mann at Harman, Phillips and Mann.

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On arriving in Chicago he touched base with all the necessary principals: Chancellor Hutchins, Frank Knight, and some future colleagues on the Committee, like the classicist David Grene and the historian of architecture Otto von Simson. Given that he would be there only a couple of months and was increasingly worried about money, he was very fortunate that Aaron Director offered to put him up in his own home during his stay. While there he did a little woodworking, making bookshelves in Director’s basement shop under his host’s instruction (Bartley interviews, Nov 1984). The lecture class that Hayek ran during his brief stay in Chicago was “The Place of the Mind in the Natural and the Social Sciences.” Presumably he covered some of the main themes found in his Alpbach lecture and in the manuscript he was preparing, The Sensory Order. He may also have used the opportunity to update some of his knowledge of the literature in psychology. He attended a couple of meetings of the psychology club, and his only surviving lecture notes report on experimental studies that examined whether conditioning might allow the lowering of the threshold of sensory discrimination.2 But beyond this we do not know much about what he did in his class. He did say in several letters that he found his interactions with faculty members on the Committee and at Chicago generally to be intellectually stimulating. Apparently, the interdisciplinary atmosphere that Nef was trying to create suited his tastes well (Hayek to Nef, Jan 9, 1950; Felicitas to Fritz, Jan 20 and Feb 5, 1950; cf. Hayek to Robbins, Feb 16, 1950; Hayek to Luhnow, Mar 11, 1950). Meanwhile, he attended to legal and other matters in anticipation of the next steps in the divorce. By the end of January Hayek’s New York lawyer had gotten advice from a Chicago law firm to make sure their plan would work, and Hayek had contacted a lawyer in Arkansas who would handle the necessary paperwork there. As had been agreed beforehand, Hayek’s mother was preparing to travel to London once Fritz sent Hella the news he was not coming back. He bought Felicitas an open plane ticket (she was excited about taking her first flight!) that could be used whenever she wanted. His mother would go to London putatively to provide Hella with moral support and to help with the children, especially if she had another breakdown. But the move would also safeguard against any precipitous action on Hella’s part. Fritz had shared with his mother that Hella had sent letters to “New York and Chicago,” presumably meaning to Mises and 2. The psychology club meetings are recorded in his appointment book, and his notes on the experiments are in FAHP 188.4. The latter also contains a one-page handwritten summary of some of the main theses of The Sensory Order.

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to Nef.3 As Felicitas put it, “Hopefully she won’t cause any new trouble, as Lenerl suspects she might” (Felicitas to Fritz, Jan 20, 1950). For her part Hella was carrying on as before. Her letters to Felicitas were anodyne, as were those she sent to Fritz. In the latter she talked about the weather, about Laurence’s trip to the dentist, about checks that had arrived and been deposited. She asked about how Chicago was and whether he was playing chess against himself. The biggest news was that Karl Popper wanted to store his car in their garage—he was readying for a visit to Harvard—and paid the children a few pounds to clear out space there for it (Hella to Fritz, Jan 9, 15, 18, 30, Feb 2, 1950). By early February everything was in place. The choreography was precise. As he had repeatedly been advised by his legal team, before moving to Arkansas Hayek needed to resign from LSE, which would establish that he was no longer domiciled in England. The letters, all dated February 16, included a formal letter of resignation, sent to the Principal of the University of London; another more detailed letter to LSE Director Alexander CarrSaunders, accompanied by a “personal and confidential” one explaining his action; and a copy of the latter together with a four-page handwritten letter of explanation to Lionel.4 On the seventeenth he telegrammed his mother, alerting her to be prepared to take her journey to London. The day before he dispatched the other letters he mailed a handwritten one to Hella, in German. Her refusal to discuss matters had left him no choice but to “accomplish what I would have liked to solve amicably in a way that you will not be able to prevent.” He was resigning his LSE position and she needed to know in her deliberations that “nothing ever will bring me back to you.” How the separation (he did not use the word “divorce”) would proceed from there depended wholly on her actions; he had thought about all her threats and was ready for any contingency. He asked her repeatedly to consider the welfare of the children and not to let her pride get 3. In Fritz to Hella, Feb 16, 1950, he would tell Hella that he had recently found out that she had written to Nef the previous summer. This was probably revealed to him when he met Nef for lunch on New Year’s Eve in New York and was the sort of new information that doubtless steeled Fritz in his resolve. 4. The dating was important to him. The British general election was scheduled for February 23, and a Labour victory was expected (Labour did indeed prevail, but only barely, hanging on with a slim majority of five seats), and as he would tell CarrSaunders, he was resigning somewhat earlier than he had planned because he did not want his resignation to be interpreted as some sort of political demonstration. It is interesting to compare his letter to Carr-Saunders with both his earlier Dec 21, 1948 letter to Hella and his Feb 16, 1950 letter to Lionel, where his unhappiness over political developments in the UK was rather more prominent.

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in the way of that. His mother was ready to come to London at a moment’s notice if she needed help. If she separated peacefully, he would make sure that they would all be taken care of financially, but he would be less able to do that if she opposed him. Of course, in all of this he could not breathe a word about the status of the Chicago job offer. The letter was harsh and cold, leaving nothing to the imagination, though he did manage to close with the hope that in their next exchange they could start talking about settling her life and that of the children: “there is nothing I would wish for more.” It was accompanied by another, shorter one, asking her to be calm, to think about how she was going to tell the children, and to not make the experience horrible for them (Fritz to Hella, Feb 16, 1950). After all this was done, he wrote to Chicago Chancellor Hutchins to let him know that he had resigned from LSE, a strong signal, if any was needed, that he was serious about coming there. He had also been careful earlier in the month to ask Nef to put in writing that he had until July 31 to accept the offer from the Committee. Nef was prepared to do this of course, but Hutchins asked Nef to set a deadline of July 15, citing the delicacy of his negotiations with the funder, Luhnow. It seems that the higher-ups were growing impatient with the endless delays, and for his part, Luhnow was also unhappy that Director had made so little apparent progress with the Free Market Study, something that Hayek was supposed to be overseeing. Hayek took the hint, understanding that the July 15 deadline was a hard one.5 Hayek did not tell his American correspondents that in his official letters of resignation he had asked that it take effect September 30, 1950. He did this in order to request that LSE give him a paid sabbatical leave for the summer term. He desperately needed the extra money that this would provide and noted that he had not had a sabbatical in his nineteen years while at LSE. (He had taken a leave of absence without pay in order to come to Chicago.) The School quite reasonably determined that it would set a very bad precedent indeed to start giving paid sabbatical leaves to people upon their resignations. They gave him a choice: come back and teach the summer term and resign effective September 30, or resign effective April 25 and be paid through that date, notwithstanding his absence from the School that spring. He naturally took the latter course.6 5. See Hayek to Nef, Feb 4, 1950; Nef to Hayek, Feb 6 and Mar 13, 1950; Hutchins to Nef, Mar 15, 1950; Hayek to Hutchins, Feb 22, 1950; Luhnow to Hayek, Jan 11, 1950. 6. See Hayek to the Principal, Feb 16, 1950; Hayek to Carr-Saunders, Feb 16, 1950; the Principal to Hayek, Mar 30, 1950; Minutes, Court of Governors Standing Committee, Feb 28 and May 2, 1950, LSE/2010/43.

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On receiving the telegram from her son, Felicitas sent Hella an affectionate and sympathetic letter assuring her that this would not change their relationship and offering to come over to offer her help and solace. She added that she had known that Fritz had been planning this, but because of Hella’s own insistence that it never be mentioned, she had felt that she could not bring it up. Felicitas was waiting for a reply from Hella, but after talking to Lenerl, became afraid that she would turn down the offer of help, so she simply went before hearing back from Hella, arriving sometime in the latter part of February (Felicitas to Fritz, Feb 18, 1950).7 As might be expected, Felicitas’s uninvited intervention was not altogether welcome.8 At some point Hella finally exploded. How could Fritz do this to her? After all she had done for him in their marriage, was she to be tossed aside like a pressed lemon, humiliated, left alone and abandoned with two children in a foreign country? She berated Felicitas for her repeated betrayals, both past—her sending private letters to Fritz at the School rather than the home, her complicity with Lenerl—and now, with her presence there being a constant reminder of her own shame and despair. Finally, and predictably, as Felicitas put it in her letter recounting the fiery episode to her son, “I can’t even begin to tell you what she had to say about the sins that Lenerl had committed from the beginning” (Felicitas to Fritz, Mar 1, 1950). Things got a bit better between them (they could barely get worse) over the course of the next ten days, as Felicitas waited for a check from Fritz to arrive so she could buy a train ticket home. When she left on March 10, Hella even asked her to forgive her for her initial rude behavior (Felicitas to Fritz, Mar 9 and Apr 28, 1950). Soon enough Hayek was off to Arkansas. His contract as a “Visiting Professor of Finance” at the University of Arkansas ran for four months, from March 20 to July 20, 1950, paying him $2,500. He apparently taught no formal courses, instead visiting classrooms, meeting with professors and graduate students, and giving public lectures (Ebenstein 2003a, 169). And of course, he began the sixty-day period that would establish his domicile there. 7. In her letter Felicitas also mentioned having seen Ludwig (whom she called Louis) Wittgenstein at Ludwig’s sister Mining’s funeral on February 16. He was dressed strangely—he sported a “plaid short fur coat, brown pants, sport shoes, and somewhat disheveled gray hair, without a hat”—and acted the same. 8. That Felicitas simply showed up was confirmed by Christine: “I remember my mother being utterly appalled . . . Grandma, just to add problems, grandma suddenly turned up out of the blue” (Christine interviews, Oct 12, 2012).

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Lionel Chooses Sides I am above all anxious that you both should be as kind to Hella as you no doubt would be if I had suddenly died. (Fritz to Lionel [and Iris], Feb 16, 1950)

• One tragic outcome of the ordeal to come was the destruction of Fritz’s relationship with Lionel Robbins. It happened in stages, as trust gradually dissolved between them, though as we will see, from early on Robbins found his friend’s behavior outrageous, and his empathy for the plight of Hella could not have been greater. In his initial letter explaining his precipitous actions, Fritz apologized to Lionel for not taking him into his confidence, for having only once shared with him over the past two years (and then only when he had been in “a state of almost complete collapse”) what had been going on. He told him that he simply could no longer carry on with the charade, that day-to-day life had become unbearable, and that he hoped his friend would understand that it was his preoccupation with his failed marriage that explained any recent distance, not any differences in their political views. Though firm in his convictions about what he had to do, Fritz was also concerned about Hella’s welfare and her reaction to the shock of receiving his letter, hence his plea for them to be kind to her. The one thing he did not tell Lionel was why he had felt he had to be so deceptive, except to say obliquely that the reasons that had kept him from speaking frankly in the past “operate even more strongly now” (Fritz to Lionel, Feb 16, 1950). Right from the start, then, Fritz put Lionel in an impossible position, asking him both to look after Hella and, essentially, to trust him. In his reply, Lionel tried hard to avoid being overly censorious, but his irritation was plain, and indeed, he availed himself of the opportunity to fire off a few well-placed zingers. He agreed that both partners in the marriage would probably be better off if divorced, but said that Fritz needed to know that Hella, whose constitution was never that strong, was in a particularly fragile state, and for good reasons: “to grow old alone in a land which is not one’s own by birth is not a cheerful prospect; and it is clear that, in spite of what happened, she still loves you.” To make things a bit easier on her, Fritz needed to offer more than general promises about taking care of her and the children going forward. After all, “a woman whose husband has broken his marriage vow tends to feel little confidence in his other promises” (Lionel to Fritz, Feb 28, 1950). He took Fritz’s request that he look after Hella to

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mean that he should look after her interests and suggested that Fritz have his lawyers draw up some sort of irrevocable covenant. Lionel ended his letter by noting that he had seen Hella, and Fritz’s letter to her, that she felt unable to write to him just yet, but that she had informed the children that he was not coming back. In fact, she would not write to her husband again. It was a sober and sobering letter to receive, one designed to let Fritz know that Lionel, though neutral about the question of divorce, was in Hella’s corner regarding the legal and financial details that needed to be settled. What Fritz did not know was that Lionel had himself consulted with Hella’s solicitor, who had vetted the letter the day before he sent it (John Witt to Robbins, Feb 27, 1950). Going forward he (and when he was away, Frank Paish) would serve as Hella’s unofficial advisers, working with her solicitors to secure a just distribution of assets and suitable payments of alimony. Their wives, Iris and Bea, were Hella’s principal source of moral support. The next exchange between the two friends was more of the same. Fritz insisted that his intention was to provide adequately for his wife and family, but that Hella’s own actions were what prevented him from accepting a position at Chicago that would allow him to do so. He was not blaming Hella, who “probably could not have acted differently,” but the fact remained that “it is her threats which make it impossible for me to assume a legal obligation to what I firmly intend to do and what, unless she prevents me, will be in my power of doing.” Fritz had to word his letter carefully, noting that he could not accept the Chicago position under the current circumstances, and asking Lionel not to show her his letter for fear it might be used against him by her lawyers (Fritz to Lionel, Mar 7, 1950). This was probably meant to signal to his friend that he still trusted him and wished he would show him the same courtesy. But Lionel did not find his friend’s letter reassuring. He asked, did Fritz really mean—“I could scarcely believe my eyes as I read it”—that he would seek a “bootleg divorce” and that Hella, obviously the innocent party, would have to face the shame of divorce with only his promise of providing for her? If so, he could do nothing to dissuade her from pursuing legal remedies, or “anything to save your name from the scandal which must occur if facts of this sort were to emerge,” an outcome that would damage not only him but the causes he held dear. Lionel hoped instead that Fritz was prepared to have lawyers draw up documents to ensure Hella’s future if her threats against him would cease, an outcome that would be better for both parties (Lionel to Fritz, Mar 14, 1950). It was clear that up until this point, their communication was going nowhere. Lionel could understand neither his friend’s actions nor why he

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could not make a legal commitment to care for his family. For his part, Fritz could not put down on paper that he planned to provide for them out of his income from Chicago, because to do so could jeopardize his claims regarding domiciliary intent. In his next letter he tried to reassure him, saying that “I know what I am doing and am staking my position and career on it.” He understood that Lionel trusted Hella’s good intentions and found Fritz’s reluctance to trust her incomprehensible, but insisted that despite appearances “she has made it clear enough to me that she would rather destroy me than release me.” If she and Lionel wanted assurances that he planned to do the best he could for her, he would be happy to sign over the Turner Close house to her (Fritz to Lionel, Mar 17, 1950). That last promise seems to have given Lionel hope that a legal settlement could be reached.9 Before leaving to spend about six weeks at the Institute for Advanced Studies in Princeton, he persuaded Hella to ask her lawyer to get in touch with Fritz’s (Lionel to Fritz, Mar 21, 1950). When Fritz arrived in Fayetteville on March 24 and met with his lawyer there, they hit upon a way out of the morass. If Hella would be willing to sign a waiver saying that she would not contest the divorce, they could forgo issuing the inevitably embarrassing public notice of the divorce filing in the local paper, and Fritz could enumerate and incorporate all of his obligations to her in the settlement. He immediately sent a letter to Lionel, one in which his relief over having found a solution that he hoped would be acceptable to everyone seems palpable. It was time to bring in the lawyers and hammer out a settlement (Fritz to Lionel, Mar 25, 1950). Lionel’s next letter from Princeton was cautiously optimistic that a resolution was at hand, but it is also clear that he still could not fathom much less accept Fritz’s harsh attitude toward his wife. Did Fritz not understand that her refusal to discuss matters with him was born not of ill will but of panic and self-distrust? Did he not comprehend that when the person she trusted most in the world deserted her for another, “her world was shattered and, what is much worse and much more tragic, her self-respect”? Did he not know that, despite everything, a part of her still loved him? Lionel’s closing plea reveals something of the misery that he (probably vicariously through Iris) had witnessed, and his own grief over what had happened to Hella, all as the result of something that, regrettably, the person he considered his own best friend had engineered: “If you put yourself into her position, you must realize that, morally at any rate, it is much worse than if 9. Within the Hayek household, Lionel’s role in protecting Hella’s interests were wellknown and appreciated. As Christine simply put it, “Thanks to Lionel my mother got the house” (Christine interviews, Oct 12, 2012).

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she had been widowed. For then at least she would have had her memories, while now she must feel, not only that her life as she knew it has come to an end, but that, in some way she cannot understand, she has been condemned as having failed in that which she has given her life to do” (Lionel to Fritz, Apr 3, 1950). This was a heartfelt letter but also a powerful one, one that he hoped would move his friend to temper his hard-edged approach—Robbins at his persuasive best. But it was also strategic. Toward the end of his stay in Princeton Lionel wrote to Hella, letting her know that he had sent Fritz the letter in which he had tried to appeal to his decency, “but I am not sanguine as to his accessibility there. I am afraid that in his present frame of mind, it will be fear rather than decency which will keep him straight” (May 9, 1950). Around the same time he wrote a letter to Albert Hunold, resigning his membership in the Mont Pèlerin Society (Howson 2011, 705). Was Lionel’s reaction in all this extreme? Hayek would later tell Popper that their apparently irreparable breach had occurred because of Lionel’s “silly attitude to be hurt by my not having taken him into my confidence,” a statement that is both unjust and incomplete (Hayek to Popper, Dec 17, 1950). He would tell Hunold that Robbins was unduly influenced by Iris, herself a strong moral force and someone who was very close to Hella (Hayek to Hunold, June 13, 1950). Lionel certainly had a right to feel hurt, on multiple counts. On the most pedestrian level, he had taken on extra work at the School, including supervising Hayek’s graduate students, having been misled into thinking that his friend was coming back (Howson 2011, 703). But with respect to their personal friendship, he had been blindsided, asked to pick up the pieces, yet denied full information as to what was going on. Furthermore, though Lionel knew the marriage was troubled and felt a separation was inevitable, he really did not know the details of what had transpired between them. What he did see was Hella’s evident suffering. When he then read Fritz’s cold letter to her, he must have thought Fritz’s attitude heartless, even cruel. But most of all, it was Fritz’s manner of leaving the marriage that he found impossible to accept. As he explained to Hunold, “My reasons for not wanting to see him anymore are simply that, in making the break, he has behaved in a way which I find it quite impossible to reconcile with the conception of his character and his standards which I have cherished through twenty years of friendship . . . so far as I am concerned, the man I knew is dead and I should find it almost unbearably painful to have to meet his successor” (Robbins to Hunold, June 7, 1950). So where were Hella and the children in all of this? She was clearly much concerned about how people might interpret the fact that Fritz sought to

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divorce her. Lionel reassured her that “no stigma at all attaches to the passive party to a divorce brought in such circumstances,” and tried to focus her attention on getting a just financial settlement (Lionel to Hella, May 9, 1950). By May she apparently had reconciled herself to the divorce, contingent on getting an equitable settlement, and, following his advice, was willing to leave everything in the hands of Lionel and her solicitors to obtain that. As for the children, in the first two sentences of her first letter after hearing the news that her father was not coming back, Christine, then aged twenty, made her feelings clear: “I am very sorry indeed that you have had to take this step—it has been rather a shock, although I have felt that things were not as they should be for a while. I very much hope though that you will continue to help and advise me as before” (Christine to Hayek, Mar 11, 1950). A little later that month she sent another letter that, besides reporting on her studies and other news of the day, also broached the subject: “I should very much like to go to America for a year if that were possible. Your decision not to come back is a great shock to me. I do hope it will be possible for us to meet in the summer for a longer period, as I shall miss you more than I can say” (Christine to Hayek, Mar 29, 1950). Her father did in fact pay her way to Alpbach that summer. We know less about Laurence’s reaction to everything. In his letters he sounded like the typical fifteen-year-old boy that he was, reporting on school activities and outings of various sorts. His tone was in general light and bluff (Laurence to Hayek, Mar 9, Apr 10 and 20, 1950). There was no mention of what had happened, and according to Christine, the two children never talked about it between themselves at the time (Christine interviews, Oct 14, 2012). Better, perhaps, simply to keep quiet about such things. Fritz never heard back from Hella and, true to his word, was preparing for every contingency. He would seek a divorce on grounds of incompatibility.10 His Arkansas lawyer warned him that were it contested, it might be useful to have some corroborating evidence. He accordingly sent two letters, one written by him, the other by Hella, to Vienna, where a handwriting specialist, one Dr. Erika Smekal-Huber, performed an expert analysis on them. It is rather amazing what one can divine from a few lines scratched 10. As it would indelicately read in the divorce decree, “the defendant offered such indignities to the person of the plaintiff as have rendered plaintiff’s condition in married life with defendant intolerable.” Her solicitor had to assuage Hella about use of the phrase “indignities to the person,” noting that it was simply a legal formalism (Witt to Hella, July 3, 1950).

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on paper. The good Dr. Smekal-Huber was able to tell that Hella was “a very inhibited and artificial character” who “suffers much from the difficulties which she creates herself.” She is someone who “tries to believe that the world is as she would like to see it” but “is remote from the facts of life.” As for Fritz, his was “an entirely harmonious handwriting suggesting a balanced mind who prevails in life and knows how to master it.” In addition, “a sweeping intelligence is conspicuous, sweeping because it shows some traits of genius.”11 Any scholar who has spent hours trying to decipher Hayek’s handwriting will not fail to find this amusing. Her narrative suggests that the good doctor had had a rather long conversation with Felicitas before getting down to work. A bit later, Fritz obtained further written evidence of their incompatibility from Albert Hunold’s ex-wife, Frieda, in the form of an affidavit sworn before the American Consul General in Zurich, putatively based on diaries she had kept during their visit to Zurich.12 Another remarkable document, it records that on their 1947 stay with the Hunolds, Hella oppressed and tyrannized her husband in their presence, constantly interrupted their conversation with trivialities like a petulant child, and contradicted and ridiculed her husband whenever possible. When Hayek visited them by himself in the summer of 1948, Frieda was shocked to see how much older, tired, and depressed he looked, and it was even worse in the summer of 1949 (this last part at least was probably true). Given what we know of Hella’s personality, all of this sounds fanciful in the extreme, a command performance in support of a friend.13 And indeed later correspondence confirms that Fritz had solicited their help (Hunold to Hayek, June 2, 1950; Hayek to Hunold, June 13, 1950). Prepared for every contingency indeed. Fritz left Chicago for Toronto on March 19, and after having spent the next day there, returned to Chicago on the twenty-first. The trip to Canada 11. The expert handwriting analysis is preserved in the Hayek divorce file. 12. As noted earlier, Hella and Fritz visited the Hunolds in summer 1947, and according to Hella’s reports to Felicitas, it was a pleasant visit. We are unsure about the exact dates of the visit. In her affidavit Frieda included diary entries for four days beginning July 31, 1947, recording Hella’s bad behavior each day. Fritz’s appointment book indicates that he and Hella departed London only on July 31, which raises questions as to whether the dates recorded in Frieda’s statement were accurate. 13. At most it might be possible that she was viewed by Frieda as insufficiently deferential toward her husband. In her affidavit she emphasized how the marital problems were keeping Hayek from accomplishing the quality work of which he was capable, and she clearly held that work in very high regard herself. In any case, as Hunold noted (in a letter to Hayek, June 14, 1950), in her statements in the affidavit his former wife had gone to the limits of what her conscience could bear.

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was to ensure that he was entering the US with the appropriate visa, given his plans. He arrived in Fayetteville, Arkansas, on March 24. Meanwhile, in London, some sad events were occurring. On the day he was in Toronto, his friend Walter Eucken had a heart attack and died, aged only fifty-nine. He was in London on Hayek’s invitation, to give some lectures at LSE (see Eucken 1951). He died just as he was preparing to give his final lecture. When Hayek wrote to Röpke (Mar 30, 1950) to notify him about his impending divorce, he introduced the letter with a reminiscence of Eucken: “Dear friend, I cannot say how yesterday’s news from Hunold has shocked me. Today I got the circular with your obituary which spoke from my heart. It is an irrecoverable loss and we will feel the gap for a long time. There is no man, essentially from my own generation, for whom I have felt the same honest reverence. We who knew Eucken so well must honor his memory by cooperating in the service of the ideas that made up his life’s work.” The London tragedy was followed by a Viennese satyr play. For the succession of his own chair Hans Mayer directed the law faculty to a call list that placed Eucken, whose death was still unknown in Vienna, and Haberler in first place, followed by Mayer’s handpicked favorite Alexander Mahr—this in the certain conviction that neither Eucken nor Haberler would accept. Furthermore, on the day Hayek arrived in Arkansas, his old nemesis Harold Laski passed away. As Lionel commented in a journal he was keeping during his trip to Princeton, it was “an odd freak of circumstance which takes away from the School within six weeks both Fritz Hayek and Harold Laski” (Howson 2011, 706).

Coming to Terms High ideas and Spartan living. (Christine interviews, May 20, 2013)

• From March through May 1950 the lawyers and solicitors representing the interests of Fritz and Hella busied themselves with ironing out the distribution of assets and the question of Fritz’s future obligations to his family. As he told everyone who would listen, Fritz was committed to providing for his family’s upkeep just as if he had been there. But what did this mean to him? And what sort of lifestyle did they live? Christine’s remembrance of their having lived the modest lifestyle typical for most academics of their day is verified by examining Hayek’s tax records for 1948–49, a summary of which he provided to his lawyer during

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the settlement process (Hayek to Mann, Apr 16, 1950). His LSE salary and royalty income was £2,052 gross, which yielded £1,460 after taxes. His estimated expenses followed. Those relating to the house were about £330 per year, about half of which (£157) went to a mortgage that would be fully paid off in 1959. To provide for his retirement he had six superannuation policies, on which he paid premiums of £85 a year, this payment representing one-third the premium amount, with LSE paying the other two-thirds. Another £231 went toward school fees for Laurence and Christine, with Laurence’s fees at Westminster taking the lion’s share. Probably in order to make the expenditure on the children roughly equal, he allotted an additional £100 to Christine as a “dress allowance.” Finally there was £480 for household expenses. This left him about £230 for his own personal and professional expenses. There was also £1,000 put away in savings, probably garnered from royalties over the years, that was provisionally earmarked for Laurence’s university education. From this we can deduce that practically all of the income he earned, and certainly all that came from LSE, was fully spent each year. From what Christine could recall, her mother was an efficient household manager; the household budget would in any event have little room for extravagances. Fritz and Hella put a high value on their children’s education, especially Laurence’s—his school fees were £171 a year at Westminster, against £60 for Christine’s university fees (she was by then at Saint Mary’s College of London, studying biology) and books. If there was a squishy part in his estimates, it would have been in the amounts allocated to “household expenses” and to his own “personal and professional expenses.” It was in his interest to downplay the amount of household expenses to minimize how much he would have to pay to maintain that household in his absence. And indeed his estimate of his own expenses seems rather high. He did maintain a membership in the Reform Club and would sometimes dine there. But during the postwar period he was traveling as much as he was home, and those trips were usually paid for by others. Where was that money going? In any event Hella’s solicitor demanded considerably more, and in the end she got nearly everything that was asked for in their opening proposal. This included the house free and clear (he paid off the remaining mortgage of about £1,000) and its furniture and most of the contents (he wanted and got a picture and some of the books from his library); £550 a year for Hella and £100 each for Christine and Laurence, until they turned twentyone or finished their university education; and five of the superannuation policies, which he would continue paying into and which would pay Hella around £2,120 in 1959. The £750 that went to the family was all free of tax; Fritz would be responsible for paying the UK taxes on this amount, which

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came to about 50 percent more. It was explicitly to avoid paying even more in taxes that Hella’s solicitors agreed to allow him to sign an agreement stating that he would pay for the children’s education on a “voluntary” basis. This would include £150 a year for Christine until she had graduated and was “earning a reasonable salary,” £170 a year for Laurence while he was at Westminster, and fees comparable to Christine’s when he went to university, “if possible at Cambridge, but if not then at London University.”14 Fritz’s intent of course was to pay for their education, but by making it an untaxed voluntary commitment he would only pay £320 a year instead of close to £500. One of the curious things about the divorce agreement is that the payments to Hella and the children were specified in dollars, not pounds. This was at the insistence of her solicitors, and probably also of Lionel.15 On September 18, 1949, the Labour government had been forced to devalue the pound, from $4.03 to $2.80. Should the pound fall still lower in the future, it would be Hella, not Fritz, who would benefit: the dollar amount she was owed would translate into more pounds. Fritz was himself lucky that all the negotiations took place after the 1949 devaluation. Under the old regime, a salary of $15,000 would have been worth only £3,722 rather than £5,357, making his obligations far more costly. How reasonable was the settlement? In a late letter Lionel dismissed Fritz’s complaints about its being one-sided in Hella’s favor, noting that although the house and the children’s education were paid for, she would still have to live on £750 a year, and only £550 once the children were out of the house, in contrast to a gross salary for Fritz in America that at then current exchange rates was in excess of £5,000 (Lionel to Fritz, Oct 30, 1950). Put this way, Fritz looks like a bit of a piker. But it was not quite a fair accusation. Though he would be paid $15,000 a year at Chicago, after taxes the sum came to around $12,000, and he was obliged also to pay $1,000 each year into the university retirement scheme, so his net income was $11,000, or about £3,930. The LSE superannuation policy he retained for himself would cost him £150 a year, and his payments for Hella’s five policies totaled £155. (LSE would no longer be paying two-thirds of the premium, hence the increase.) Though Hella and the children would receive for the imme14. These amounts were specified in a Heads of Agreement document, and an associated addendum, executed on July 13, 1950. As noted in footnote 1 above, the materials from Hella’s side of the divorce were, at the time we consulted them, in a still unnumbered box. The prose on the top of the folder reads: “Friedrich von Hayek Biographical File VI Divorce—Correspondence with Stephenson, Harwood and Tatham 1949–50.” 15. Witt to Robbins, July 3, 1950, specifically mentioned the sterling issue.

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diate future £750 a year, if one adds the UK tax he would need to pay on it, his expenditure was actually about £1,125. Then there was £320 a year for the children’s education. His yearly payment for his family, then, came to £1,600, more than double the £750 mentioned by Lionel. And one must add onto this the onetime payment of £1,000 or so to pay off the mortgage. After making these payments, Fritz would have the equivalent of about £2,330 a year for him and Lenerl to live on. Though his most important capital asset (the house, the down payment for which came from his selling off part of his library) was gone, his remaining superannuation policy would provide him with a onetime payment of £6,600 when he reached sixty. There was one final expense related to the divorce. Reasonably enough, given that he was initiating the action, Fritz agreed to pay the legal fees for both parties. As a result he received a jarring eleventh-hour introduction to the unsavory side of the American legal profession. This ended up being the last straw for Fritz, but there were others that preceded it.

The Crises of June I am at the moment too exhausted even to feel the relief that it is all over. (Hayek to Mann, July 13, 1950)

• Though the lawyers had still not reached agreement on many details, things were proceeding smoothly enough in April for Fritz to send a circular letter addressed “To My Austrian Friends in the US” to let them know that he had resigned his position at LSE, that he and Hella (who bore no responsibility or blame in the matter, he added) were splitting up, and that his plan was to find a position in the United States. He felt compelled to add that they might have heard a rumor of his taking a position in Chicago, but that it was not yet certain and another offer was possible. The letter was sent to Mises, Haberler, Machlup, Furth, Morgenstern, and Schütz (see, e.g., Hayek to Morgenstern, Apr 11, 1950). There was another delicate matter to be handled in Vienna: Hans Warhanek and Lenerl had to get divorced. Hans was willing to release her, and the papers had been filed. June 12 was the date that it was to have gone into effect. They of course wanted to keep everything as quiet as possible. Divorce in a Catholic country is no trivial matter, even with both parties consenting, and given that “everyone knew everyone else” in their social stratum in Vienna, discretion was essential. Then the unthinkable happened. Hans had suffered from heart prob-

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lems in the past, and in the weeks before the divorce was scheduled to go into effect, he came down with pleurisy and was hospitalized. Though stress is not something that causes pleurisy, it was difficult not to think that the whole divorce business, no matter how cordially it was being handled, may have led to a weakened condition that made him more susceptible to disease. He seemed to be recovering though, until June 10, when his heart failed and he died.16 Lenerl felt that she had killed her husband and promptly had a nervous breakdown (Hayek to Hunold, June 28, 1950). Meanwhile, Fritz was stuck in Arkansas, unable to help. This disaster evidently put Fritz’s nerves on edge. A couple of weeks later he heard from Walter Herzfeld, the lawyer he had consulted on his arrival in New York but with whom he had not been in contact since having hired Clifton Wade in Fayetteville to handle his affairs in Arkansas. Herzfeld had on June 26 gotten a phone call from another New York lawyer, Norman Lewis, who was working with Hella’s London solicitor, John Witt. Lewis had called Herzfeld to tell him that he had obtained a copy of the advisory letter that Herzfeld had prepared for Fritz back in October 1949, advising him how to get around the problem of domiciliary intent by resigning from LSE, finding a job in Arkansas, and so on. Lewis suggested to Herzfeld that such a letter could be brought to Arkansas and used to throw doubt on Fritz’s true domiciliary intent, but if the remaining obstacles to the agreement could be overcome, the parties he represented were quite willing to cooperate. This was evidently a standard lawyer’s move to ensure his client would get all that was her due, apparently undertaken by the New York firm without having first conferred with Witt. Hayek, though, was apoplectic, thinking that Hella and her lawyers had waited to the last minute to produce the document that could prevent the divorce from going through. He immediately shot off letters to Herzfeld in New York, to Mann in London, and to Lionel. In all of them he made it very clear that he had not accepted the position in Chicago, would lose it if he did not have the divorce finalized by July 10, and that if that happened he would not have the funds to meet his obligations. He told Lionel that Hella’s lawyers were using legal chicanery and taking actions that were little short of blackmail, but that he was pre16. Hans Warhanek died June 10, 1950; Hayek (letter to Mann, July 10, 1950) told his solicitor that Lenerl’s husband had died two days before the divorce was to have become effective, hence our dating of the events. In Felicitas to Fritz, June 10, 1950, his mother tells Fritz that Hans had come down with pleurisy and that Lenerl was caring for him, and then appended a note, dated June 12, 1950, that she had just heard the news that Hans had died. In her next letter the ever-blunt Felicitas added that “Hans’s heart after all the excitement he had suffered had not been robust enough to survive the disease” (Felicitas to Fritz, June 22, 1950).

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pared to lose the Chicago job and stay permanently in Arkansas at $5,000 a year in order to get the divorce (Fritz to Lionel, June 29, 1950).17 As might be expected, this initiated a furious flurry of activity, airmail letters, cables, and face-to-face meetings between Witt and Mann in London, made all the more difficult because the American part of the negotiation was taking place over the July 4 holiday. For a while it looked like time had run out, particularly to Hayek, and it was indeed close. The culminating meeting, and accompanying indignities, all richly (and it must be said somewhat comically—even under duress he had not lost his coffeehouse storytelling skills) described by Hayek in a letter to his London solicitor, took place in Fayetteville on July 12 and 13. Fritz and his local lawyer, Mr. Wade, confronted three lawyers from two different firms: Norman Lewis from New York, Mr. Frankel, who represented Hella’s interests in Arkansas, and Mr. Hale, who worked for Frankel and was the local Fayetteville representative. Though Frankel had briefed Hale on the matter, he “solely for the purpose of increasing his fees decided to come to Fayetteville in person.” Though everything was arranged, the three opposing lawyers declined to do anything until a payment of $2,100, in cash, to cover their fees had first been produced. Though Hayek was eventually able to get them to accept $1,600 for the time being, it was a long process: these gentlemen were interested solely in their fees, and after devoting to this question all evening and the greater part of the night, finally gave to the interest of their client about five minutes, proved practically entirely uninformed and apparently would have approved of everything so long as only their fees were safeguarded. The actual “court” procedure, 17. He probably would not have stayed in Arkansas if things had fallen through. From at least 1949 onward, Hunold pursued the idea of securing a position for Hayek in Zurich. He let Hayek know that a new Section for Economic Studies had been added to the Swiss Institute of International Studies in Zurich and was looking for a director who might also simultaneously hold a professorship at the University of Zurich, as the successor to the chair of Manuel Saitzew. Owing to Hunold’s tireless activities there would have been a real chance for Hayek’s appointment, but it appears that Hayek regarded Zurich as an exit option to be used only if his plans for Chicago failed. Anyway, Hayek never committed himself definitively, and in the end, in April 1951, rejected the offer. Hunold ended up serving as the director of the new section, and after some logrolling the vacant chair was split and filled in 1953 by Jürg Niehans, a young lecturer and pupil of Saitzew, and Friedrich Lutz, member of the MPS. See Longchamp and Steiner 2007, 5–7; Franc 2018, 36; and various letters in the Hayek-Hunold correspondence, 1949–1951, especially Hunold to Hayek, April (no day) 1951, for Hayek’s final rejection.

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in the judge’s chamber, smoking round a table, took about fifteen minutes. The “O.K.” was spoken this morning at eleven, I had the decree at 12, and fifty minutes later I was on the way to catch this train, the last to get me to Chicago in time to settle matters there in person. (Hayek to Mann, July 13, 1950)

Hayek delivered his letter to Chancellor Hutchins accepting the Chicago offer of employment later that day, and on July 15 he was on his way to Europe (Hayek to Hutchins, July 13, 1950). Between court costs and the fees charged by Hella’s and his own lawyers in Arkansas, he had spent $2,350 and was, as he told Mann, “more than broke.” Luckily he had already bought the necessary tickets to get him to and from the continent that summer. On the same day that he wrote to Mann to tell him of his extraordinary just-completed meeting with the ill-mannered and avaricious American lawyers, he wrote a final, venomous letter to Hella. He had in the days preceding the divorce found out from Mann of Hella’s role in the Herzfeld letter affair. Before Fritz had left London in December 1949, or perhaps when he was away in Vienna, she had either broken into his locked desk or, using a second key, had gotten into the luggage he had packed for America. She had found the letter from Herzfeld, copied it, and given it to her solicitor. Fritz did not mail his accusatory letter to Hella until he had confirmed the account from Mann in person. But even then he waited.

Denouement Fritz arrived in London on July 17 and soon thereafter made his way to Innsbruck, where he and Lenerl spent a week with his brother’s family. There had been an initial plan of getting married in Zurich at the British embassy, where Lenerl could also apply for British citizenship, but this proved unmanageable. So instead they were wed in Vienna, on August 3, 1950. Given that this was less than two months after Hans’s death, they planned to keep it a secret for as long as they could, especially from their Viennese acquaintances. For the rest of August Fritz and Lenerl spent their honeymoon at the Tyrolean village Kühtai, skipping the Alpbach seminar, which Christine was attending. Hayek understandably had somewhat neglected the organizational details for the Mont Pèlerin Society meeting that took place the first week of September in Bloemendaal, Holland, but local organizers (who paid for the meeting) and Hunold and Director picked up the slack. In the absence of travel funds, it was mostly a European affair. Aside from Harry Gideonse, Felix Morley, and Leonard Read, the only others from America were people

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like Mises, Lutz, and Haberler who had themselves relocated there from Europe. Following the meeting Fritz returned to Vienna for three weeks; then the newly married couple left for London. On October 6 they departed Liverpool for America, sailing on the Cunard ship Britannic (Cunard Line to Hayek, Mar 3, 1950).18 Luckily for Fritz, his appointment at Chicago formally began on July 1, 1950, so he had some money waiting for him and was no longer “more than broke.” After settling in, he sent a check for $304.23 to Herzfeld, then another to Hella for £253.4.10, his payment for the fall quarter (Fritz to Hella, Oct 26, 1950).19 He enclosed with it the letter he had written in the heat of the moment on July 13, with a handwritten note at the top of it that read, “I have retained this letter until now in the hope that my earlier letter to Lionel might produce an explanation. Since my conversations with my solicitor in London have, however, confirmed every detail, I find it essential that you should know that I am aware of the facts. 26.x.50, FAH” (Fritz to Hella, July 13, 1950). The enclosed letter was horrible. The “facts” were that the document that had been used by her lawyers for “extortion of the most reprehensible kind” had been “clandestinely extracted by you from my papers,” and that this was done so that it could be produced at the last moment in order to get the best settlement. Given that the settlement could have been handled by a single letter from London, the fact that she had employed three American lawyers who had demanded $2,100 was an outrage. Paying them would leave him in debt for years, with severe consequences: “If it was your wish to squander what money I might have had for Laurence [sic] education in Cambridge, you could not have done so more effectively.” After having learned of her other efforts to sabotage him by writing to Nef and others, perhaps he should not have been surprised. But he wanted her to know that she had “succeeded in destroying every bit of good will and respect I have felt.” He was ripping up his will and she should expect nothing more from him beyond what he was now obligated to pay in the settlement. This was not Hayek’s finest moment. The letter had been written in anger the very day he had gotten the divorce, probably on the train to Chicago, after a night spent haggling with a pack of rapacious lawyers, when 18. Another summer chore was to begin the process of securing British citizenship for Lenerl, so that it would be easier for her to return to Vienna, still in the Soviet zone, unmolested. After the usual bureaucratic delays, this was finalized the next year (Mann to Hayek, Jan 20, 1951). 19. Mann would continue to represent Fritz, and Witt to represent Hella, in the numerous legal, tax, and other entanglements that were to continue for the rest of the decade.

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he was both exhausted and at his most bilious. He wanted her to know that he knew about her letter to Nef, about her having gone through his papers, and he wanted to chastise her about the extortionate costs of her American attorneys.20 But why in the world did he feel the need to send it over three months later? He had just written her a sizable check, so may have been feeling the pinch. But he also assumed, as it turned out very wrongly, that she had been aware of what was going on and indeed bore ultimate responsibility for it. In reality, though she had copied the Herzfeld letter of advice and given it to her solicitor, she had by early May turned all responsibility for coming to terms over to Lionel and her solicitors and knew nothing of what had taken place subsequently. Hella was shaken by the letter, which she immediately turned over to Lionel.21 Now it was Lionel’s turn to be outraged, writing to Fritz that his letter to Hella involved “such substantial injustice” that he felt compelled to write to him. He pointed out that, wanting to preserve Hella’s health and peace of mind, he had not even shown her the letter Fritz had sent from Arkansas in late June, but instead immediately contacted Witt to make sure the negotiations were going ahead as planned. Lionel had known Witt since their days together at Oxford (Witt had been his student) and could attest to his good character. The New York lawyers were acting on their own initiative when they contacted Herzfeld, not at Witt’s instruction. The only thing that Fritz might have some right to complain about was that “at a stage when she felt the foundations of her world adrift, she [Hella] copied a letter of yours, relating to the possibility of breaking a contract to which she was a party, and handed it to her lawyer. If after all that you have done you hold this to be a grave offense, your conception of justice is very different from mine” (Lionel to Fritz, Oct 30, 1950). This prompted a reply from Fritz in which he defended his interpreta20. The two American lawyers, Frankel and Lewis, each demanded $750 for their services, while Witt, Hella’s London solicitor who had done most of the work, got $600. Hayek eventually paid his own London solicitor $500, Herzfeld in New York got $300, and Wade in Arkansas probably received the same as Herzfeld, so Hayek does seem to have been taken for a bit of a ride by the opposing lawyers. It is unclear whether he ever paid the remaining $500 to them. 21. This is why the letter may be found in Lionel’s papers at LSE, not in Hella’s divorce file. A copy of the letter, without Hayek’s handwritten addendum noting that it was actually sent in October, may be found in Hayek’s divorce file at the Hoover Institution. Hella did draft a letter to Lionel explaining that she was not proud of copying the Herzfeld letter but took that step because she knew that Fritz was intending to do her a grievous harm. She was unapologetic about the letter to Nef, though. It is not clear whether she ever sent the letter to Lionel.

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tion of “the facts” and further castigated Witt and Hella. Lionel started writing a lengthy reply, going through everything again, but thought better of it, instead sending a short summary of the facts meant to exonerate Hella and Witt from any charges of malicious intent. What remained was that Hella had indeed copied a document that belonged to Fritz and given it to her lawyer. For Fritz to have any right to feel offended, he would need to prove that his own record in this matter was clear of any surreptitious behavior, “a task which would tax even your ingenuity.” He finished by letting Fritz know that he and Frank Paish had advised Hella to turn over any future letters from him unopened to her advisers (Lionel to Fritz, Nov 20, 1950). Fritz’s brief final reply ended with the following sentence: “If you will now be good enough to arrange that my representative in London is at last informed to whom I am to make future payments, all need for direct communication will cease” (Fritz to Lionel, Dec 8, 1950). * * * The divorce clearly left no one unscathed, and the scars would last for years. Fritz had pursued his passionate mission doggedly and by the end so fanatically that he could not see straight. Hella had lost her husband to another woman. Christine and Laurence had seen their father walk out the door and then were told by their mother that their father was not coming home. Lenerl had lost her husband, literally, and doubtless felt some responsibility for his death. Her children, Max and Hans, had lost their father. Finally, Fritz had lost his best friend. Thus would this perennial stranger begin a life in the New World, at a new job and with a new wife, with a slate that had, rather painfully, been wiped very clean indeed. We will take up the rest of his story in the next volume.

Acknowledgments

We here wish to acknowledge the many people and organizations who supported us in our work and contributed to this volume. Given that we have toiled over our book for a decade, there are bound to be omissions, so we also beg forgiveness from those whom we may have overlooked. We thank the members of the Hayek family who provided access to primary materials and interviews: Friedrich Hayek’s children, Larry and Christine; Larry’s wife, Esca, and daughter Catherine and her family; and Heinz Hayek’s grandson Richard Zundritsch and his wife, Caroline. We also thank Hans Warhanek and his wife, Ingrid, for sharing reminiscences of his mother and stepfather, and their son George for providing a picture of Lenerl as a young woman. We thank friends and acquaintances of Hayek who sat for interviews: John Blundell, Charlotte Cubitt, and Anne Robbins Johnson. We thank Peter Boettke and the F. A. Hayek Program for Advanced Study in Philosophy, Politics, and Economics at the Mercatus Center at George Mason University for hosting us at a manuscript conference on the book in April 2019. We received many helpful suggestions for changes at the twoday event. Attendees included Paul Dragos Aligica, Pete Boettke, Rosolino Candela, Bobbi Herzberg, Mark Koyama, David Levy, Paul Lewis, Solomon Stein, Richard Wagner, and Larry White. We thank the archivists at the various institutions listed in the archival resources section at the end of this book for their helpful assistance in our endeavors. Finally, we thank Chad Zimmerman and Alicia Sparrow at the University of Chicago Press for shepherding our manuscript through the publication process, the two anonymous readers whose comments helped us make needed improvements in the manuscript, and copyeditor Susan Tarcov for assisting us in making the final transition. Because we executed our tasks in different countries and drew on differ-

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ent people, it is probably best if we separate our further acknowledgments by author. A large number of people contributed to this book, and in various ways. Some read chapters, some responded to queries I had, some simply engaged in conversation with me in person or by email about matters Hayekian. Some are more significant than others in their contributions, but it would be invidious to point that out, and anyway, they know who they are. I will list them alphabetically: Aditya Balasubramanian, Simon Bilo, Gábor István Bíró, Olav Bjerkholt, Pete Boettke, Stephan Böhm, Mauro Boianovsky, Jason Brent, Jonny Bunning, Angus Burgin, Jennifer Burns, Eamonn Butler, Rafe Champion, Hsiang-Ke Chao, John Chisholm, Jon Cogliano, David Colander, Nathanaël Colin-Jaeger, Stephen Davies, Neil De Marchi, Francesco Di Iorio, Paul Dudenhefer, Till Düppe, Bill Easterly, Richard Ebeling, Ross Emmett, Andrew Farrant, Jesus Fernandez-Villaverde, Jerry Gaus, Hannes Gissurarson, Craufurd Goodwin, Malachi Hacohen, Dan Hammond, Wade Hands, Pat Higgins, Kevin Hoover, Karen Horn, Steve Horwitz, Eric Howard, Sue Howson, Doug Irwin, Jennifer Jhun, Wolfgang Kasper, Wendula Klinckowstroem, Ekkehard Köhler, Stefan Kolev, Stephen Kresge, Tomáŝ Krĭstofóry, Ian Kumekawa, Rob Leonard, David Levy, Paul Lewis, Leonard Liggio, Harro Maas, Phil Magness, Mark McAdam, Steve Medema, Alberto Mingardi, Phil Mirowski, David Mitch, Leon Montes, Paul Mueller, Nadia Nedzel, Eddie Nik-Khah, Mark Nolan, Jerry O’Driscoll, Gabriel Oliva Cunha, Emilio Pacheco, Sandy Peart, Costis Repapis, Scott Scheall, Reinhard Schumacher, Anwar Shaikh, Tim Shenk, Josef Šíma, Emily Skarbek, Quinn Slobodian, Ohad Reiss Sorokin, John Staddon, Stephen Stigler, George Tavlas, Viktor Vanberg, Rob Van Horn, Karen Vaughn, Janek Wasserman, Roy Weintraub, and Larry White. I received comments when I presented papers in sessions at meetings of the History of Economics Society, the Southern Economic Association, the Association of Private Enterprise Education, and the Mont Pèlerin Society, and at seminars and workshops at various universities, among them the National Tsing Hua University, Taiwan, Oklahoma State University, George Mason University, the University of Alberta (Wirth Conference), and the University of Quebec at Montreal. My thanks to all who were kind enough to respond to my work and helped me improve it. My thanks to Verena Halsmayer for doing a translation of Hayek’s letters to Hella and to Alexandra Hecker for doing initial translations of the Hayek family correspondence. I owe large debts to the participants in two programs sponsored by the Center for the History of Political Economy at Duke University. The first

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is to the fellows and others who offered comments over the years when I presented chapters at either HOPE Workshops or HOPE Lunches. These intimate gatherings are ideal for getting substantive critical comments and recommendations for improvement, and the book is much better as a result. Second, I presented an overview of the book at the Duke 2018 Summer Institute on the History of Economics (https://hope.econ.duke.edu /2018SummerInstitute) and received many interesting responses and suggestions from participants. My thanks to you all. A number of universities and foundations provided support for this work. From 2012 to 2015 I held the Ludwig M. Lachmann Research Fellowship, funded by the Charlottenberg Trust, at the Center for Philosophy of Natural and Social Science at the London School of Economics. From 2016 to 2018 I received a grant from the John Locke Foundation, funded by the Thomas W. Smith Foundation, to support my research. In 2019–20 I was a distinguished visiting fellow of the Hoover Institution at Stanford University and received additional support for my stay there from the Institute for Humane Studies and Duke University. I would also like to mention here the summer grant that I received from the John William Pope Foundation to study Hayek’s writings that started me on the long path that culminated in this book. My sincere thanks to all of them. Though we already thanked the archivists who assisted us in our research, I want specially to recognize Sarah Patton and Jessica Lemieux at the Hoover Institution for their help, and also Director of the Library and Archives Eric Wakin, whose efforts ensured that my stay was both productive and pleasant. I finally thank my family, Leslie, Claire, and Sam, for their infinite patience and for their insistence on occasion that we talk about something other than Hayek. Bruce Caldwell My work on this biography is only the last phase of a long period of research centering on Friedrich Hayek. In this regard I owe a great debt to my late colleague Norbert Hentschel, who first directed my interest to the history of economic thought in general and to Hayek in particular. I am also indebted to my home university for many years, WU Vienna University of Economics and Business, at all its levels, for not only accepting but supporting a research interest that lay outside the mainstream. I profited immensely from casual conversations on Hayekian themes with my colleagues at the Institute for Labour Economics at WU, Herbert Walther, Thomas Grandner, Alfred Sitz, Florian Schoiswohl, and Michael Wüger; from invitations

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to present papers at the Department Staff Seminar; and in general from working in an environment conducive to my research. In addition to Caldwell’s list of scholars who contributed to this book (some of whom I also consulted with), I’d like to thank (again in alphabetical order) Günter Chaloupek, Christian Fleck, Andrea Franc, Roland Fritz, Christian Gehrke, Nils Goldschmidt, Harald Hagemann, Johannes Koll, Heinz D. Kurz, Karl Milford, Arash Molavi Vasséi, Reinhard Neck, Andreas Resch, Heinz Rieter, Peter Rosner, Richard Sturn, Hans-Michael Trautwein, and Theodor Venus. Beyond the assistance always experienced in my archival work, I am especially grateful to those who helped me access papers that are still being processed, that is, to Stefan Kolev for making available digitized files of the Wilhelm Röpke Papers at Erfurt, to Steffen J. Roth for granting access to and to Rick Wendler for taking pictures of the Hayek-Hunold correspondence preserved at the Institut für Wirtschaftspolitik at the University of Cologne, and to Uwe Dathe for copies of the Hayek-Eucken correspondence preserved at the Walter Eucken Papers at Jena. In addition, without Karl Pechter’s transcriptions of Felicitas’s letters in Kurrent handwriting, the deciphering of most of her correspondence would have been utterly impossible. Luisa Lacovara assisted us by translating some Italian passages from Hayek’s war diary. Hayek’s life and works have been the topic of papers that I presented at various conferences. Besides regular participation at the annual meetings of the European Society for the History of Economic Thought, the History of Economics Society, and the Committee for the History of Economic Thought of the Verein für Sozialpolitik, I presented papers at the HOPE Workshop at Duke University, the Walter Eucken Institute, the Vienna Friedrich v. Hayek Institute, the Austrian Economics Association, and a meeting of the Atlantic Economic Society. I am grateful for the valuable comments and suggestions that I received on these occasions. I could not have succeeded in my endeavors without two one-year sabbaticals generously granted and funded by WU, the first for finishing two volumes that I edited in the Collected Works of F. A. Hayek series, the second for work on this biography. Fortunately, I was able to spend extended periods of these sabbaticals as a visiting research fellow at CHOPE and benefited from its inspiring atmosphere. Financial support for these visits from the Vienna Schumpeter Society and the Austrian National Bank’s Internationalization Prize is also gratefully acknowledged. Finally, I thank all, family and friends, who may feel they have suffered all these years from my preoccupation with biography writing. Hansjoerg Klausinger

References

Abbreviations AF “Autobiographical Fragments” CW-FAH The Collected Works of F. A. Hayek. Series eds. W. W. Bartley, Stephen Kresge, and Bruce Caldwell. Chicago: University of Chicago Press; London: Routledge. CW-JMK The Collected Writings of John Maynard Keynes. Series ed. Donald Moggridge. Cambridge: Cambridge University Press; London: Macmillan, for the Royal Economic Society. EHH “Erinnerungen aus dem Hause Hayek” FH “Family History” GS-FAH Friedrich A. von Hayek. Gesammelte Schriften in deutscher Sprache. Tübingen: Mohr Siebeck. IB “Inductive Base” JWD “Juvenile War Diary” WD “War Diary”

Writings by Friedrich August Hayek 1920. “Beiträge zur Theorie der Entwicklung des Bewußtseins.” Typescript. In FAHP 93.1. Published in Hayek 2006, 199–226. English trans.: Hayek 2018b. 1921. “Der nordische nationalökonomische Kongreß in Stockholm, August– September 1920.” Zeitschrift für Volkswirtschaft und Sozialpolitik 1: 120–25. 1922a. “Die österreichischen Güter, Rechte und Interessen in Italien.” Friedensrecht. Ein Nachrichtenblatt über die Durchführung des Friedensvertrages 1 (9): 135–39. 1922b. “Review: Siegfried Strakosch, Der Selbstmord eines Volkes.” Zeitschrift für Volkswirtschaft und Sozialpolitik 2: 802–4. 1923a. “Zur Problemstellung der Zurechnungslehre.” Doctoral thesis, University of Vienna. Typescript. In FAHP 104.27. 1923b. “Review: Boris L. Brasol, Socialism versus Civilisation.” Zeitschrift für Volkswirtschaft und Sozialpolitik 3: 186–87.

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1923c. “Review: L. V. Birck, The Theory of Marginal Value.” Zeitschrift für Volkswirtschaft und Sozialpolitik 3: 383–85. 1923, Aug 19. “Germany’s Finances.” New York Times, 8. 1924a. “Stabilisierung der Wechselkurse oder Stabilisierung der Preise?” Typescript. In FAHP 104.29. Published in Hayek 2015c, chap. 2. English trans.: Hayek 1999d. 1924b. “Diskontpolitik und Warenpreise.” Der Österreichische Volkswirt 17 (1, 2): 21–24, 41–43. Rpt. Hayek 2015c, chap. 3. 1924c. “Das Stabilisierungsproblem in Goldwährungsländern. Eine Übersicht neuerer theoretischer Literatur.” Zeitschrift für Volkswirtschaft und Sozialpolitik 4: 366–90. Rpt. Hayek 2015c, chap. 1. English trans.: Hayek 1999c. 1924d. “Review: R. A. Lehfeldt, Die Wiederherstellung der Währungen.” Zeitschrift für Volkswirtschaft und Sozialpolitik 4: 576. 1924e. “Review: Irving Fisher, Der schwankende Geldwert.” Zeitschrift für Volkswirtschaft und Sozialpolitik 4: 786–87. 1925a. “Das amerikanische Bankwesen seit der Reform von 1914.” Der Österreichische Volkswirt 17 (29, 30, 32, 33): 794–96, 822–24, 881–82, 906–8. Rpt. Hayek 2015c, chap. 4. 1925b. “Die Währungspolitik der Vereinigten Staaten seit der Überwindung der Krise von 1920.” Zeitschrift für Volkswirtschaft und Sozialpolitik 5, part 1: 25–63; part 2: 254–317. Rpt. Hayek 2015c, chap. 5. English trans.: Hayek 1999e. 1925c. “Review: Leo Schönfeld, Grenznutzen und Wirtschaftsrechnung.” Archiv für Sozialwissenschaft und Sozialpolitik 54: 547–52. English trans.: Hayek 1984b. 1925, Apr 14. “Letter to the Editor: A Critic of Socialism,” The Times, 11. 1925–29. “Geldtheoretische Untersuchungen.” Typescript. In FAHP 105.1–4; published in Hayek 2015c, chap. 9. English trans.: Hayek 2012c. 1926a. “Bemerkungen zum Zurechnungsproblem.” Jahrbücher für Nationalökonomie und Statistik 124 (= 3rd ser. 69): 1–18. Rpt. Hayek 2015c, chap. 7. English trans.: Hayek 2015d. 1926b. “Friedrich Freiherr von Wieser.” Jahrbücher für Nationalökonomie und Statistik 125 (= 3rd ser. 70): 513–30. Rpt. Wieser 1929, v–xxiii, and Hayek 2017, chap. 11. English trans.: Hayek 1992c. 1926c. “Die Bedeutung der Konjunkturforschung für das Wirtschaftsleben.” Der Österreichische Volkswirt 19 (1): 46–49. Rpt. Hayek 2015c, chap. 6. 1926, July 10. “Professor Dr. Friedrich Wieser zu seinem 75. Geburtstag.” Wiener Neueste Nachrichten, 4–5. 1927a. “Zur Problemstellung der Zinstheorie.” Archiv für Sozialwissenschaft und Sozialpolitik 58: 517–32. Rpt. Hayek 2015c, chap. 8. English trans.: Hayek 2015e. 1927b. “Einleitung.” In Gossen 1927, ix–xxiii. Rpt. Hayek 1928c and Hayek 2017, chap. 20. English trans.: Hayek 1991d. 1927c. “Konjunkturforschung in Österreich.” Die Industrie 32 (30): 1–5. [Anon.]. 1927d. “Die Methoden der Konjunkturforschung und ihre Anwendung in

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Österreich.” Monatsberichte des Österreichischen Instituts für Konjunkturforschung 1 (June): 2–17. [Anon.]. 1927e. “Aufgaben und Organisation des Institutes.” Typescript. In OMP 2.1926–1927, H–K. 1927f. “Review: Alfred Müller, Ökonomische Theorie der Konjunkturpolitik.” Jahrbücher für Nationalökonomie und Statistik 127 (= 3rd ser. 72): 536–37. 1927g. “Review: Gustav Cassel, Das Geldwesen nach 1914.” Zeitschrift für Volkswirtschaft und Sozialpolitik 5: 610–13. 1928a. “Das intertemporale Gleichgewichtssystem der Preise und die Bewegungen des ‘Geldwertes.’” Weltwirtschaftliches Archiv 28: 33–76. Rpt. Hayek 2015c, chap. 10. English trans.: Hayek 1999h. 1928b. “Einige Bemerkungen über das Verhältnis der Geldtheorie zur Konjunkturtheorie.” In Diehl, ed. 1928, 247–94. English trans.: Hayek 2002a. 1928c. Hermann Heinrich Gossen. Eine Darstellung seines Lebens und seiner Schrift. Bio-bibliographische Beiträge zur Geschichte der Rechts- und Staatswissenschaften: Abteilung Staatswissenschaften 8. Berlin: Prager. 1928d. “Die Aufgaben der wissenschaftlichen Konjunkturforschung.” Incomplete typescript of a radio lecture (dated Oct 5, 1928). In FAHP 104.32. 1928e. “Review: Enrico Barone, Grundzüge der theoretischen Nationalökonomie.” Zeitschrift für die gesamte Staatswissenschaft 85: 178–81. 1928f. “Review: Gottfried Haberler, Der Sinn der Indexzahlen. Eine Untersuchung über den Begriff des Preisniveaus und die Methoden seiner Messung.” Jahrbücher für Nationalökonomie und Statistik 129 (= 3rd ser. 74): 445–49. 1928g. “Review: Ludwig von Mises, Geldwertstabilisierung und Konjunkturpolitik.” Schmollers Jahrbuch für Gesetzgebung, Verwaltung und Volkswirtschaft 52: 1085–88. 1929a. Geldtheorie und Konjunkturtheorie (Beiträge zur Konjunkturforschung, 1). Vienna: Hölder-Pichler-Tempsky. Rpt. Hayek 2016, chap. 1. English trans.: Hayek 1933a. 1929b. “Gibt es einen ‘Widersinn des Sparens’?” Zeitschrift für Nationalökonomie 1: 387–429. Rpt. Hayek 2015c, chap. 11. English trans.: Hayek 1931c. 1929c. “Redebeitrag.” In Boese, ed. 1929, 369–75. 1929d. “Neuere Literatur über amerikanisches Bankwesen I. 1920–1925,” Zeitschrift für Nationalökonomie 1: 146–55. 1929e. Das Mieterschutzproblem. Nationalökonomische Betrachtungen. Vienna: Steyrermühl. Rpt. Hayek 2001, chap. 13. 1929f. “Review: Adolf Weber, Allgemeine Volkswirtschaftslehre.” Zeitschrift für Nationalökonomie 1: 156–62. 1929g. “Review: Edwin Cannan, An Economist’s Protest.” Zeitschrift für Nationalökonomie 1: 467–70. English trans.: Hayek 1995c, 69–73. 1929h. “Review: Georg Halm, Die Konkurrenz. Untersuchungen über die Ordnungsprinzipien und Entwicklungstendenzen der kapitalistischen Verkehrswirtschaft.” Jahrbücher für Nationalökonomie und Statistik 131: 614–17.

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1929i. “Review: Gustav Cassel, Post-war Monetary Stabilization.” Zeitschrift für Nationalökonomie 1: 479–80. 1929j. “Review: Hans Honegger, Der schöpferische Kredit.” Zeitschrift für Nationalökonomie 1: 321–23. 1929k. “Review: Hans Neisser, Der Tauschwert des Geldes.” Weltwirtschaftliches Archiv 29: 103–6. English trans.: Hayek 2012d. 1929l. “Review: Oskar Anderson, Zur Problematik der empirisch-statistischen Konjunkturforschung.” Zeitschrift für Nationalökonomie 1: 326. 1929m. “Review: Wilhelm Röpke, Die Theorie der Kapitalbildung.” Zeitschrift für Nationalökonomie 1: 474–75. English trans.: Hayek 1992i. 1929n. “Review: Gerhard Heinze, Statische oder dynamische Zinstheorie?” Archiv für Sozialwissenschaft und Sozialpolitik 61: 432–33. 1930a. “Bemerkungen zur vorstehenden Erwiderung Prof. Emil Lederers.” Zeitschrift für Nationalökonomie 1: 755–61. 1930b. “Review: Leonhard Miksch, Gibt es eine allgemeine Überproduktion?” Zeitschrift für Nationalökonomie 1: 625–26. 1930c. “Review: M. W. Holtrop, De Omloopssnellheid van het Geld.” Zeitschrift für Nationalökonomie 2: 143–44. 1930d. “Review: Edwin Cannan, A Review of Economic Theory.” Archiv für Sozialwissenschaft und Sozialpolitik 63: 199–203. 1930e. “Review: Ignaz Emrich, Die geldtheoretischen und geldpolitischen Anschauungen John Lockes.” Zeitschrift für Nationalökonomie 1: 774. 1930–31. “Geschichte des Geldwesens.” In Hayek 2015c, chap. 12. English trans.: Hayek 1991b. 1931a. Prices and Production. London: Routledge. Rpt. Hayek 2012a, 167–283. 1931b. Preise und Produktion (Beiträge zur Konjunkturforschung, 3). Vienna: Springer. Rpt. Hayek 2016, chap. 2. 1931c. “The ‘Paradox’ of Saving.” Economica 32: 125–69. Rpt. Hayek 1995a, chap. 2. 1931d. “The Purchasing Power of the Consumer and the Depression.” Typescript. In FAHP 188.1. Published in Hayek 2012b, chap. 2. 1931e. “Richard Cantillon.” In Cantillon 1931a, v–lxvi. Rpt. Hayek 2017, chap. 21. English trans.: Hayek 1991c. 1931f. “Reflections on the Pure Theory of Money of Mr. J. M. Keynes.” Economica 33: 270–95. Rpt. Hayek 1995a, chap. 3. 1931g. “A Rejoinder to Mr. Keynes.” Economica 34: 398–403. Rpt. Hayek 1995a, chap. 5. 1931h. “Wirkungen der Mietzinsbeschränkungen.” In Boese, ed. 1931, 251–70, 318–19. Rpt. Hayek 2001, chap. 14. English trans.: Hayek 2022b. 1931i. “Konjunkturankurbelung durch Investitionen?” Typescript. In FAHP 103.25. Published in Hayek 2015c, chap. 13. 1931, Oct 7. “Die Währungslage in England.” Neues Wiener Tagblatt, 11. 1932a. “Kapitalaufzehrung.” Weltwirtschaftliches Archiv 36: 86–108. Rpt. Hayek 2016, chap. 3. English trans.: Hayek 2015f.

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1932b. “Money and Capital: A Reply.” Economic Journal 42: 237–49. Rpt. Hayek 1995a, chap. 8. 1932c. “A Note on the Development of the Doctrine of ‘Forced Saving.’” Quarterly Journal of Economics 47: 123–33. Rpt. Hayek 2012b, chap. 3. 1932d. “Reflections on the Pure Theory of Money of Mr. J. M. Keynes (continued).” Economica 35: 22–44. Rpt. Hayek 1995a, chap. 6. 1932e. “Das Schicksal der Goldwährung.” Der Deutsche Volkswirt 20: 642–45, and 21: 677–81. Rpt. Hayek 1965a and Hayek 2011b, chap. 1. English trans.: Hayek 1999f. 1932f. “Review: Richard Cantillon, Essai sur la nature du commerce en général. Edited with an English translation by Henry Higgs.” Economic Journal 42: 61– 63. Rpt. Hayek 1991a, 290–93. 1932, June 4. “Letter to the Editor: Foreign Exchange Restrictions.” Economist, 1243. 1932, Aug 8. “Die Bedeutung der New-Yorker Börsenhausse: Konjunkturumschwung?” Neues Wiener Tagblatt, 16. 1932, Aug 9. “Das ‘Gesetz zum Schutze der Währung.’” Neues Wiener Abendblatt, 1. 1932, Oct 19. (Jointly with Theodore E. Gregory, Arnold Plant, and Lionel Robbins.) “Spending and Saving: Public Works from Rates.” The Times, 10. Rpt. Hayek 2022a, chap. 31. Ed. 1933. Beiträge zur Geldtheorie. Vienna: Julius Springer. 1933a. Monetary Theory and the Trade Cycle. London: Jonathan Cape. Rpt. Hayek 2012a, 47–165. 1933b. “Über ‘neutrales Geld.’” Zeitschrift für Nationalökonomie 4: 659–61. Rpt. Hayek 2016, chap. 4. English trans.: Hayek 1999i. 1933c. “Der Stand und die nächste Zukunft der Konjunkturforschung.” In Clausing, ed. 1933, 110–17. Rpt. Hayek 2016, chap. 5. English trans.: Hayek [1939c] 2012b. 1933d. “The Trend of Economic Thinking.” Economica 40: 121–37. Rpt. Hayek 1991a, chap. 1. 1933e. “Nazi-Socialism.” Typescript. In FAHP 105.10. Published in Hayek 2007a, 245–48. 1933f. “Restoring the Price-level?” Typescript. In FAHP 105.11. Published in Hayek 2012b, chap. 5. 1934a. “Capital and Industrial Fluctuations.” Econometrica 2: 152–67. Revised version in Hayek 1935g, 132–62. Rpt. Hayek 2012b, chap. 6. 1934b. “Introduction.” In Menger 1934–36, 1: v–xxxviii. Rpt. as “Carl Menger,” Economica, n.s. 1, 393–420. Rev. version in Hayek 1992a, chap. 2. 1934c. “On the Relationship between Investment and Output.” Economic Journal 44: 207–31. Rpt. Hayek 2015a, chap. 6. [Anon.] 1934, Mar 17. “The Outlook for Interest Rates.” Economist, 563–64. 1934, Aug 19. “Preisentwicklung und Konjunktur.” Neues Wiener Tagblatt, 14. Ed. 1935. Collectivist Economic Planning: Critical Studies on the Possibility of Socialism. London: Routledge.

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1935a. “The Nature and History of the Problem.” In Hayek, ed. 1935, 1–40. Rpt. Hayek 1997, chap. 1. 1935b. “The Present State of the Debate,” In Hayek, ed. 1935, 201–43. Rpt. Hayek 1997, chap. 2. 1935c. “Edwin Cannan †.” Zeitschrift für Nationalökonomie 6: 246–50. English trans.: Hayek 1995c, 64–69. 1935d. “The Maintenance of Capital.” Economica, n.s. 2: 241–76. Rpt. Hayek 2015a, chap. 10. 1935e. “Preiserwartungen, monetäre Störungen und Fehlinvestitionen.” Nationaløkonomisk Tidsskrift 73: 176–91. Rpt. Hayek 2016, chap. 6. English trans.: Hayek 1939d. 1935f. “Foreword.” In Brutzkus 1935. Rpt. Hayek 1997, 84–87. 1935g. Prices and Production. London: Routledge. 2nd enl. ed. 1935, May 11. “A Regulated Gold Standard.” Economist, 1077–78. 1936a. “Technischer Fortschritt und Überkapazität.” Österreichische Zeitschrift für Bankwesen 1: 9–23. Rpt. Hayek 2016, chap. 7. English trans.: Hayek 2015g. 1936b. “Utility Analysis and Interest.” Economic Journal 46: 44–60. Rpt. Hayek 2015a, chap. 3. 1936c. “The Mythology of Capital.” Quarterly Journal of Economics 50: 199–228. Rpt. Hayek 2015a, chap. 8. 1936d. “Book Review: Sidney and Beatrice Webb, Soviet Communism: A New Civilization?” Rpt. Hayek 1997, 239–42. 1937a. Monetary Nationalism and International Stability. Geneva: Longmans. Rpt. Hayek 1999b, chap. 1. 1937b. “Economics and Knowledge.” Economica, n.s. 4: 33–54. Revised version in Hayek 1948a, chap. 2. Rpt. Hayek 2014a, chap. 1. 1937c. “Das Goldproblem.” Österreichische Zeitschrift für Bankwesen 2: 255–71. Rpt. Hayek 2011b, chap. 2. English trans.: Hayek 1999g. 1937d. “Einleitung zu einer Kapitaltheorie.” Zeitschrift für Nationalökonomie 8: 1–9. 1938a. “Review: Findlay MacKenzie, ed., Planned Society: Yesterday, Today, Tomorrow.” Economica, n.s. 5: 362–63. Rpt. Hayek 1997, 242–44. 1938b. “Freedom and the Economic System.” Contemporary Review 153: 434–42. Rpt. Hayek 1997, chap. 8. 1939a. Profits, Interest, and Investment. And Other Essays on the Theory of Industrial Fluctuations. London: Routledge. 1939b. “Profits, Interest, and Investment.” In Hayek 1939a, chap. 1. Rpt. Hayek 2012b, chap. 8. 1939c. “The Present State and Immediate Prospects of Business Cycle Research.” In Hayek 1939a, chap. 6. Rpt. Hayek 2012b, chap. 4. 1939d. “Price Expectations, Monetary Disturbances and Malinvestments.” In Hayek 1939a, chap. 4. Rpt. Hayek 1999a, chap. 7. 1939e. “Introduction.” In Thornton 1939, 11–63. Rpt. Hayek 1991a, chap. 14.

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1939f. “Pricing versus Rationing.” Banker 51 (164): 242–49. Rpt. Hayek 1997, chap. 5. 1939g. “The Economy of Capital.” Banker 52 (165): 38–42. Rpt. Hayek 1997, chap. 6. 1939h. “The Economic Conditions of Interstate Federalism.” New Commonwealth Quarterly 5 (2): 131–49. Rpt. Hayek 1948a, chap. 12, and Hayek 2022a, chap. 7. 1939i. Freedom and the Economic System (Public Policy Pamphlet 29). Chicago: University of Chicago Press. Rpt. Hayek 1997, chap. 9. 1939j. “Some Notes on Propaganda in Germany.” Typescript. In FAHP 61.4–5. Rpt. Hayek 2010, appendix. 1939, Nov 17. “Letter to the Editor: War Aims.” Spectator 5812: 716. Rpt. Hayek 1997, 161–62. 1939, Nov 24. “Mr. Keynes and War Costs.” Spectator 5813: 740–41. Rpt. Hayek 1997, 164–67. 1939, Dec 15. “An Anglo-French Federation.” Spectator 5816: 866. Rpt. Hayek 1997, 162–64. 1940a. “Socialist Calculation: The Competitive ‘Solution.’” Economica, n.s. 7: 125– 49. Rpt. Hayek 1997, chap. 3. 1940b. “Review: Keynes’s How to Pay for the War.” Economic Journal 50: 321–26. Rpt. Hayek 1997, 167–72. 1941a. The Pure Theory of Capital. London: Macmillan. Rpt. Hayek 2007b. 1941b. “The Counter-Revolution of Science.” Economica, n.s. 8: 9–39, 119–50, and 281–320. Revised version in Hayek 1952b, part 2. Rpt. Hayek 2010, part 2. 1941c. “The Economics of Planning.” Liberal Review 1 (1): 5–11. Rpt. Hayek 1997, chap. 4. 1941, Nov 15. “Planning, Science, and Freedom.” Nature 148: 580–84. Rpt. Hayek 1997, chap. 10. 1942a. “The Ricardo Effect.” Economica, n.s. 9: 127–52. Revised version in Hayek 1948a, chap. 11. Rpt. Hayek 2012b, chap. 9. 1942b. “A Comment [on Kaldor 1942].” Economica, n.s. 9: 383–85. Rpt. Hayek 2012b, 313–15. 1942c. “Postscript.” Economica, n.s. 9: 385. Rpt. Hayek 2012b, 317. 1942d. “John Stuart Mill at the Age of Twenty-five.” Introductory essay to Mill 1942, v–xxxiii. Rpt. Hayek 2015b, chap. 13. 1942–44. “Scientism and the Study of Society.” Economica, n.s. 9: 267–91, 10: 34–63, and 11: 27–39. Revised version in Hayek 1952b, part 1. Rpt. Hayek 2010, part 1. 1943a. “A Commodity Reserve Currency.” Economic Journal 53: 176–84. Rpt. Hayek 1999b, chap. 2. 1943b. “The Facts of the Social Sciences.” Ethics 54: 1–13. Rpt. Hayek 1948a, chap. 3, and Hayek 2014a, chap. 2. 1943c. “A Comment [on Lutz 1943].” Economica, n.s. 10: 311. Rpt. Hayek 2007b, appendix 4. 1944a. The Road to Serfdom. London: Routledge, and Chicago: University of Chicago Press. Rpt. Hayek 2007a.

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1944b. “Historians and the Future of Europe.” Typescript. In FAHP 61.6. Published in Hayek 1967a, chap. 9, and in Hayek 1992a, chap. 8. 1944c. “Richard von Strigl.” Economic Journal 54: 284–86. Rpt. Hayek 1992a, 168–70. n.d. [1944?]. “The Economic Position of the South Tyrol.” In Justice for the South Tyrol Committee, ed. n.d. [1944b?], 7–14. 1945a. “The Use of Knowledge in Society.” American Economic Review 35: 519–30. Rpt. Hayek 1948a, chap. 4, and Hayek 2014a, chap. 3. 1945b. “Time Preference and Productivity: A Reconsideration.” Economica, n.s. 12: 22–25. Rpt. Hayek 2007b, appendix 5. 1945c. “Review: Beveridge, Full Employment in a Free Society.” Fortune 31 (3): 204–6. Rpt. Hayek 1995a, 233–36. 1945d. Der Weg zur Knechtschaft. Ed. Wilhelm Röpke. Trans. Eva Röpke. Erlenbach-Zurich: Rentsch. 1945, Jan 6. “Essential Liberties.” Time and Tide, 5. 1945, Jan 13. “The Historians’ Responsibility.” Time and Tide, 27–28. 1945, Jan 20. “The Re-education of Germany.” Time and Tide, 49. 1945, Mar 24. “Is There a German Nation?” Time and Tide, 249–50. Rpt. Hayek 1992a, chap. 10. 1945, Apr 6. “The Future of Austria.” Spectator 6093: 306–7. Rpt. Hayek 1992a, chap. 11, addendum. 1945, Apr 7. “Schiller on Hitler.” Time and Tide, 290. 1945, May 6. “Planning and ‘The Road to Serfdom’: Friedrich Hayek Comments on Uses to Which His Book Has Been Put” [Interview]. Chicago Sun Book Week. 1945, June 23. “A Plan for the Future of Germany. Decentralisation Offers Some Basis for Independence.” Saturday Review of Literature, 7–9, 39–40. Rpt. Hayek 1992a, chap. 11. 1945, Nov 17. “Letter to the Editor: South Tyrol.” Time and Tide, 962. 1945, Dec 22. “Letter to the Editor: South Tyrol.” The Times, 5. 1946a. “Individualism: True and False, the Twelfth Finlay Lecture.” Dublin: Hodges, Figgis, and Oxford: Blackwell. Rpt. Hayek 1948a, chap. 1, and Hayek 2010, prelude. 1946b. “The London School of Economics 1895–1945.” Economica, n.s. 13: 1–31. 1946c “The Prospects of Freedom.” Typescript. In FAHP 107.7. Rpt. Hayek 2022a, chap. 3. 1946d. “Introduction.” In Röpke 1946, 11–14. 1946, July 18. “Full Employment Illusions.” Commercial and Financial Chronicle 164 (4508): 372. 1946, Nov 28. “Austria: Advance Post in Europe.” Commercial and Financial Chronicle 164 (4546): 2745, 2782. 1947. “‘Free’ Enterprise and the Competitive Order.” In Hayek 1948a, chap. 6. Rpt. Hayek 2022a, chap. 6. 1947, Jan 31. “Re-Nazification at Work.” Spectator 6188: 134–35.

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1948a. Individualism and Economic Order. Chicago: University of Chicago Press. 1948b. “The Meaning of Competition.” In Hayek 1948a, chap. 5. Rpt. Hayek 2014a, chap. 4. 1948c. “Der Mensch in der Planwirtschaft.” In Weltbild und Menschenbild, ed. Simon Moser. III. Internationale Hochschulwochen 1947 des Österreichischen College in Alpbach, 197–216. Innsbruck: Tyrolia Verlag. 1948, Nov 16. “The Tragedy of Organized Humanity.” Time and Tide, 119. Rpt. Hayek 1992a, 249–52. 1949a. “The Intellectuals and Socialism.” University of Chicago Law Review 16 (3): 417–33. Rpt. Hayek 1967a, chap. 12, and Hayek 1997, chap. 11. 1949b. “The Economics of Development Charges.” Financial Times, Apr 26–28. Rpt. Hayek 1967a, chap. 21, and Hayek 2022a, chap. 9. 1949c. “Das Wesen des Geistigen.” Paper presented at the Alpbach seminar 1949. English trans.: Hayek 2018c. 1952a. The Sensory Order: An Inquiry into the Foundations of Theoretical Psychology. London: Routledge & Kegan Paul. Rpt. Hayek 2018a. 1952b. The Counter-Revolution of Science: Studies in the Abuse of Reason. Glencoe, IL: Free Press. Rpt. Hayek 2010. 1952c. “Comte and Hegel.” Part 3 of Hayek 1952b. Rpt. Hayek 2010, part 3. Ed. 1954. Capitalism and the Historians. Chicago: University of Chicago Press. 1956. “Foreword to the 1956 American Paperback Edition.” Rpt. Hayek 1967a, chap. 15, and Hayek 2007a, 39–52. 1959. “Glückwunschadresse an Wilhelm Röpke.” In Röpke 1959b, 25–28. Rpt. Hayek 2017, chap. 24. English trans.: Hayek 1992h. 1960. The Constitution of Liberty. London: Routledge & Kegan Paul. Rpt. Hayek 2011a. 1965a. Was der Goldwährung geschehen ist. Ein Bericht aus 1932 mit zwei Ergänzungen. Tübingen: Mohr Siebeck. 1965b. “Kinds of Rationalism.” Economic Studies Quarterly (Tokyo) 15: 1–12. Rpt. Hayek 1967a, chap. 5, and Hayek 2014a, prologue. 1966. “Personal Recollections of Keynes and the ‘Keynesian Revolution.’” Oriental Economist 34: 78–80. Rpt. Hayek 1978a, chap. 18, and Hayek 1995a, chap. 12. 1967a. Studies in Philosophy, Politics and Economics. Chicago: University of Chicago Press. 1967b. “The Results of Human Action but Not of Human Design.” In Hayek 1967a, chap. 6. Rpt. Hayek 2014a, chap. 11. 1967c. “Opening Address to a Conference at Mont Pèlerin.” In Hayek 1967a, chap. 10. Rpt. Hayek 1992a, chap. 12. 1969. “Three Elucidations of the Ricardo Effect.” Journal of Political Economy 77: 274–85. Rpt. Hayek 1978a, chap. 11, and Hayek 2012b, chap. 11. 1970. “Die Irrtümer des Konstruktivismus und die Grundlagen legitimer Kritik gesellschaftlicher Gebilde.” Inaugural lecture, Salzburg 1970. In Hayek 2004, chap. 2. English trans.: Hayek 2014b.

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———. 1929. Gesammelte Abhandlungen. Ed. Friedrich A. Hayek. Tübingen: Mohr Siebeck. ———. 1983 [1926]. The Law of Power. Trans. W. E. Kuhn. Introduction by Warren J. Samuels. Lincoln: University of Nebraska Press. Wilkie, Wendell L. 1943. One World. New York: Simon & Schuster. Wilkinson, Lancelot P. 1980. A Century of King’s: 1873–1972. Cambridge: King’s College and the University Press. Williams, John. H. 1948. “An Appraisal of Keynesian Economics.” American Economic Review, P. & Proc. 38: 273–90. Wilson, Tom. 1940. “Capital Theory and the Trade Cycle.” Review of Economic Studies 7: 169–79. Winter, Robert. 1996. Das Akademische Gymnasium in Wien: Vergangenheit und Gegenwart. Vienna: Böhlau. Wirth, Maria. 2015a. Ein Fenster zur Welt. Das Europäische Forum Alpbach 1945– 2015. Von “Internationalen Hochschulwochen” zur Plattform für Dialog und Ideenfindung. Innsbruck: Studienverlag. Abridged trans.: Wirth 2015b. ———. 2015b. A Window to the World: The European Forum Alpbach 1945 to 2015. Vienna: European Forum Alpbach. Witztum, Amos, and Frank Cowell, eds. 2009. “Robbins’s Essay at 75: A Special Issue.” Economica, n.s. 76, supplement 1. Wohlgemuth, Michael. 2013. “The Freiburg School and the Hayekian Challenge.” Review of Austrian Economics 26: 149–70. Wootton, Barbara. 1934. Plan or No Plan. London: Victor Gollancz. Wright, Claire. 2016. “The 1920s Viennese Intellectual Community as a Center for Ideas Exchange: A Network Analysis.” History of Political Economy 48: 593–634. Yagi, Kiichiro. 1983. “Introduction: Formation of Böhm-Bawerk’s Capital and Interest Theory.” In Böhm-Bawerk 1983, 1–14. Yeager, Leland B. 1990. “Preface.” In Smith 1990, xiii–xxvi. Yohe, William P. 1982. “The Mysterious Career of Walter W. Stewart, Especially 1922–30.” History of Political Economy 14: 583–607. Zangger, Fritz. 1928, Feb 19. “Hugo Wolf und Cilli. Ein Gedenkblatt zum 25. Todestag des Meisters.” Cillier Zeitung, 1–3. Ziegler, Philip. 1995. London at War, 1939–1945. New York: Alfred A. Knopf. Zweig, Stefan. 2009 [1943]. The World of Yesterday. New York: Viking Press. Zweiniger-Bargielowska, Ina. 2000. Austerity in Britain: Rationing, Controls and Consumption, 1939–1955. Oxford: Oxford University Press. Zweynert, Joachim. 2013. “How German Is German Neo-liberalism?” Review of Austrian Economics 26: 109–25.

794

referenCes

Archival Sources ArChives AUW DSB DURL GCCA HIA KCAC LSEA ÖStA/AdR

ÖStA/AVA

ÖStA/HHStA

ÖStA/KA PUL RAC ThHStA ThULB UAGA UCL UCSC UML UOBL YUL ZLB

Archive of the University of Vienna, Austria Deutsche Staatsbibliothek zu Berlin, Germany David M. Rubenstein Rare Book & Manuscript Library, Duke University, NC, US Grove City College Archives, PA, US Hoover Institution Archives, Stanford University, CA, US King’s College Archive Centre, Cambridge University, UK LSE Library Archives and Special Collections, UK Archiv der Republik (Archives of the Republic of Austria), in Österreichisches Staatsarchiv (Austrian State Archives), Vienna, Austria Allgemeines Verwaltungsarchiv (General Administrative Archives), in Österreichisches Staatsarchiv (Austrian State Archives), Vienna, Austria Haus-, Hof- und Staatsarchiv (Archives of the House of Habsburg), in Österreichisches Staatsarchiv (Austrian State Archives), Vienna, Austria Kriegsarchiv (War Archives), in Österreichisches Staatsarchiv (Austrian State Archives), Vienna, Austria Princeton University Library, Special Collections, NJ, US Rockefeller Archive Center, NY, US Thüringisches Hauptstaatsarchiv, Weimar, Germany Thüringer Universitäts- und Landesbibliothek, Jena, Germany M. E. Grenander Department of Special Collections and Archives, University at Albany, NY, US University of Chicago Library, Special Collections Research Center, IL, US University of Cambridge Special Collections, UK Special Collections Department, University Libraries, University of Memphis, TN, US Bodleian Library, University of Oxford, UK Yale University Library, Manuscripts and Archives, CT, US Zentral- und Landesbibliothek Berlin, Historische Sammlungen, Germany

PAPer CoLLeCTions AHP ASP FAHP

Albert Hunold Papers, at the Institut für Wirtschaftspolitik, University of Cologne Alfred Schütz Papers, at YUL Friedrich A. von Hayek Papers, at HIA

referenCes FischerA FKP FMP FWP GHP GSP HSP IFP JHFP JHFPH JMKP JNP JVP JVRP KPP LRP LvMP LvMPA Min.IX MohrA MPP MPSP OMP SpringerA SPSL UCPA WEP WLP WRP

795

Archives of the publisher Gustav Fischer, at ThHStA Felix Kaufmann Papers, at UML Friedrich Machlup Papers, at HIA Friedrich Wieser Papers (Teilnachlass Wieser), at ÖStA/HHStA, Sonderbestände Gottfried Haberler Papers, at HIA George J. Stigler Papers, at UCL Henry C. Simons Papers, at UCL Irving Fisher Papers, at YUL Josef Herbert Furth Papers, at UAGA Josef Herbert Furth Papers, at HIA Papers of John Maynard Keynes, at KCAC John Ulric Nef Papers, at UCL Jacob Viner Papers, at PUL Joan Violet Robinson Papers, at KCAC Karl Popper Papers, at HIA Lionel Robbins Papers, at LSEA Ludwig von Mises Papers, at GCCA Ludwig von Mises Papers (Austrian collection), at ÖStA, AdR, Akten Sonderarchiv Moskau/Fonds 623: Mises Minutes and other papers of the Moral Sciences Club, in Minutes of University Associations and Clubs, at UCSC Archives of the publisher Mohr Siebeck, at DSB Michael Polanyi Papers, at UCL Mont Pèlerin Society Papers, at HIA Oskar Morgenstern Papers, at DURL Archives of the publisher Springer, ZLB Archive of the Society for the Protection of Science and Learning, at UOBL Archives of the University of Chicago Press, at UCL Walter Eucken Papers, processed at ThULB Walter Lippmann Papers, at YUL Wilhelm Röpke Papers, a digitalized version deposited at the Wilhelm Röpke Institute at Erfurt

Correspondence fAMiLy LeTTers August (von) Hayek to Felicitas

Aug 11, 1911

to Fritz

1913–19 1921–29

Copy in possession of Richard Zundritsch FAHP 172.1–2 FAHP 172.3

796

referenCes

Christine Hayek to Fritz

1950

FAHP n.a.

1917–69 Dec 30, 1950

FAHP 172.4 FAHP divorce file

1917 1918

FAHP 172.7 FAHP 172.8–10

1919

FAHP 172.11

1920–21

FAHP 172.12

1922–38

FAHP n.a.

1945–49

FAHP 173.1

1950–51

FAHP n.a.

1922–38 Aug 24, 1947

FAHP n.a. FAHP 184.5

1923/24, New York Oct 11, 1946

Copies Richard Zundritsch FAHP 184.5

to Hella, postcards

1925, 1937–39 Dec 21, 1948, Feb 16/ July 13, 1950 Oct 26, 1950

FAHP 184.6 FAHP divorce file

to parents

1917/18, war letters 1923/24, New York

FAHP 174.10, copies Richard Zundritsch Copies Richard Zundritsch

1933–35 1946–47

n.a. FAHP 184.5

June 12, 1947

FAHP 184.7

Nov 30, 1951

FAHP divorce file

Aug 25, 1924 1926–30

FAHP 184.7 FAHP 174.6

1931–38

FAHP 174.7–8

1949–50

FAHP divorce file

to Lorenz, postcard

Apr 26, 1939

FAHP 184.7

Laurence Hayek to Fritz

1950

FAHP n.a.

Erich (von) Hayek to Fritz

Felicitas (von) Hayek to Fritz

to Fritz and Hella to Hella Fritz (von) Hayek to Heinz

Heinz (von) Hayek to Fritz

Hella Hayek to Fritz, postcard

LRP 3.1.12 (formerly 127)

referenCes

oThers Bitterlich, Helene to Albert Hunold

1950–51

AHP

Brandt, Karl to Friedrich A. Hayek

1946

FAHP 72.36

Butterfield, Herbert to Friedrich A. Hayek

Oct 11, 1956

FAHP 13.26

Croome, Honor to Lionel Robbins

June 28/29, 1943

LRP 3.1.5

Cunard Line to Friedrich A. Hayek

1950

JNP 39.15

Director, Aaron to Friedrich A. Hayek to John U. Nef to Leonard E. Read

1948 1948 1947

FAHP 58.16 JNP 39.14 FAHP 58.16

Eastman, Max to UCP

Oct 30, 1944

UCPA 230.1

Ellis, Howard S. to Friedrich A. Hayek

1947

FAHP 73.23

Eucken, Walter to Friedrich A. Hayek to Wilhelm Röpke

1945–50 1940–49

FAHP 18.40 WRP

Friedman, Milton to Friedrich A. Hayek

1947

FAHP 73.40

Furth, Josef Herbert to Stephan Boehm to Wilhelmine Fürth to Gottfried Haberler to Friedrich A. Hayek to Fritz Machlup to Paul A. Samuelson

1993 1940–41 1984 1978, 1981 1978 1992

JHFPH 4.13–15 JHFP 2.59 GHP 14.Haag FAHP 21.8 JHFP 2.116 JHFPH 17.30

Gideonse, Harry to Friedrich A. Hayek

1946

FAHP 74.6

797

798

referenCes

Gishford, Anthony (Ministry of Information) to Friedrich A. Hayek 1939

FAHP 61.5

Gustav Fischer-Verlag to Friedrich A. Hayek

1925, 1928–32

FischerA, copies Klausinger

1934 1940

FMP 41.4 FMP 41.5

1925–26 1927

OMP 2.1925–1926 H–K OMP 2.1926–1927 H–K

1940

OMP 80.Postwar Corr., 1940– 1949

1923 1983

FAHP 174.10 FAHP 41.4

1984 1950

FAHP 11.34 FAHP 55.8

1948 1949

FAHP 58.16 FAHP 73.14

to Walter Eucken

1932, 1937 1945–50

WEP FAHP 18.40

to Irving Fisher to Karl von Frisch to J. Herbert Furth to Anthony Gishford to Gustav Fischer-Verlag to John Haag to Gottfried Haberler

1924 1981 1981 1940 1925, 1928–32 1967 1930–37 1985

IFP series 1, 6.78 (1924–29) FAHP 22.20 FAHP 21.8 FAHP 61.5 FischerA, copies Klausinger FAHP 23.1 GHP 71.3 FAHP 97.2

to Albert Hunold

Jan/Feb 1947 Dec 24, 1947

MPSP 5.4 AHP

May/June 1950

FAHP 75.11

Haberler, Gottfried to Fritz Machlup to Oskar Morgenstern

Hayek, Friedrich August to Abrechnungsamt to Austrian Academy of Sciences to Wilhelm Baum to Alexander CarrSaunders to Aaron Director

Dec 13, 1950

AHP

to Robert M. Hutchins

1949 1950

JNP 39.15 FAHP 55.1

to Frank H. Knight to Tjalling Koopmans to Shirley Letwin to Walter Lippmann

1949 1946 1982 1937–43, 1959–60

FAHP 76.24 FAHP 31.25 FAHP 34.1 WLP 77.1011

referenCes

799

to Harold Luhnow

1945–48 1949/50

FAHP 58.16 FAHP 58.17

to Fritz Machlup

1933–44 1945–49

FMP 43.15 FMP 43.16

to F. A. Mann to Loren B. Miller

1948–50 1947 1948

FAHP divorce file FAHP 127.29 FAHP 38.16

to Ludwig von Mises

1923 1924–33

LvMPA 6.79 LvMPA 6.81

1936–41

LvMP 13.12

1941–45

LvMP 13.13

1923–26 1925–26 1927

FAHP 38.28 OMP 2.1925–1926, H–K OMP 2.1926–1927, H–K

1928

OMP 3.1928, H–L

1931

OMP 3.1930–1932, G–K

1934

OMP 5.1928–1939, Hayek

Apr 11, 1950 (circular) 1948 1949/50

OMP 80.1940–1949, Hayek

1945 1945, 1947 Jan 28, 1939 [1940] Feb 4, 1940

FAHP 40.7 FAHP 78.25 MPP 3.14 MPP 4.3

July 1, 1941

MPP 4.7

1936–38 1940–47

KPP 305.12 and FAHP 44.1 KPP 305.13

to Wesley Clair Mitchell to Oskar Morgenstern

to John U. Nef to Otto Neurath to William A. Orton to Michael Polanyi

to Karl R. Popper

JNP 39.14 JNP 39.15

Nov 5 and 12, 1943

FAHP 44.1

1950–58

KPP 305.14

to the Principal of LSE to William E. Rappard to Lionel Robbins

1950 1946 1930–34 1950

FAHP 55.8 MPSP 5.4 LRP 3.2.4 LRP 3.2.13 (formerly 127)

to Claude Robinson to Joan V. Robinson to Wilhelm Röpke

1945 Mar 24, 1941 1941/42, 1950 1945/46

FAHP 46.28 JVRP 7.194 WRP FAHP 79.1

to Paul Samuelson to Fritz Saxl to Helmut Schelsky to Alfred Schütz

1981 1948 n.d. 1943

FAHP 127.38 FAHP 11.7 FAHP 48.15 copy in FAHP 43.15

800

referenCes

to George Schwartz (LCES) to Secretary, Reform Club to Oskar Siebeck (Mohr Verlag) to Henry C. Simons to Otto Skrbensky to Jerzy Strzelecki to Jacob Viner

1930 1987 1930 1934 1946/47 1985 Feb 1, 1942 1947/48

LRP (formerly 130) FAHP 45.21 MohrA, Autorenkorr.: Hayek, 450 HSP 3.40 FAHP 11.7 FAHP 51.46 JVP 13.26 FAHP 56.21

to Egon Wellesz to Joseph E. Willits (RF)

1947 1946/47

FAHP 11.7 RAC RF 1.1, ser. 700, 2.15

Hayek, Hella to Fritz Goedicke, postcard to John U. Nef to Lionel Robbins, draft

Apr 14, 1939 June 4, 1949 1950

FAHP 184.7 JNP 39.15 FAHP divorce file

Hazlitt, Henry to Friedrich A. Hayek

1947

FAHP 74.34

Hemens, Rollins (UCP) to Harry Gideonse

1944

UCPA 230.1

Herzfeld, Walter to Friedrich A. Hayek to F. A. Mann

1950 1949

FAHP divorce file FAHP divorce file

Hicks, John to Friedrich A. Hayek

1979

FAHP 24.32

June 2, 1950 June 14, 1950, April 1951

FAHP 75.10 AHP

Hutchins, Robert M. to Harald Luhnow to John U. Nef

1948 1950

FAHP 58.16 JNP 39.15

Jouvenel, Bertrand de to Friedrich A. Hayek

1947–48

FAHP 76.15

Knight, Frank H. to Friedrich A. Hayek to Oskar Morgenstern

1946 1931

FAHP 76.24 OMP 6.1928–1939, Knight

Hunold, Albert to Friedrich A. Hayek

referenCes

801

Lachmann, Ludwig to Friedrich A. Hayek

1978

FAHP 32.2

Lange, Otto (Springer) to Ferdinand Springer

1931–32

SpringerA S.142, VIII/IX, 1931/32

Lederer, Emil to Oskar Siebeck

1930

MohrA, Autorenkorr.: Hayek, 450

Lippmann, Walter to Friedrich A. Hayek to Louis Rougier

1937–43, 1959–60 1937

WLP 77.1011 WLP 100.1848

Lovinfosse, Henri de to Friedrich A. Hayek

1947

FAHP 77.19

1945–48 1949/50

FAHP 58.16 FAHP 58.17

to Robert M. Hutchins

1948

FAHP 58.16

Lutz, Friedrich to Friedrich A. Hayek

1946

FAHP 77.21

Lutz [Smith], Vera to Friedrich A. Hayek

1938

FAHP 36.11

1934–38 1939–56

FMP 43.15 FAHP 36.17

to Joseph E. Willits (RF)

1948

RAC RF 1.1, ser. 700, 2.15

Mann, F. A. to Friedrich A. Hayek

1948–51

FAHP divorce file

Nov 10, 1945 1947

FAHP 58.16 FAHP 127.29

1949

FAHP 38.16

1924–33 1939–72

LvMPA 6.81 FAHP 38.24

Luhnow, Harold to Friedrich A. Hayek

Machlup, Fritz to Friedrich A. Hayek

Miller, Loren B. to Friedrich A. Hayek

Mises, Ludwig von to Friedrich A. Hayek

802

referenCes

Mitchell, Wesley Clair to Friedrich A. Hayek

1923–26

FAHP 38.28

1928 n.d., 1949

OMP 3.1928: H–L OMP 80.1940–1949, Haberler

1931/32

SpringerA S.142, VIII/IX, 1931/32

1946

JNP 39.14

1948

JNP 39.14

1949 1948 1949/50

JNP 39.15 JNP 39.14 JNP 39.15

Jan 5, 1950

FAHP 39.39

Neurath, Otto to Friedrich A. Hayek

1945

FAHP 40.7

Oppenheimer, Robert to Harald Luhnow

1948

FAHP 58.16

Orton, William A. to Friedrich A. Hayek

1947

FAHP 78.25

Polanyi, Michael to Friedrich A. Hayek

1939–41

MPP 23.14

1936–38 1940–47

KPP 305.12 KPP 305.13

Jan 11, 1947

FAHP 78.36

Principal of LSE to Friedrich A. Hayek

1950

FAHP 55.8

Rappard, William E. to Friedrich A. Hayek

1942–43, 1946

FAHP 45.6

1950 July 20, 1978

LRP 3.2.13 (formerly 127) FAHP 46.25

1950

LRP 3.2.13 (formerly 127)

Morgenstern, Oskar to Gottfried Haberler to Otto Lange (Springer)

Nef, John U. to Mortimer Adler and Joseph J. Schwab to Committee on Social Thought to Aaron Director to Friedrich A. Hayek

Popper, Karl R. to Friedrich A. Hayek

Robbins, Lionel to Friedrich A. Hayek to Hella Hayek

referenCes

803

to Albert Hunold to Fritz Machlup

1950 1934

LRP 3.2.13 (formerly 127) FMP 61.1

Robinson, Claude to Friedrich A. Hayek

1945

FAHP 46.28

Röpke, Wilhelm to Walter Eucken to Friedrich A. Hayek

1946 1941–45

WRP FAHP 79.1

Rosenstein-Rodan, Paul N. to Oskar Morgenstern

1928

OMP 3.1928: Q–R

Rougier, Louis to Walter Lippmann

July 8, 1937

WLP 100.1848

Samuelson, Paul A. to Gottfried Haberler

1992

JHFP 17.12

Saxl, Fritz to Friedrich A. Hayek

1946

FAHP 11.7

Schumpeter, Joseph A. to Gottfried Haberler

1930

GHP 72.7

Siebeck, Oskar to Friedrich A. Hayek

1930

to Emil Lederer

1930

MohrA, Autorenkorr.: Hayek, 450 MohrA, Autorenkorr.: Hayek, 450

Simons, Henry C. to Friedrich A. Hayek

1934/39

HSP 3.40

Aug 1946

ÖStA/AdR, BMU, Uni Wien, box 529, Zl. 28.092/III-7746

Sraffa, Piero to John M. Keynes

1943

FAHP 44.3

Stewart, Walter W. to Friedrich A. Hayek

1948

FAHP 51.33

Stigler, George J. to Lord Rees-Mogg

1991

GSP 9.Hayek

Skrbensky, Otto to Ferdinand DegenfeldSchonburg

804

referenCes

Viner, Jacob to Friedrich A. Hayek

1941 1947/48

JVP 13.26 FAHP 56.21

1949 1984

FAHP 38.16 FAHP 98.3

Wellesz, Egon to Friedrich A. Hayek to Fritz Saxl

1947 1946

FAHP 11.7 FAHP 11.7

Witt John to Hella Hayek to Lionel Robbins

1950 1950

FAHP divorce file LRP 3.2.13 (formerly 127)

Wriston, Henry to Friedrich A. Hayek

1947

FAHP 80.22

Ware, Richard A. to Friedrich A. Hayek

BiogrAPhiCAL doCUMenTs Bartley, W. W. III “Inductive Base” [IB] “Bartley Interviews” Bitterlich, Helene “Lenerl’s childhood diary”

Cubitt, Charlotte Interviews Furth, J. Herbert “Memorandum” (1983) “For F. A. Hayek: Memories of Days in Vienna” (Dec 20, 1988) [“Memories”] “Austrian Economics” (Feb 16, 1993) “Zehn Jahre ‘Kreis’” (n.d.) Hayek, Christine Interviews Hayek, Erich “Erinnerungen aus dem Hause Hayek” (1983) [EHH]

Copy in possession of Caldwell Copies in possession of Caldwell

Copy in possession of Richard Zundritsch

Copies in possession of Caldwell

Copy provided by Helmut F. Furth, in possession of Klausinger JHFPH 2.13 JHFPH 2.14 FKP Correspondence: Herbert Fürth

Copies in possession of Caldwell

FAHP 181.6

referenCes

805

Hayek, Felicitas “Fritzerls Tagebuch”

FAHP 171

Hayek, Friedrich A. “Datebooks” “Juvenile War Diary” (1914/16) [JWD] “War Diary” (1917–18) [WD] “Diary 1920” (Book notes) “Autobiographical Fragments” [AF] “Family History” [FH]

FAHP 121–23 FAHP 171 FAHP 181.4 FAHP 139.3 FAHP 120.9 FAHP n.a.

Morgenstern, Oskar Diaries, 1917–Jan 4, 1928 OMP 12 Diaries, Jan 21, 1928–Aug 3, 1944 OMP 13 Diaries, Aug 5, 1944–Dec 31, 1957 OMP 14 All diaries have been made available online by Christian Fleck, University of Graz, at http://gams.uni-graz.at/context:ome Shehadi interviews—unedited transcripts of interviews Lance Beales, n.d., probably early 1980s Friedrich A. Hayek, 1983 Sir John Hicks, Mar 12, 1983 (summary report) Nicholas Kaldor, n.d., probably early 1980s Ludwig Lachmann, Jan 28, 1984, interviewed by W. W. Bartley III Brinley Thomas, Aug 29, 1984 Warhanek, Hans and Ingrid, Sept 10, 2013 Interview

Wieser, Friedrich von Diaries, 1918/19

LSEA, Shehadi Oral History Shehadi/1/3 Shehadi/1/4 Shehadi/1/8 Shehadi/1/7 Shehadi/1/9 Shehadi/1/11

Notes in possession of Bruce Caldwell

FWP

Index

Abel, Othenio, 41, 66 Abhandlung über die Natur des Handels im allgemeinen (Cantillon), 253 Abrechnungsamt für Kriegsschulden, Österreichisches, 140–42. See also Hayek, Friedrich August: at the Abrechnungsamt Abuse of Reason project. See Hayek, Friedrich August: Abuse of Reason project Acland, Richard, 517, 536, 564 Acton, Lord John, 498, 521, 541, 580, 592, 613 Acton Society, 593, 595–96, 607 Acton-Tocqueville Society, 597–98, 613, 643, 645, 649, 654, 670 Adcock, Frank, 497 Adler, Guido, 628 Adler, Max, 207 Adler, Melanie, 628–29 Adler, Mortimer, 678, 691n14 Adler, Viktor, 60–61 Adorno, Theodor W., 180n7 Akademisches Gymnasium, 47–48, 49n5, 50, 51n10, 53–54, 119 Åkerman, Johan, 250, 300n11 Albertus University of Königsberg, 201n3, 256 Alchian, Armen, 359 Allais, Maurice, 654, 668, 670 Allen, R. G. D., 339 Allers, Rudolf, 130–31

Allgemeine Erkenntnislehre (Schlick), 128–29 Alpbach seminar, 630–31, 719, 721. See also under Hayek, Friedrich August: postwar Austria Altenberg, Peter, 151 Altschul, Eugen, 234, 241, 250, 391–92 American Economic Association, 13, 156, 322; Hayek at meetings of, 179, 279, 466n1, 709, 710 American Economic Review, 377, 385, 568, 600 Andermann, Hermine (Mina), 108 Anderson, Oskar, 243, 254, 465 Anschluss (union with Germany): idea of, after WWI, 89, 91, 120, 389, 423, 624 —of 1938, 272, 276, 382, 390–95, 396, 414–15, 420n4, 431, 478n6, 620; and Austrian universities, 394, 624–25, 627–28, 633–34, 638n25; emigration of Austrian economists after, 393–97, 477; Felicitas on, 423–25; Kristallnacht, 427–28, 427n14. See also Hayek, Friedrich August: Austria after the Anschluss anti-Semitism: academic, 63, 66, 87, 104–5, 123, 125, 126, 207–8, 395–96; in Austria, 57, 60–63, 120–21; in the Hayek family, 9, 64–65, 66–67, 154, 422, 427–28, 431; Ostjuden, 47, 62–63, 104, 153; pamphlets, 67–68; racial,

808

index

anti-Semitism (continued) 60–63; Spann’s, 134; Wieser’s, 107, 171 Antoni, Carlo, 654, 688 Aquinas, Thomas, 136n17 Areboe, Friedrich, 205 Aron, Raymond, 652n12 Arrow, Kenneth, 180, 535 Ashton, T. S., 514 Assheton, Ralph, 581–82 Atatürk, Kemal, 387 Atlantic Monthly, 449, 453, 454, 456, 457 Attlee, Clement, 581–83, 642 Austria-Hungary, 57–61 Austrian Book Committee, 626–28, 632, 634 Austrian Fabians, 112, 119, 139 Austrian Institute for Business Cycle Research (Austrian Institute), 202, 243, 257, 295, 353n19, 383; after the Anschluss, 393–96, 627, 627n21; founding of, 195, 227–30; under Morgenstern, 257, 385. See also Hayek, Friedrich August: at the Austrian Institute for Business Cycle Research Austrian Nazi party, 65, 389–90, 423, 428n16; illegal Nazis, 395, 622–23, 625n17, 627n23 Austrian politics: in the corporate state, 389–91, 423, 430; fin-de-siècle Austria, 57–61; Hayek on the future of Austria, 620–22; in the 1920s, 226– 27; in the 1930s, 388, 392; after WWI, 89–92, 120–21; after WWII, 615–16, 622–24. See also Austrian Nazi party; Christian Social Party; German nationalism in Austria; Heimwehr; Liberal Party (Austrian); Social Democratic Labor Party Austrian school of economics, 107–15 Austrian school system, 45–48; curriculum, 46; female education, 46–47; Thun-Hohenstein reform, 45–46, 45n1, 101; Vienna gymnasiums, 47–48

Austrian women’s movement, 47, 47n2, 119 Austrofascism. See corporate state: regime in Austria Austro-Marxism, 111, 115, 146, 207, 554 Ayer, A. J., 347 Bagehot, Walter, Lombard Street, 147 Balogh, Thomas, 566–67, 566n5, 582 Banker (periodical), 470, 565 Barnett, Henrietta, 401 Barone, Enrico, 254, 323, 566 Barrington-Ward, Robert, 517 Barth, Hans, 651 Bartholomew’s night, 419, 419n3, 429, 429n19 Bartley, W. W. (Bill), III, 1–3, 6–7, 80n14 Bauer, Otto, 111, 323 Bayer, Hans, 625 BDP. See Bürgerlich-Demokratische Partei Beales, Lance, 466, 474 Beckhart, B. H., 183 behaviorism, 187, 310, 548–49, 604–6 Beiträge zur Geldtheorie (Hayek), 365 Bendixen, Friedrich, 147 Benesch, Otto, 383 Benham, Frederic, 328, 340, 455, 456, 508, 513 Bentham, Jeremy, 186–87, 189, 312, 350–51, 594, 607 Bernal, J. D., 347, 444n4, 487, 555, 653; The Social Function of Science, 443 Bernatzik, Edmund, 125 Bertalanffy, Ludwig, 52, 631, 633–34 Bettelheim, Anton, 154n21 Bettelheim-Gabillon, Ludwig, 154n21, 203, 397 Bevan, Ernest, 581 Beveridge, William, 195, 235, 276, 302, 396, 439, 444, 465, 467, 472, 474, 627; Beveridge Report, 356, 522, 578–79, 583; decline and fall, 353–56; director of LSE, 235, 274, 350, 352, 353,

index 361, 368–69, 569; Full Employment in a Free Society, 537, 579–80, 667, 670–71; invites Hayek to University Lectures, 274, 277, 278, 399; primacy of empiricism, 255, 274, 308, 315, 339n6; relations with Robbins, 276– 77, 308, 315, 339n6, 354, 355–56; to Tooke Chair, 285, 307; Unemployment, 274. See also Beveridge memo; Hayek, Friedrich August: at LSE Beveridge memo (Hayek), 316–17, 318, 362, 416, 438, 468, 533, 536, 573 Beves, Donald, 497 Bielka, Erich, 122 Billroth, Theodor, 63, 65, 103–4 Binding, Karl, 136 Birck, Laurits V., 147 Bitterlich, Eduard (grandfather of HB), 28 Bitterlich, Elisabeth (Lieserl) (sister of HB), 28, 37, 94, 96–99, 161, 293 Bitterlich, Friedrich (father of HB), 28, 49, 163, 413 Bitterlich, Hans (granduncle of HB), 28 Bitterlich, Helene (Lenerl) (HB), 6n7, 94, 218, 552, 620, 724, 730; childhood and youth, 49, 53, 96–97, 217; close to Felicitas, 702, 704, 712, 714; marries Hans, 161, 163, 195, 197–98, 410. See also Hayek, Friedrich August: and Lenerl Bitterlich, Margarete (mother of HB), 28, 96 Blackett, Basil, 302 Blackett, P. M. S., 333n14, 442, 520 Bleuler, Eugen, 131 Bloch, Victor, 203, 250 Boehm, Stephan, 149n15 Boettke, Peter, 8, 331n11, 540n15 Böhm, Franz, 388 Böhm-Bawerk, Eugen von, 22, 48, 113, 207, 323; Austrian school, 107, 109– 11, 160; master of the subject, 112, 127, 342; seminar of, 114–15, 141; theory of capital, 110–11, 262, 371, 372–73, 375; “three reasons” for in-

809

terest, 110, 214, 262. See also Hayek, Friedrich August: and Böhm-Bawerk Bois-Reymond, Emil de, 520 Boltzmann, Ludwig, 103 Bonhoeffer, Dietrich, 599 Bork, Robert, 5 Bortkiewicz, Ladislaus von, 241 Boulding, Kenneth, 377–38, 553 Bowley, Arthur L., 235–36 Bowley, Marion, 340 Brachelli, Hugo, 24n6 Brahe, Tycho, 169 Braithwaite, Richard, 497, 499 Brandt, Joseph, 574 Brandt, Karl, 647, 649, 654, 667, 670, 672, 688, 706 Brasol, Boris L., 147 Brassloff, Stephan, 126, 395, 397 Braun, Martha Stephanie, 149, 202, 207, 362n21, 393 Brecht, Bertolt, 97 Breisky, Walter, 229 Briefs, Goetz, 206 Brissenden, Paul, 183 British economy: the Great Depression, 300–302, 308, 321; leaving the gold standard, 296, 301, 302–3; protectionism, 289–90, 301; stagnation in the 1920s, 287–89; transition to war, 469–72; after WWII, 642–43, 677, 723 British election campaign of 1945, 581– 83; Churchill’s “Gestapo speech,” 582, 583; “von” Hayek, 582 British socialism. See under socialism Broad, C. D., 499 Brockmann-Jerosch, Heinrich, 93 Browne, Martha Steffy. See Braun, Martha Stephanie Browning, Oscar, 497 Brunnwinkl community, 45n1, 103, 121, 155, 179, 405; Hayek at, 97, 100, 163, 206 Brutzkus, Boris, 455; Economic Planning in Soviet Russia, 324 Bryce, Robert, 366–67

810

index

Buchanan, James, 5, 363 Bühler, Karl, 395, 628 Bullock, Charles J., 232, 235–36, 239, 243 Burckhardt, Jakob, 593 Bürgerlich-Demokratische Partei (BDP; Bourgeois Democratic Party) (Austrian), 120–21 Burgin, Angus, 454n11, 647n8 Burke, Edmund, 593, 607 Business Annals (Thorp), 183, 221 business cycles. See Austrian Institute for Business Cycle Research; Hayek, Friedrich August: at the Austrian Institute for Business Cycle Research; Hayek, Friedrich August: on cycles and crises Butterfield, Herbert, 498, 538, 595n3, 666; The Whig Interpretation of History, 498 Cairnes, John Elliot, 498 Caldwell, Bruce, 1–2, 6–8, 285n15, 335n1, 345n13, 421n4, 504–5n13, 622n11, 656n16, 692n15, 700n2, 701n3, 702n4 Cambridge Economic History, 497 Cambridge Moral Sciences Club, 497, 499, 500, 500n10, 546 Cannan, Edwin, 243, 255, 275–76, 308, 341, 341n9, 342 Cantillon, Richard, 253–54, 484; edited by Hayek, 253; Essai sur la nature du commerce en général, 253 “Capital Consumption” (Hayek), 353n19, 382, 387 capitalism, 132, 180, 439; attempts at saving, 244, 321, 451, 452, 538, 565; fascism and, 316, 438–39, 536, 540; Marxist critique of, 319, 322, 325, 517, 540, 558, 564, 665; monopoly, 319, 326, 435, 483, 528, 573 (see also competition: and concentration); moral critique of, 160, 244, 320, 475; “scientific” critique of, 435, 437, 441–42, 448, 520

Capitalism and Freedom (Friedman), 614 Capitalism and the Historians (Hayek), 538, 666 capital theory, 283, 377, 378; BöhmBawerk’s, 110–11, 262, 371, 372–73, 375; Cambridge capital controversy, 376, 376n15; Knight’s, 372–73, 375, 384–85. See also Hayek, Friedrich August: on capital Carl-Ludwig-Gymnasium, 52–53, 136 Carr, E. H., 517, 536, 564 Carroll, Dudley Dewitt, 243 Carr-Saunders, Alexander, 465, 467, 476, 501–2, 513, 556, 595n3, 699, 703n6, 709, 712, 712n4 Carver, Thomas Nixon, 158, 181, 243 Case of the Midwife Toad, The (Koestler), 180n6 Cassel, Gustav, 138, 157, 243, 250, 254, 321–22, 341n8, 368; Theoretische Sozialökonomie, 138 Castiglione, Camillo, 144n8 Castle, Eduard, 51, 99, 142n5, 164, 224n5, 425, 618, 619n6 Catchings, Waddill, 221, 249, 263, 277, 278n8, 281, 288, 295; Money, 211 Central European College, 12, 542, 550–53, 559, 592 Chamberlain, John, 463, 525 Chamberlain, Neville, 426, 464–65 Chamberlin, Henry, 575 Christian Social Party (Austrian), 59, 105, 119, 621; in the First Republic, 89–91, 121, 136, 144, 226, 246; its precursors, 60–61 Churchill, Winston, 288, 476, 578, 581–84 Civitas humana (Röpke), 593 Clapham, John, 496–97, 496n2, 499, 514, 538, 592, 621, 661 Clark, John Bates, 158, 181, 181n9, 182–83, 242–43 Clark, John Maurice, 183, 243 classification: and the economic calculus, 510n18, 547–48, 603; exhaustive,

index 510n18, 547–48, 603; and natural science, 603; and sensory experiences, 544, 549, 603–4 Coase, Ronald, 282, 340, 343, 343n11, 466, 687n11 Cole, G. D. H., 320, 521; Guild Socialism Re-stated, 320; Self-Government in Industry, 320 Cole, M., Twelve Studies in Soviet Russia, 322 Collected Works of F. A. Hayek (Bartley), 1–2 collectivism, 319, 548–49, 555, 642, 644, 686–87, 688; discussed at MPS, 649, 659, 662, 669; Lippmann on, 451–52, 454, 456–59; The Road to Serfdom on, 317, 564–65, 587 Collectivist Economic Planning (Hayek), 148, 323–25, 338, 454, 485, 559 Colloque Lippmann, 242, 245, 388, 425, 462, 650, 653, 657; meeting in Paris, 458–61; a path to MPS, 462, 595n3 Colm, Gerhard, 245, 256 Colwell, Ernest C., 678, 690n13 Commanding Heights, The (television program), 495 Commercial and Financial Chronicle, 621 Commons, John R., 308 Common Sense of Political Economy, The (Wicksteed), 336 Communist Manifesto, The (Marx and Engels), 439 competition, 447–48, 521, 523; and concentration, 319, 322, 430, 435, 457, 466, 483, 505, 523, 527–28, 573; framework for, 388, 435, 649n10, 664; imperfect, 338, 340; wasteful, 319, 322, 566. See also Hayek, Friedrich August: on competition Compromise of 1867 (Austro-Hungary), 49n5, 58 Comte, Auguste, 482, 484–85, 490, 516, 543, 548, 549, 553; Cours de philoso-

811

phie positive, 483; Système de politique positive, 483 “Comte and Hegel” (Hayek), 490, 516, 542n1 Conservative Party (British), 321, 580–84 Constable Close, 400–401 Constitution of Liberty, The (Hayek), 11, 459, 459n18, 538, 540 Contemporary Review, 460 Contempt of Freedom, The (Polanyi), 654 Copernicus, 495 Cornuelle, Herbert, 648, 651n11, 656, 706 corporate state: regime in Austria, 389– 90, 389n6, 394–95, 411, 414, 423, 430, 432, 622–25, 634; Spann’s idea of the, 133–34, 390 “Counter-Revolution of Science, The” (Hayek), 126, 357, 481–89, 516, 542n1, 543, 553, 594, 650, 680 Cours de philosophie positive (Comte), 483 Crane, Jasper, 612, 648, 648–49n9, 656–57 crisis policy. See under Hayek, Friedrich August: on cycles and crises Croce, Benedetto, 153, 599 Cromwell, Oliver, 665 Cronbach, Else, 148, 148n12 Croome, Honor (née Scott), 280, 476 Crowd, The (LeBon), 136 Crowther, J. G., 520, 536, 555 Cubitt, Charlotte, 5, 10n9, 155, 165, 165n13, 198, 410n4, 616n3, 638 Čuhel, Franz, 147 Dagens Nyheter (newspaper), 654 Dalton, Hugh, 73n7, 275, 277, 336, 363, 366, 566–67, 581 Darwinism, 38, 41, 179, 634n33 Das Finanzkapital (Hilferding), 110–11 Das Gesetz der Macht (Wieser), 112, 189, 210 Dasgupta, Amiya Kumar, 340

812

index

Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie (Schumpeter), 113, 138n18 Dathe, Uwe, 245n5 Davenport, John, 647n8, 654 DDHV. See Deutsch-Demokratische Hochschüler-Vereinigung Degenfeld-Schonburg, Ferdinand, 209, 246; economics chair at Vienna, 206, 239, 246, 304, 394, 625, 627–28; and Hayek’s habilitation, 246, 248n10, 249 Democrats (Austrian party), 58, 60n2 Denationalization of Money, The (Hayek), 11 denazification, 587, 658; in Austria, 622–26, 629, 633–34, 641; of Heinz, 588, 622, 634–38, 639 Dennison, Stanley, 654 Der Deutsche Volkswirt (periodical), 120–21; Hayek in, 303, 353n19 Der Österreichische Volkswirt (periodical), 120, 184, 211 Der sinnhafte Aufbau der sozialen Welt (Schütz), 151 Der wahre Staat (Spann), 133–35 de Staël, Madame, 482, 650 Deutsch-Demokratische HochschülerVereinigung (DDHV; German Democratic Students Union), 117, 121–23 Deutsche Rundschau (periodical), 593 development charges, 643, 643n2 de Waal, Hendrik, 123 Dewey, John, 182, 574 Dewey, Thomas, 491 DeWitt Wallace, W. R., 574 Dickinson, H. D., 322, 324–26, 329, 443, 472–73, 527 Die Gemeinwirtschaft (Mises), 145–46, 276 Die Gesellschaftskrisis der Gegenwart (Röpke), 593 Die Grenzen der Wirtschaftspolitik (Morgenstern), 385, 385n4 Die Grundlagen der Nationalökonomie (Eucken), 595

Dietze, Constantin von, 256, 388, 599, 640 Director, Aaron, 340, 524–25, 614, 686–87, 687n11; Free Market Study, 597, 611–14, 645, 656, 674, 678, 713; and Hayek’s move to Chicago, 691, 693, 703, 703n5, 711; at MPS, 647, 657, 663–64, 667, 673, 688, 706, 727 Dobb, Maurice, 319n2, 324 Dobretsberger, Josef, 246 Dollfuß, Engelbert, 237, 389–90, 389n6, 414, 419, 419n3, 423, 430 Dollfuß-Schuschnigg regime. See corporate state: regime in Austria Dorfman, Joseph, 186n14 Doublier, Gertraud, 142n5 Douglas, C. H., 274–75, 288 Drury, Esca. See Hayek, Esca Dub, Moritz, 148, 148n13 Dulan, Harold, 710, 710n1 Du pouvoir (Jouvenel), 652 Durbin, Elizabeth, 343 Durbin, Evan, 324, 335n1, 336, 340, 343, 358–59, 448, 466, 472, 539, 540n15, 643n3 Dwořák, Max, 101, 103, 126–27 Eastman, Max, 574, 647n8, 649, 654 Ebeling, Richard, 331n11 Eckert, Christian, 246 Ecole Polytechnique, 481, 543 Econometric Society, 278, 548; Hayek elected fellow, 602 Economica (LSE house journal), 249, 280; Hayek’s editorial duties, 349, 380, 508, 512–14, 584, 594n1 economic calculus, 333, 543, 547, 603, 611, 694; Hayek’s course at LSE, 509–11; in Wieser, 609n17 Economic Causes of War, The (Robbins), 472 Economic Consequences of Mr. Churchill, The (Keynes), 287–88 Economic Consequences of the Peace, The (Keynes), 450, 494

index Economic History Review, 360 Economic Planning and International Order (Robbins), 472 Economic Planning in Soviet Russia (Brutzkus), 324 Economic Policy for a Free Society (Simons), 686, 687n11 “Economics and Knowledge” (Hayek), 326–30, 326n5, 330–32, 332n13, 373, 382, 527, 600n11; on dispersed knowledge, 327–30, 511, 543, 546, 600; on logic vs. processes, 330–33, 375, 380, 509, 511; and Mises’s apriorism, 330– 33. See also knowledge problem Economics of Distribution, The (Hobson), 181 “Economics of Planning, The” (Hayek), 520, 602 Economics of Welfare (Pigou), 504 Edelberg, Victor, 340 Eder, Friedrich, 150, 152 Edgeworth, F. Y., 273, 319, 362–63 Edie, Lionel, 211 Edmunds, David, 500 Eidinow, John, 500 Einaudi, Luigi, 599, 650, 654, 668n25 Einstein, Albert, 370, 680 Eisenmenger, August, 28 Eisenmenger, Ellinor, 97 Eisenmenger, Gerty, 28, 37, 97, 99, 179, 197 Eisenmenger, Hugo, 179 Eisenmenger, Lilli, 28, 97 Eisenmenger, Robert, 97 Eisenmenger, Rudolf, 97 Elementary Lessons in Logic (Jevons), 129 Elisabeth, Empress of Austria, 28 Elisabeth-Gymnasium, 48, 54–55, 71, 136, 162 Ellis, Howard S., 630, 648n8 Elster, Ludwig, 241 Elze, Curt, 224, 418 emigration of German economists, after 1933, 345, 353–54, 387, 391–92, 477, 569, 654

813

Engel-Janosi, Friedrich, 150, 383, 397, 629n25 Engels, Friedrich, 439, 688 Engländer, Oskar, 147 Enquiry into the Nature and Effects of the Paper Credit of Great Britain, An (Thornton), 253, 350, 353 Ephrussi, Elisabeth, 122 equilibrium. See general equilibrium; Hayek, Friedrich August: on equilibrium Essai sur la nature du commerce en général (Cantillon), 253 Essay on the Nature and Significance of Economic Science, An (Robbins), 308–11, 332, 445 Essays in Persuasion (Keynes), 281, 305, 312 Ethics (journal), 546 Eucken, Rudolf, 244 Eucken, Walter, 251, 344, 591, 628, 639; Die Grundlagen der Nationalökonomie, 595; early views, 244–45; on the German problem, 666–67; a German Ricardian, 245–46; at MPS, 654, 663, 664, 666–67, 669, 673, 688, 706; opposition to the National Socialist regime, 344n12, 387–88, 469, 595, 599; ordo-liberalism, 599; on the problem of Germany, 666–67 Eulenburg, Franz, 205 European federation: prewar discussion of, 472–73, 537; at MPS, 660, 667–68 Exner, Felix, 103 Exner, Franz, 45n1, 48 Expectations, Investment, and Income (Shackle), 346 Eyck, Erich, 654, 666 Fabian socialism. See under socialism “Facts of the Social Sciences, The” (Hayek), 499, 546–48, 603 “Family History” (Hayek), 5, 23, 23n5 Farmand (periodical), 654 Fatal Conceit, The (Hayek), 1

814

index

Fate of Homo Sapiens, The (Wells), 446 Faust (Goethe), 38, 78 Federal Reserve System, 183, 211–12, 284 Feiler, Arthur, 245 Ferguson, Adam, 109, 607 Fetter, Frank, 157n3, 377, 611 Feyerabend, Paul, 631, 707 Ficker, Rudolf von, 629 Figdor, Fanny, 65n10, 154n21 Figdor, Wilhelm, 65, 65n10, 66, 69, 154n21 Finer, Herman, 678, 685; The Road to Reaction, 463, 678 Finger, Ernest, 65 First World War: battles at the Isonzo, 70, 72–73; battles at the Piave, 80–82; cease-fire and retreat, 83; outbreak of, 53, 54, 69–70; war of attrition, 73–74; war propaganda, 78. See also Hayek, Friedrich August: in WWI Fisher, Irving, 142, 158, 250, 278–79, 376–77; The Making of Index Numbers, 211; on stabilization, 213–14, 279; Stabilizing the Dollar, 211, 213 Fisher, Warren, 490 Five Lectures on Psycho-Analysis (Freud), 136 “Flapper Jane,” 179 Fleischhacker, Lisi (Elisabeth), 28, 96, 163 Fleischhacker, Robert, 97 Fleischmann, Carl, 99–100 Fleischmann, Walter, 99–100 forced saving, 261, 263, 283, 299, 351 Forchheimer, Karl, 203, 396 Forge, Kitty, 402 Forge, Waldo, 402 Fortune (periodical), 647n8 Foster, William Trufant, 221, 249, 263, 277, 278n8, 281, 288, 295; Money, 211 Foundation for Economic Education (FEE), 612, 648, 655–56, 657n18, 677n3, 681, 688, 706 Foyle, Christina, 584 Frankfurter, Felix, 65n10

Frankfurter, Salomon, 65, 65n10, 69, 428, 428n15 Franz Ferdinand, Archduke of Austria, 69 Franz Joseph I, Emperor of Austria, 22– 23, 28, 35, 58, 61–62, 70 Franz-Joseph-Realgymnasium, 48, 49– 51, 51n10, 52, 53, 54, 65 Freedom and the Economic System (Hayek), 460, 462, 468, 491, 520, 535, 653 Free Market Study, 612–14, 645, 647n8, 656–57, 663, 674, 681, 713 Freiburg circle, 256, 388, 595, 599, 599n9. See also Eucken, Walter Freud, Sigmund, 93n2, 103, 130, 151, 180, 362, 521, 558; Five Lectures on Psycho-Analysis, 136 Friedell, Egon, 100, 102 Friedensrecht (journal), 141–42; Hayek in, 142; Hella in, 142 Friedman, Milton, 524, 538, 572, 597, 612, 652n12; Capitalism and Freedom, 614; at Chicago, 613, 653, 678; at MPS, 647, 653, 657, 660, 665n24, 667, 669, 671–73 Friedman, Rose (née Director), 524 Friedmann, Max, 120–21 Friedrich II, Emperor of Prussia (Frederick the Great), 27 Friedrich III, Emperor of Prussia, 204 Frisch, Karl von, 100n7, 101, 155, 179, 224, 634n33 Frisch, Otto, 405 Frisch, Ragnar, 278, 341n8 Fritsch, Helena (Hella) von (HF). See Hayek, Hella Fritsch, Hildegarde (Hilda) (sister of HF), 217, 430 Fritsch, Johann von (great-grandfather of HF), 216 Fritsch, Julius von (father of HF), 216 Fritsch, Margarete (Grete) (sister of HF), 216–17, 430–31 Fritsch, Maria Anna (Mariandl) (sister of HF), 217, 405, 430

index Fritsch, Marianne (née Seyschab) (mother of HF), 216, 619 Fritsch, Wilhelm von (grandfather of HF), 216 “Fritzerls Tagebuch,” 4, 27 Fröhlich, Walter, 150, 202, 394, 397 “frustration of science,” 442, 580 Full Employment in a Free Society (Beveridge), 537, 579–80 Fundament der Volkswirtschaftslehre (Spann), 132–33, 137, 161 Furlan, Louis Vladimir, 242 Fürth (Furth), J. Herbert (JHF), 29, 53, 136, 163, 381, 396, 721; academic discrimination, 207, 381, 384; after the Anschluss, 393–94, 397; family history, 118–20; and Haberler, 203; on Mises, 202n6, 518–19n1. See also Hayek, Friedrich August: and Fürth Fürth, Emil von (father of JHF), 118, 118n2, 119 Fürth, Ernestine von (mother of JHF), 119–20, 135 Fürth, Josef von (grandfather of JHF), 118 Fürth, Margarete (aunt of JHF), 397 Fürth, Wilhelmine (cousin of JHF), 397 Gabillon, Helene, 154n21 Gaitskell, Hugh, 386 Galbraith, John Kenneth, 340, 343, 452 Gallup, George, 677n3 Garrison, Roger W., 378 Geistkreis, 51, 53, 88, 149, 149n15, 150– 55, 200, 201–3, 254, 383, 393, 397, 629n25 Geldtheorie und Konjunkturtheorie (Hayek), 248, 251, 277, 298; habilitation thesis, 196, 233, 248, 255, 258, 259; translated, 258, 280, 286n16. See also Monetary Theory and the Trade Cycle (Hayek) Geldwertstabilisierung und Konjunkturpolitik (Mises), 255 Gellhorn, Martha, 651

815

general equilibrium, 111–12, 113–14, 260, 320, 322, 325, 326, 330, 340. See also Hayek, Friedrich August: on equilibrium General Theory, The (Keynes), 11, 299, 306, 338n5, 364–68, 370, 384, 452, 488, 504, 662 Geneva Institute. See Graduate Institute of International Studies at Geneva German Historical School, 108–9, 115, 157, 182, 186, 188, 205–6, 233, 245, 310; Hayek on, 252, 308, 311–13, 316, 516, 543, 549, 665 German nationalism in Austria: in the First Republic, 90, 91, 105, 120–21, 153–54, 206–7, 226, 247; in the monarchy, 58–60, 60n2, 66, 104–5, 119, 420n4 German National People’s Party (DNVP), 315 “German question,” 587, 597, 658–60, 666–68, 668n25 German resistance, 593, 599, 599n6, 668–69 German Ricardians, 245–46, 591 Germany, Hitler’s. See Hitler, Adolf Gerschenkron, Alexander, 230 Gestapo speech (Churchill), 582, 583–84 Gibraltar, 567–72 Gide, Charles, 650 Gideonse, Harry, 321, 456, 462, 553, 574, 595n3, 646n6, 647, 649, 653, 665, 727 Ginsberg, Morris, 358, 556–57 Gishford, Anthony, 469 Glück, Franz, 53, 150–52, 155, 163, 397 Glück, Gustav, 151–52 Glück, Hilde (née Jäger), 155, 163–64 Glück, Wolfgang, 155 Godfrey, Stanley, 343 Goedicke, Fritz, 217, 413 Goerdeler, Carl, 599 Goethe, Johann Wolfgang von, 37, 38, 42, 42n15, 102, 468; Faust, 78 Gollancz, Victor, 438

816

index

Gombrich, Ernst, 347, 554–57 Gomperz, Heinrich, 126 Goodrich, David, 655 Good Society, The (Lippmann), 450–54, 456–57, 458–59, 488, 558 Goschen, George, 147 Gossen, Hermann Heinrich, 147, 214– 15, 484 Gottl-Ottlilienfeld, Friedrich, 116, 147 Graduate Institute of International Studies at Geneva, 242, 387–88, 396, 412, 478, 593, 616, 649n10, 668n25 Graham, Frank, 647, 653, 665, 669 Grätz, Victor, 148, 148n13 Great Depression, 10, 272, 364, 486; in Austria, 388–89; in Britain, 300–302, 308, 321; a failure of capitalism, 316, 322, 437; forecasting the, 236–39; in Germany, 238, 266–67, 305, 315; in the US, 451 Great Depression, The (Robbins), 242n1, 305, 306, 402 Gregory, T. E., 277, 279, 285, 302, 304, 307, 336, 343–44, 351, 455 Grene, David, 711 Grenznutzen und Wirtschaftsrechnung (Schönfeld), 215 Groppenberger, Anton, 28 Großmann-Doerth, Hans, 388 Grünberg, Carl, 114–15, 132, 135, 159n5, 206; editor of Grünberg’s Archiv, 115 Grundriß der politischen Ökonomie (Philippovich), 115, 137, 250 Grundriß der Sozialökonomik (Weber), 147, 196, 251–52 Grundsätze der Volkswirtschaftslehre (Menger), 108, 137–38, 253, 350 Grynszpan, Herschel, 427 guild socialism. See under socialism Guild Socialism Re-stated (Cole), 320 Gunn, Selskar M., 243 Gustav Fischer (publisher), 213, 247– 48, 250–51, 253 Guthrie, William D., 656n16 Gymnasialkurs (school in Vienna), 97, 217

Haag, John, 134 Haberler, Franz von, 203 Haberler, Gerhard, 638n35 Haberler, Gottfried, 107, 251–52, 254, 256, 278, 383, 385, 455, 607, 724; family history, 22, 203, 429; and Fürth, 203, 397; at Harvard, 383, 384; at the League of Nations, 230, 379, 383–84; and Mayer, 200, 209, 626, 721; and Mises, 143, 195, 202, 203, 204, 212, 255, 363; Prosperity and Depression, 379, 383–84; support for Austrian emigrants, 394, 395, 397, 471; at the University of Vienna, 246, 247, 280, 628, 705, 728. See also Hayek, Friedrich August: and Haberler Hacohen, Malachi Haim, 554, 554n7 Hahn, Albert L., 245, 246 Hahn, Dorothy Salter, 650, 661n20, 662, 669, 673 Hainisch, Marianne, 119, 120 Hainisch, Michael, 119, 120 Haldane, J. B. S., 347, 443–45, 520–21, 555 Haldane, Richard Burdon, 443 Hale, Robert, 183, 726 Halévy, Elie, 357, 485, 487–88, 521 Halévy, Léon, 487 Halm, Georg, 254, 323, 372n10, 392 Hammerschlag, Paul, 154n21 Händler und Helden (Sombart), 78 Handlirsch, August, 43 Hann, Julius von, 103 Hansen, Alvin, 300n11, 524, 575, 580, 685 Hardy, Charles O., 673, 706 Harms, Bernhard, 205 Harper, F. A. “Baldy,” 648, 655n15, 656, 656n16, 706 Harrod, Roy, 289, 301n12 Hart, Albert Gailord, 250, 678 Hartwell, Max, 600n10, 644, 646n6, 707 Harvard Economic Service (HES), 228, 232, 235–36, 239 Haupttheorien der Volkswirtschaftslehre (Spann), 116, 137

index Hauser, Dorothea, 67 Hawtrey, Ralph G., 302, 377, 467 Hayek, August von (father of Fritz): agnosticism of, 36, 222; anti-Semitism of, 64–65, 67, 154; as a botanist, 31– 32, 37, 39, 40–41, 218–19; death, 222; educating Fritz, 37–38, 40–41, 46, 49, 51; engagement and marriage, 21–22, 26–27; family history, 22–24; letters to Fritz, WWI, 75, 77–79, 82; married life, 33, 39, 92–95, 200; at the Vienna health office, 30–31, 218; in WWI, 71 Hayek, Christine (daughter of Fritz), 296, 476, 505, 676, 705; birth, 196, 225; childhood, 225, 258, 280, 402, 405–8, 491, 619; on family life, 409, 490, 505–6, 533; on Fritz, 13, 402–4, 493, 496, 503, 505–7, 514, 692; on Hella, 217, 403–5; interviews, 2, 6; on Lenerl, 5, 692–93, 700n2; parents’ divorce, 676, 677n2, 702n4, 709, 714n7, 717n9, 718, 722–23, 730; schools, 407, 490, 507–8; vacations in Austria, 409, 692–93, 707, 727 Hayek, Dieter (son of Heinz), 224 Hayek, Edith (née von Nitsche) (wife of Erich), 225, 414 Hayek, Erich von (brother of Fritz), 33, 36, 50, 69, 92–95, 225, 617n5, 619– 20, 640–41, 681; academic career at Innsbruck, 617, 641; chemistry studies of, 199, 222, 224, 414; at the IG Farben, 414–15, 422, 427, 616–17; remembrances, 6, 33, 37, 92, 164 Hayek, Erika (née Sass) (wife of Heinz), 224, 415, 640 Hayek, Esca (née Drury) (wife of Laurence, daughter-in-law of Fritz), 2, 5, 23n5, 495, 496n1, 701n3 Hayek, Felicitas (mother of Fritz): antiSemitism of, 127, 422, 427–28; August’s death, 22, 224; Beate, 222–24, 519; on Christine and Lorenz, 407–8; engagement and marriage, 21–22, 25–27; Erich, 33, 225, 414–15; family history, 24–25; Grinzing plot, 224,

817

421; Heinz, 33, 224, 405, 422, 622, 639; Hella, 220–22, 225, 258, 681, 696, 702–3, 712, 714; on Hitler and Anschluss, 422–23, 424–28, 431, 538; Lenerl, 163, 198–99, 704–5; letters to Fritz, WWI, 74–77; life in post-WWII Vienna, 615, 617–20, 626, 641; married life, 27, 32, 33, 39, 92–95, 200, 222; at Turner Close, 407–8, 412, 424, 711, 714; in WWII, 616–17; youth, 25– 26, 31, 33 Hayek, Friedrich August (Fritz) —at the Abrechnungsamt: entering, 140; leaving parents’ home, 141; with Mises, 142, 156, 218; negotiations with Canada, 200–201; a well-paid temporary position, 141, 144 —Abuse of Reason project, 12, 357, 436, 462, 469, 547, 680, 694; and Comte, 481–86, 490, 516, 543, 548–49, 553, 650; “Counter-Revolution,” 126, 479–89, 516, 543, 594, 650, 680; the “engineering mentality,” 480, 482, 542–43, 558, 561; first mentions of, 455, 479; and “Individualism: True and False,” 561–62, 606–7; Popper, discussions with about, 553–61; and positivism, 481–83, 485, 489, 553; reactions to, 485–86; The Road to Serfdom, transition to, 515–17, 562; and Saint-Simon, 481–87, 543, 607, 650; and “Scientism,”436–37, 480–81, 484–85, 489–90, 515–17, 542–46, 548– 50, 561–62; and socialism, 481–86, 489, 558 —Austria after the Anschluss: on the fate of circle members, 393–94; on the political situation, 392–93; recommendations for emigrants, 395– 97; visits, 392–95, 412–13, 425–26 —at the Austrian Institute for Business Cycle Research: director, 230; the foundation memo, 228–29; during the Great Depression, 237–38; participating at conferences, 234–36; the postwar Wifo, 627; the prediction of

818

index

Hayek, Friedrich August (continued) the 1929 crisis, 212, 236, 284–85; a skeptical case for prediction, 231–33 —and Böhm-Bawerk, 136, 147, 341; friend of the family, 11, 25, 39, 137, 159; Hayek on capital theory of, 138, 214–15, 371, 378; Hayek on the “three reasons,” 214, 262, 376–77 —on capital: average period of production, 262, 371, 373, 376n15, 378; “beautiful simplification,” 371, 372; complementarity of, 160, 299; consumption of, 147, 264, 680; maintenance of, 373, 376; mythology of (vs. Knight), 372–73; specificity of, 160, 261, 299; structure of, 371–76; (time) structure of production, 215, 262, 283, 371–72 —career at the University of Vienna: habilitation, 247, 248–49; Mayer, relations with, 207–8, 209, 247–48, 387; the NOeG, 148–49, 209, 247, 260n28, 382; teaching, 249–50; reviews for the Zeitschrift, 147–48, 215 —childhood and youth: baptized, 27, 28; birth, 27; interest in botany, 40–41; interest in Darwinian theory, 41; nicknamed “Fritz,” 27; parents, memories of, 33, 34, 223; residences in Vienna, 30–31; sexual awakening, 43, 165 —on competition, 530, 540, 546, 594; and concentration, 523, 527–28, 603; within a framework, 594, 662–64; imperfect, 353n10, 369, 610; in market socialism, 324–25; perfect, 329, 511–12, 610–11; as a process, 325–26, 329, 330, 381, 511–12, 527, 510–11 —cultural and sports activities: books read, 37, 42, 100–101, 135, 137–38, 146–47, 293; climbing, 37, 71, 81, 99– 100, 199, 200, 218, 225, 294, 498, 630, 641, 680; dancing, 36, 37, 98–99, 139, 161, 163, 168, 293–94, 474; ice skating, 36, 53, 70, 98, 165n13; music, 37, 99–101, 293, 412; skiing, 10, 37, 40,

77, 200, 218, 294, 383, 391, 392, 416; tennis, 36, 294; theater, 37, 42–43, 70, 81, 99–101, 162, 177, 293 —on cycles and crises: capital shortage, 238, 263–65; crisis policy, 203, 238, 264–67, 304; deflation and crises, 264–66, 384; forced saving, 251–62, 283, 299, 351; monetary origins, 114, 196, 249, 255, 260–62, 264, 364; natural and money rate, 261–62, 295, 298, 299–300; Ricardo effect, 379–80; “spending or saving,” 249, 263, 265, 281, 304–5; stabilization, dangers of artificial, 184, 211, 213, 262–63, 279, 284; structural effects, 114, 196, 261– 67, 298–99, 304; traverses, 262–64 —debating politics: with Felicitas on the Anschluss, 424–28; with Felicitas on Hitler’s Germany, 422–23; with Heinz on Hitler’s Germany, 416–21 —defending liberalism, 9, 15, 57, 435– 36; in the Beveridge memo, 316–17; and “Intellectuals and Socialism,” 685–89; Lippmann’s contribution to, 455–63; opponents of Hayek, in interwar period, 318–23, 437–48; in The Road to Serfdom, 533, 537–38, 591 —on equilibrium: coordination of plans, 327–28, 373; of ideal barter, 213, 261–62, 328n8; an indispensable tool, 215, 255, 260; intertemporal, 247, 259, 261, 300, 375; vs. market process, 327–28, 330–33, 375, 381, 511, 610–11; in Prices and Production, 262–64; of static theory, 258, 327, 329, 330, 375, 509n17; tendency to, 259, 261, 328–29, 332–33, 611 —and Eucken: on death of, 721; debating liberalism, 594–95, 596n4, 599; prewar contacts, 205, 244, 388, 409 —and Fürth: friendship, 87, 101, 117–18, 163, 164, 286, 383n2; Geistkreis, 149– 55, 201; influence of, 87, 118, 121–23; in the orbit of Spann, 132–35, 138– 39, 204 —and Haberler: criticizing Hayek’s

index theories, 212, 266–67, 379, 384; Geistkreis, 150, 201, 202; joint Vienna activities, 203–4, 250–51, 280; recommending Popper’s Logik, 347 —and Hella: at the Abrechnungsamt, 196–97, 216, 218; birth of Christine, 225; birth of Lorenz, 405–7, 411–12; debating politics, 429–30; divorce (see Hayek, Friedrich August: and Hella, divorce from); engagement and marriage, 218–19; Fritz’s bombshell, 410; a “good professor’s wife,” 405; life at Cambridge, 493, 506, 553, 606; life at Turner Close, 400–405; life in Vienna, 220–22, 225, 258; marital tensions, 411–13 —and Hella, divorce from, 9–10, 34–35, 553, 674–77, 679; aftermath, 727–30; annus horribilis, 701–6; Christine’s account, 676, 677n2, 692–93, 700n2, 702n4, 709, 714n8, 717n9, 719, 721; crises of June 1950, 724–27; Fritz’s divorce strategy, 708–13; Hella’s refusal, 695–701; initial conversations about, 410–13, 682; Lenerl’s “machinations,” 698, 700, 700n2, 714; Lionel’s role in, 701, 708–9, 712, 715–19, 723–26, 728–30; negotiating finances, 721–24 —and the Jewish intelligentsia: beneficial impact of, 152–53, 154–55; in the Geistkreis, 150, 152, 203; in the Mises circle, 203; in mixed circles, 153, 154, 203, 362; pupils in gymnasium, 50, 52n11, 54; recognizes discrimination, 126, 153, 395–96; Vienna’s Jewish bourgeoisie, 99–100 —and Keynes: battles with, 278, 281, 304–5, 308, 366–70, 435; at Cambridge, 490–91, 493, 501–2, 614; criticisms of, 255, 263, 377, 379; early admiration for, 184, 290, 494; first encounter with, 234–35; General Theory, not reviewing the, 299, 370; remembrances of, 358, 494–97; rival of, 11, 271, 297; on The Road to Serfdom,

819

531, 538–39, 565, 575; similarities between, and Hayek, 291–94; Treatise, reviewing the, 257, 290, 295–99, 371; on war finance, 470–72 —the knowledge problem, 264, 323, 327–28, 333, 600–602, 611 —and Lenerl (Helene Bitterlich), 5, 9, 12, 15, 158, 218, 552, 553, 588, 641; contacts during WWII, 616; a crucial decision, 411–12; dancing partner, 99, 101, 293; a distant cousin, 28, 166, 616; first encounters, 53, 97; Fritz did not marry, 162–66; Fritz in love with, 98; Fritz’s marriage to, 727; Fritz proposes she divorce Hans, 198–99; Hans, death of, 724–25; Hans proposes divorce to, 675, 724; mishap in Alpbach, 691–93; postwar reunion, 632, 674, 675, 675n1, 676, 677, 679, 681, 683, 698, 699, 701, 705, 707, 708– 9; visits in the 1930s, 412, 413, 466 —liberalism, 9, 15, 460, 462, 533, 537, 578, 588, 591, 660; British, attraction to, 88, 185, 188, 334, 352, 514; in the Central European College proposal, 550–52; early attraction to, 120–23; Eucken and Röpke, 388, 594–96, 599; family tensions over, 57, 414, 416, 430, 640; Keynes, 294, 308, 312–13; laissez-faire, as different from, 312– 13, 452, 458, 529–30, 559, 578, 594, 608, 649, 662; Mises, 313, 649, 662– 65; at the 1947 MPS meeting, 642–43, 657–58, 660–65, 668–69; rebuilding, on the continent, 592–98 —at LSE: on Beveridge, 354, 356; Beveridge, memo to, 316–17; in Cambridge, 465–66, 474–76, 493, 501–3; colleagues, 338–40, 357–63, 474–76; committee work, 348–50, 513–14; defection of students to Keynes, 364–70; editor of Economica, 508, 512–14; Hicks, 339, 341, 362–63; on history of, 513–14; inaugural lecture, 311–14; initial visit, 278–83; invitation to lecture, 277–78; Kaldor, 280,

820

index

Hayek, Friedrich August (continued) 340, 353n19, 367–69, 379–80, 476, 501–3, 513, 580, 610; Lachmann, 271, 345, 367, 513, 518–19n1; Laski, 354, 360–61, 502–3, 556, 578, 583; leaving 1950, 712–13, 715, 721; Lerner, 339– 40, 369; Popper, 346–48, 472, 513, 556–57; Robbins, seminar with, 337– 42; Shackle, 343, 345–46, 374, 513; Vera Smith, 344–45, 358; teaching, 334–37, 342–46, 508–12; the Tooke chair, 285, 307, 311, 349; University Lectures, 283–85 —and Machlup: on American isolationism, 491–92; and the American Road project, 597, 611, 614; and the capital project, 372–73, 373n13, 374, 377, 378, 380, 383, 384, 385; and The Road to Serfdom, 516, 519, 523–25, 569, 597; and “Use of Knowledge,” 568, 600 —on methods of economic research: methodological individualism, 255, 260, 548; primacy of deductive theory, 195, 210, 231, 232–33, 259–60, 543; role of empirical-statistical research, 155, 210–11, 228, 232–34, 254, 260, 278, 310; subjectivism, 328, 545–46, 545n3, 548–49; theory-laden facts, 233, 549; verification/falsification, 233, 233n10, 260 —and Mises: at the Abrechnungsamt, 142, 156, 218; on the Abuse of Reason, 526, 576, 612, 710; and the Austrian Institute, 201, 228; correspondence with, 174, 179, 184–85, 211, 323–24, 371, 386, 410, 478, 504, 512, 784; debating apriorism, 330–31, 331n10, 11, 332, 333, 543, 545–46, 548; debating liberalism, 313, 649, 662; influence on Hayek, 13, 142–43, 145–46, 360, 366–67; meeting in the US, 576, 612, 710; private seminar of, 195–96, 201, 203, 247–48, 382; theory of money and the cycle of, 140, 212, 255, 377 —on money: Fed policy after 1920, 211– 12, 284; fractional reserve banking,

255, 261; gold standard, 213, 302–3, 449n5; inflationism, 255, 261, 305; monetary nationalism, 302–3; neutral, 255, 261–65, 283, 299, 352; theory of a monetary economy, 190, 196, 213, 259, 271–72, 346 —and Mont Pèlerin Society: agenda for the first meeting, 657–58; discussions at the first meeting, 661–75; financing for the first meeting, 644–48, 684; later meetings, 688, 692, 706–7, 727–28; links to “The Intellectuals and Socialism,” 685–89; participants at 1947 meeting, 651–57; precursor events and writings, 461–62, 592–98, 595n3, 612–14; setting up the first meeting, 644–51 —and Morgenstern: at the Austrian Institute, 227–28, 230, 234, 235–36, 236n4, 237–40, 257; Geistkreis, 150, 201; and Hayek’s divorce, 675, 679, 724; joint Vienna activities, 238, 250, 280, 383; strained relations, 385–86 —postwar Austria: Alpbach, 13, 630–32, 633, 640, 674, 681, 691–93, 704, 707; Austrian Book Committee, 626–28, 632, 634; “Austrian reunion,” 629– 30; denazification, 623–24; first visit to, 621–22; the future of, 620–22; Schenk-Adler affair, 628–29; the universities, 632–34 —and Robbins: assistance to Hayek, 280, 284, 286, 399–400; contrasts in teaching style, 342–43; defending economic theory with, 308–14; divorce, role in, 701, 708–9, 712, 715–19, 723–26, 728–30; end of friendship, 718, 728–30; friendship, 285, 342, 402, 654; initial correspondence and meeting, 277–79, 281–82; joint seminars at LSE, 337–42; Keynesian thought, their battles with, 281, 287– 90, 295–96, 304–6, 365–70; at MPS 1947, 654, 665, 670–73; during WWII, 465–66, 472–77, 490, 501–4, 512 —and Röpke: correspondence in WWII,

index 583–86, 616; debating crisis policy, 266–67, 384; debating liberalism, 594–96; preliminaries to the MPS, 598–99, 644–45, 649, 651–52; prewar contacts, 205, 241–42, 244–46, 254 —at school: Carl-Ludwig-Gymnasium, 52–53; circle of friends, 53; elementary school, 48–49, 53; ElisabethGymnasium, 54–55; Franz-JosephRealgymnasium, 49–51; Kriegsmatura, 54–55; undistinguished performance of, 51, 52–53, 55 —on socialism, 448, 467, 566, 590; “conversion experience,” 145–46; critique of market socialism, 322–26, 328–29, 349, 435, 473, 526; critique of planning, 452, 527, 538, 564, 566, 595; early leanings toward, 55, 87, 123; freedom, incompatibility with, 482, 533–35, 540; “hot,” 526, 541; intellectuals and, 685–87, 688; and knowledge problem, 328–29, 527; “Nazi,” 316, 416, 438, 533, 536; positivism and, 461–64, 485, 489, 607; socialist calculation, 11, 143, 271, 276, 313, 322–26, 479; and social security, 530, 531–32 —as a student, 124–36; in the BDP, 120– 21; in the DDHV, 121–23; doctorates, 125; with Fürth, 118, 121–22, 132, 134, 135, 138–39; philosophical education, 127–29; psychology, 129–31; in Spann’s orbit, 132, 134–35, 137, 138– 39; studying Menger, 137, 138; thesis on imputation, 159–61; turning to economics, 132; Wieser’s lectures, 137 —US, moving to the, 15, 588, 676–77; the American Road project, 611–14; Arkansas, temporary job at, 710–12, 714, 719, 721, 725–27; Chicago, taking the job at, 691, 693–95, 701–13, 723– 24, 727–28; Committee on Social Thought, 678, 689–91, 710; Luhnow, Miller, and the Volker Fund, 596–98, 611–13, 656–57, 674, 679n4, 681–85,

821

684n8, 689, 691, 693–94, 699, 702–5, 709, 713, 723–24, 727–28; Princeton, unsuccessful job search at, 677–82, 691; Road promotional tour, 575–78, 596–98 —US, trip to the, 1923/24: on American civilization, 173–79; Austrian emigrants, 179; John B. Clark, 181; departure, 167–68; “An International Newspaper Page,” 185; Jenks, working for, 168–70; Kammerer, 179–80; in Mitchell’s class, 169, 182, 186, 188– 89; NYU fellowship, 170, 182, 183–84; a room in YMCA, 170–71; Thorp, working for, 183, 221; Veblen, 182 —“von” Hayek, 514, 567; as a British citizen, 431–32; in British election campaign of 1945, 582; ennoblement, 21, 23; prohibited after 1918, 22n1, 431–32 —and Wieser, 100, 157, 164, 189, 207–8, 210; Hayek editing, 159, 253, 484; Hayek on imputation, 160–61, 207–8; as Hayek’s teacher, 11, 88, 137–40, 142, 147, 158, 204, 215, 341 —and Wittgenstein: encounter at Cambridge, 499–51; encounter in 1918, 81; relations with family, 25n7, 35–36 —in WWI: awards, 78–79; battle at the Piave, 80; cadet school, 54, 70–71; correspondence with August, 77–78; correspondence with Felicitas, 76– 77; crashes with biplanes, 79; death of Walter Magg, 75–76; eels episode, 76; furlough, 80–81; “lack of nerves,” 84; loss of hearing, 83; malaria, 83; misses battle at the Isonzo, 72–73; promotions, 78; retreat, 82–83; in the trenches, 79 —in WWII: air warden, 495–96; on American isolationism, 491–92; British citizenship, 425, 427–28, 431–32; considers emigration, 476–77, 479; on European Federation, 472–73; family at Tor Cottage, 476, 490, 493, 503; moves to Cambridge, 493–501;

822

index

Hayek, Friedrich August (continued) at the Old Oast House, 505–6; during the Phoney War, 467–79; on propaganda, 467–69; trip to Gibraltar, 567– 72; on war finance, 469–72 —the young scholar: academic networking, 241–46; candidate at Hochschule für Welthandel, 256–57; candidate at Königsberg, 256; Geistkreis, 149– 55, 201, 254; “German Ricardians,” 245–46, 254–55; Grundriß project, 251–53; “Investigations” project, 214, 247–48, 250–51, 258–59; the Mises private seminar, 195–96, 201–3, 247–48, 382; Verein für Sozialpolitik meetings, 243–46 Hayek, Friedrich August, works of: Beiträge zur Geldtheorie, 365; “Capital Consumption,” 353n19, 382, 387; Capitalism and the Historians, 538, 666; Collectivist Economic Planning, 148, 323–25, 338, 454, 485, 559; “Comte and Hegel,” 490, 516, 542n1; The Constitution of Liberty, 11, 459, 459n18, 538, 540; “The Counter-Revolution of Science,” 126, 357, 481–89, 516, 542n1, 543, 553, 594, 650, 680; The Denationalization of Money, 11; “Economics and Knowledge,” 326–30, 326n5, 330–32, 332n13, 373, 382, 527, 600n11; “The Economics of Planning,” 520, 602; “The Facts of the Social Sciences,” 499, 546–48, 603; “Family History,” 5, 23, 23n5; The Fatal Conceit, 1; Freedom and the Economic System, 460, 462, 468, 491, 520, 535, 653; Geldtheorie und Konjunkturtheorie (see main title entry); Individualism and Economic Order, 480, 600, 600n11, 611, 632n21; “Individualism: True and False,” 13, 436, 552n6, 562, 600n15, 606–9; “The Intellectuals and Socialism,” 685–89, 685nn9–10; “Investigations into Monetary Theory,” 214, 247–48, 250–51, 258–59, 361, 375;

Law, Legislation and Liberty, 11, 538; “The Meaning of Competition,” 609–11, 612; Monetary Nationalism and International Stability, 302, 412; Monetary Theory and the Trade Cycle, 196, 258, 259–62; “The ‘Paradox’ of Saving” (see main title entry); “A Plan for the Future of Germany,” 595n3, 597–98; Prices and Production (see main title entry); Profits, Interest, and Investment, 305, 369, 378–79, 472, 504, 524; The Pure Theory of Capital (see main title entry); “Re-Nazification at Work,” 623, 629; “Report on Some Economic Problems,” 567–72; “The Ricardo Effect,” 379, 380; The Road to Serfdom (see main title entry); “Scientism and the Study of Society” (see main title entry); The Sensory Order (see main title entry); “Two Types of Mind,” 14, 112; “The Use of Knowledge in Society” (see main title entry); “What Is Mind?,” 602–6, 613, 707n9 Hayek, Gerda (daughter of Heinz), 224 Hayek, Gustav von (grandfather of Fritz), 23, 24, 31, 34, 38, 48, 102n8, 162; anti-Semitism, 64; teaching biology, 24–25, 31, 46, 50n6, 605 Hayek, Heinrich von (greatgrandfather of Fritz), 23–24 Hayek, Heinz von (brother of Fritz), 69, 75, 190–91, 425; cadavers, 636; candidate in Vienna, 639, 641; childhood and youth, 33, 40, 50, 77, 93, 94, 95, 98, 100, 163, 177; debating politics with Fritz, 416–21; denazification trial, 588, 622, 634–39; and Hella, 220–21, 406, 704; joining the SA (Sturmabteilung) and NSDAP, 416, 431, 634–37, 640; reconciliation with Fritz, 638–40; teaching in China, 415–16, 418, 425, 640; teaching at Rostock, 224, 405, 415, 417, 418, 422, 636; teaching at Würzburg, 416, 418, 427, 588, 636, 640; at the Vienna

index Anatomical Institute, 105, 130, 154, 199, 222, 415 Hayek, Hella (first wife of Fritz), 34, 35, 36; at the Abrechnungsamt, 142, 225; education, 217; family history, 216–17; letters of, 6, 9–10; translates Cantillon, 253–54; visit to Vienna in 1939, 413; visit to Warhanek home, 412. See also Hayek, Friedrich August: and Hella; Hayek, Friedrich August: and Hella, divorce from Hayek, Helene (Lenerl) (second wife of Fritz). See Bitterlich, Helene Hayek, Helga (daughter of Heinz), 224, 415–16, 425 Hayek, Josef von (great-greatgrandfather of Fritz), 23 Hayek, Konrad (son of Erich), 415 Hayek, Lorenz (Laurence) (son of Fritz), 2, 5, 6, 23n5; birth, 405–6, 411, 423, 429, 430; childhood, 407–8, 413, 493, 505, 619; parents’ divorce, 676, 719, 722–23, 730; schools, 490, 507 Hayek, Paul (uncle of Fritz), 24, 77n9, 164, 219, 619 Hayek, Sidonie (née Mayerhofer) (grandmother of Fritz), 24, 34, 38 Hayek, Thaddeus Hagecius von, 169 Hayek, Waltraud (daughter of Erich), 415 Hazlitt, Henry, 573, 647, 649, 654, 662, 664 Hazlitt, William, 435 Heckscher, Eli, 341n8, 368 Hegel, Georg Wilhelm Friedrich, 490, 516, 549, 554 Heidegger, Martin, 388 Heimwehr (Austrian), 226–27, 390 Heinrich, Walter, 227, 246, 257, 625, 625n17 Heller, Friederike (Fritzi), 162 Heller, Hans, 150, 151 Heller, Hedwig, 93 Heller, Hugo, 93, 93n2 Hemingway, Ernest, 651 Henderson, Hubert, 285, 289, 289n20

823

Herdan, Alice (Liccie) von, 97 Herzfeld, Marianne, 202, 393 Herzfeld, Walter, 708n10, 710, 710n1, 725, 727–29, 729nn20–21 HES. See Harvard Economic Service Hess, Viktor, 395 Heydel, Adam, 242, 242n1 Hicks, John R., 242, 678; at Cambridge, 339, 339n6, 502; at LSE, 277, 297, 338–39, 341, 344–45, 362–63, 365; The Theory of Wages, 339; Value and Capital, 339, 509n17. See also under Hayek, Friedrich August: at LSE Hildebrandt, Sabine, 420n4, 637 Hilferding, Rudolf, 110; Das Finanzkapital, 110–11 Hinrichs, A. Ford, 210, 242 historicism, 310, 313, 548–49, 555, 560; Popper on, 347, 554, 555, 557, 560 historism. See historicism Hitler, Adolf, 57, 317, 414, 415, 425, 468, 638, 651; Austrian origins, 67–68, 68n11; Mein Kampf, 67, 314, 422–23; at the peak of popularity, 417–18, 637; policy toward Austria, 390–91, 423; rise to power, 121, 256, 272, 313–16, 419n3, 433, 636–37; Sudetenland crisis, 426, 426n10, 464, 651–52; in WWII, 409, 473, 475–77, 491, 519, 532n10, 578. See also Weimar Republic Hobson, John A., 181, 445; The Economics of Distribution, 181 Hobson, S. G., 320 Hoche, Alfred, 136 Hochschule für Welthandel (Vienna), 136n17, 387, 394, 395, 625, 626, 627; Hayek at, 256–57 Hochstetter, Ferdinand, 105, 154, 222, 224, 415, 636n34, 639 Hoff, Trygve, 654–55 Hogben, Lancelot, 354–55, 360, 441, 444–45, 453, 520, 547n4, 555, 557; Mathematics for the Million, 442; Retreat from Reason, 445; Science for the Citizen, 442

824

index

Holtrop, Marius W., 254 Hornbostel, Prisca, 179 Howson, Susan, 278, 310n3, 335n1, 342n10, 368, 502n11 How to Pay for the War (Keynes), 471–72 Hülsmann, Jörg Guido, 245 Hulton, Edward, 517 Human Action (Mises), 472 Human Events (periodical), 655 Hume, David, 525, 551, 581, 594, 607 Hunold, Albert, 644n5, 675n1, 726n17; funding Occident, 600, 644–45, 646; and Hayek’s divorce, 660, 718, 720, 720n12; and MPS, 645–46, 647n7, 650, 651, 655, 706, 727 Hussarek von Heinlein, Max (father), 54, 82 Hussarek von Heinlein, Max (son), 54, 71, 72, 74, 75, 82 Hutchins, Robert Maynard, 611, 612, 690, 690n13, 693, 702, 703n5, 709, 711, 713, 727 Hutchinson, Henry Hunt, 273 Hutt, W. H., 513 Huxley, Aldous, 444 Huxley, Thomas, 484 hyperinflation: Austrian, 10, 90, 143–45, 148, 157, 218–19, 226, 421; German, 128, 314; Mises on how to stop, 144 Iltis, Hugo, 41, 66 imputation, 112, 208, 331; Hayek on, 147, 152, 159–61, 207, 216 individualism, 244, 431, 482, 573; critiques of, 116, 133, 205, 444, 448; methodological, 110, 255, 260, 548; true and false, 13, 534, 552, 561, 607–9 Individualism and Economic Order (Hayek), 480, 600, 600n11, 611, 632n21 “Individualism: True and False” (Hayek), 13, 436, 552n6, 562, 600n15, 606–9 inflation, 212; and Keynesian policies,

495, 504, 670; and war finance, 469– 71. See also Hayek, Friedrich August: on cycles and crises; hyperinflation Institute of Advanced Studies, at Princeton: Hayek and, 680–82; Robbins at, 717–18, 720 “Intellectuals and Socialism, The” (Hayek), 685–89, 685nn9–10 Internationale Ordnung (Röpke), 593 international monetary systems. See Hayek, Friedrich August: on money Introduction aux travaux scientifiques du dix-neuvième siècle (SaintSimon), 487 “Investigations into Monetary Theory” (Hayek), 214, 247–48, 250–51, 258– 59, 361, 375 Iversen, Carl, 654 Jacobsson, Per, 401, 465 Jäger, Christl, 155 Jäger, Gustav, 155, 155n23 Jäger, Hilde. See Glück, Hilde Jahn, Georg, 245 James, William, 131, 450n7 Jenks, Jeremiah W., 156, 156n1, 168–70, 170n3, 171, 185, 210 Jeritza, Maria, 43 Jevons, William Stanley, 319; Elementary Lessons in Logic, 129; The Theory of Political Economy, 138 Jewish intelligentsia. See antiSemitism; Hayek, Friedrich August: and the Jewish intelligentsia Jewkes, John, 654, 673 Jodl, Friedrich, 131 John, Ernst, 230, 627, 630 Johnson, Harry, 339, 499n8 Jöhr, Adolf Walter, 244, 631 Jones, Aubrey, 343 Jouvenel, Bertrand de, 651–52, 652n12, 653, 659–60; Du pouvoir, 652; L’economie dirigée, 651 Joyless Economy, The (Scitovsky), 180 Juraschek, Beatrix (Beate) von (sister of FvJ), 25, 35, 223, 619, 703;

index marriage with Petraschek, 222–23; marriage with Reitz, 24n6, 424; as a novelist, 223–24, 619 Juraschek, Felicitas von (FvJ). See Hayek, Felicitas Juraschek, Franz von (father of FvJ), 24n6, 25, 34–35, 38, 109, 113, 116 Juraschek, Franz von (grandfather of FvJ), 24 Juraschek, Franz von (half-brother of FvJ), 26, 50, 53, 100, 101, 103, 425 Juraschek, Gertrud von (married Schmidt) (half-sister of FvJ), 26, 424 Juraschek, Ida von (née Pokorny) (stepmother of FvJ), 25–26, 34–35, 67, 71, 77, 119, 405, 424, 618–19 Juraschek, Ida von (sister of FvJ), 25–26 Juraschek, Johann, 26 Juraschek, Johanna Theresia von (née Stallner) (mother of FvJ), 24, 25 Juraschek, Margarete von (married Castle) (half-sister of FvJ), 26, 51, 425 Juraschek, Rudolf, 26 Justice for the South Tyrol Committee, 621 Kaan, Emma Paula, 203 Kaan, Friederike Ida, 203 Kaan, Julius, 203 Kahane, Jacques, 276 Kahn, Richard, 281–83, 298, 366, 366n2, 497, 504, 504n13, 512 Kaldor, Nicholas, 566; assisting Beveridge, 579–80; at Cambridge, 501–3, 515; converted to Keynesianism, 267–68; at LSE, 280, 337–40, 342, 365–66, 368, 466, 476; visiting Vienna, 250, 280. See also under Hayek, Friedrich August: at LSE Kalecki, Michal, 340, 396 Kalmus, Jakob, 25n7 Kalmus, Marie (née Stallner), 36, 67 Kamitz, Reinhard, 230, 393–94, 627n21 Kammerer, Paul, 66, 126, 179, 180, 180n6

825

Karl, Emperor of Austria, 74 Karplus, Martin, 154, 154n21 Katz, Wilber, 611–13 Kaufmann, Felix, 51, 147, 150, 152, 202, 207, 331, 442n12, 393, 397, 507 Kautsky, Benedikt, 229 Kautsky, Karl, 146, 323 Kelsen, Hans, 48, 88, 125, 135, 150–51, 160, 387, 432, 593, 630 Kerschagl, Richard, 257, 625 Keynes, Geoffrey, 291 Keynes, John Maynard, 351, 355, 455, 499, 548, 566, 699; death of, 614; The Economic Consequences of Mr. Churchill, 287–88; The Economic Consequences of the Peace, 450, 494; Essays in Persuasion, 281, 305, 312; The General Theory, 11, 306, 338n5, 364–68, 370, 384, 452, 488, 504, 662; How to Pay for the War, 471–72; “Keynesian remedies,” 267, 267n39, 271, 281, 287–89, 303–5, 451–52, 457, 579–80, 627, 670–71; Keynesian revolution, 364–70, 377, 452, 502, 504, 515, 519, 524, 580, 614; and liberalism, 294, 308, 312–13, 531, 538, 662; self-confidence, 301, 495; tariff question, 289–90, 301; A Tract on Monetary Reform, 184; A Treatise on Money, 235, 251n17, 290, 294–300, 346. See also Hayek, Friedrich August: and Keynes Keynes, Neville, 292–93 Kirzner, Israel, 332 Kissinger, Henry, 652n12 Klausinger, Hansjoerg, 2, 6n5, 8, 22n4, 25n7, 369n7, 679n5 Klausner, Joseph, 406 Klein, Franz, 120, 121 Klein, Rudolf, 203 Knight, Frank H., 226, 239, 242, 286, 341, 449, 457, 549; capital theory of, 372, 375, 384; at Chicago, 611, 678, 690–91, 704n8, 711; at MPS, 595n3, 646n6, 647, 653, 658, 668–69, 671–73; Risk, Uncertainty and Profit, 328,

826

index

Knight, Frank H. (continued) 336, 350; on The Road to Serfdom, 525, 537–38, 575 Knoll, Fritz, 66, 426n11 knowledge problem, 264, 323, 327, 328, 333, 601 Koestler, Arthur, The Case of the Midwife Toad, 180n6 Kohn, Hans, 647, 647n8, 706 Kokoschka, Oskar, 97, 101 Komorzynski, Johann, 147 Kornfeld, Siegmund, 130 Kozlik, Adolf, 230, 393, 395, 396 Kraft, Viktor, 128–29 Kraus, Karl, 102, 151 Kraus, Oscar, 147 Kresge, Stephen, 1–3, 7, 84n16, 190n16 Kristallnacht. See Night of Broken Glass Kronfuß, Karl, 53 Krueger, Maynard, 577 Krylenko, Elena, 574 Kuczynski, René, 569 Kudler, Joseph, 107 Kürnberger, Ferdinand, 180n7 Kyklos (journal), 645 Labour Party (British), 300, 318n1, 320–21, 471, 521–22, 564, 566–67, 578, 581–84; Laski and, 361, 438, 522, 536, 581–84; postwar governments, 642, 698, 712n4, 723. See also socialism Lachmann, Ludwig, 467n2; on Hayek at LSE, 271, 297n4, 300, 327, 344, 364; student at LSE, 340, 344, 367. See also under Hayek, Friedrich August: at LSE Lagler, Ernst, 625 Lampe, Adolf, 388, 599 Landsteiner, Karl, 103 Lange, Oskar, 325–26, 329, 333, 333n14, 340, 399, 448, 473, 527, 553, 566 Laski, Harold, 442, 445, 452, 519, 521, 556, 564, 567, 587, 721; critique of liberalism, 437, 438–40, 448–49, 457, 462, 484, 486, 488, 517–18, 533, 538,

540; and the Labour Party, 361, 438, 522, 536, 581–84; Liberty in the Modern State, 521; at LSE, 275–77, 354–55, 360–61, 502–3; The Philosophy of a Business Civilization, 440; The Rise of Liberalism, 438 Law, Legislation and Liberty (Hayek), 11, 538 Layton, Walter, 304, 304n17 LCES. See London and Cambridge Economic Service LeBon, Gustave, The Crowd, 136 Lecher, Grete, 222 L’economie dirigée (Jouvenel), 651 Lederer, Emil, 245, 251–52, 323, 391 Lenhoff, Arthur, 395 Lenin, Vladimir I., 181, 521, 574 Lensch, Paul, 536 Leonard, Lotte, 100 Leonard, Robert, 385n4 Lerner, Abba P., 368n6, 508n15; at LSE, 338–40, 347, 356, 369; converted to Keynesianism, 346, 365–67, 504. See also under Hayek, Friedrich August: at LSE Letwin, Shirley, 403 Levy, David, 684n8 Levy, Hyman, 347, 441, 444, 444n4, 445, 554 Lévy-Bruhl, Lucien, 484 Lewis, Norman, 725–26, 729n20 Lewis, W. Arthur, 501, 513 Lexis, Wilhelm, 43 liberalism, 22, 22n3, 352, 437–63, 486, 514, 519, 538, 578, 631, 658, 661n20, 663; adversaries, 133–34, 146, 316–17, 321, 438–48, 484, 488; in Austria, 112, 153, 205, 246n7, 385; Christianity and, 660, 668–69; Lippmann’s defense of, 448–63; ordo-liberalism, 387–88, 595, 599; and policy, 671–73. See also Hayek, Friedrich August: liberalism Liberal Magazine, 566 Liberal Party (Austrian), 58, 60, 60n2, 90, 118–19, 121

index Liberal Party (British), 352, 583 Liberal Review, 520, 555 Liberty in the Modern State (Laski), 521 Lieser, Helene, 202, 393 Lindahl, Erik, 340n8, 366, 368 Lippmann, Walter, 185, 533, 559; “Agenda for Liberalism,” 456–57, 458, 558; columnist, 449–51; correspondence with Hayek, 454–56, 457, 459, 469; The Good Society, 450–54, 456– 57, 458–59, 488, 558; and Hayek’s Road to Serfdom, 462–63, 479, 525. See also Colloque Lippmann Listener (periodical), 281, 564 Löbl, Rudolf, 203 Löbl von Laminzfeld, Karl Alois, 77n9, 82 Locke, John, 252, 551, 607 Loewi, Otto, 395 Löffler, Alexander, 125 Logik der Forschung (Popper), 347, 348, 472, 557, 558 Lombard Street (Bagehot), 147 London and Cambridge Economic Service (LCES), 228, 235–36, 279, 306, 349, 494 London Economic Club, 290, 326–27 London School of Economics (LSE): academic life at, 334–37, 351–52, 357; under Beveridge, 274, 353–56; in Cambridge, 501–3; under CarrSaunders, 465, 501–2; foundation of, 188, 273–74; preparing for WWII, 465–66, 474–75; Sidney Webb and, 273–74, 350, 354. See also Beveridge, William: director of LSE; Hayek, Friedrich August: at LSE; and under Robbins, Lionel Longfield, Mountiford, 350 Loos, Adolf, 97, 151 Lorenz, Adolf, 103 Lorenz, Konrad, 103, 222, 633–34, 634n33 Loschmidt, Josef, 103 Lovasy, Gertrud, 202, 230, 393, 395, 424

827

Loveday, Alexander, 243 Lovinfosse, Henri de, 651n11, 655, 671, 672n27 Löwe, Adolf, 241–42, 245–46, 260n28, 391 LSE. See London School of Economics Lueger, Karl, 28, 60–61, 63, 64, 90, 104 Luhnow, Harold, 607, 686; Free Market Study, 597–98, 611–13, 681; funding Hayek’s move to the US, 674, 679n5, 681–84, 684n8, 688, 691, 693–94, 699, 702, 704–5, 707, 713; funding MPS, 645–49, 655–57, 674, 687–88, 706 Lutz, Friedrich, 344, 344n12, 377–78, 513, 596, 648n8, 653, 679, 706, 725n17, 728 Lutz, Vera. See Smith, Vera MacDonald, Ramsay, 300, 320 Macgregor, D. H., 304, 304n17 Mach, Ernst, 103, 127–28, 606; philosophy of science, 138n18; Populärwissenschaftliche Vorlesungen, 129 Machlup, Friedrich Eduard (Fritz), 195, 238, 245, 345, 383, 393, 455, 476, 477, 513, 724; family history, 204; and Mises, 143, 195, 201–2, 204, 383, 478, 518; at MPS, 647, 653, 671; in the US, 384–85, 394, 395, 437, 476, 523; and the Vienna economics community, 107, 150, 156, 203–4, 208, 238, 250, 283, 384, 385–86, 629–30. See also Hayek, Friedrich August: and Machlup MacKenzie, Findlay, Planned Society, 321 Macmillan, Harold, 321; The Middle Way, 321 Mädchen-Lyzeum (school in Vienna), 26, 36, 46–47, 97, 217 Magee, J. D., 183 Magg, Gustav, 36 Magg, Helene (Nelly) (née von Hohenbruck), 36, 50, 74–75, 99, 179

828

index

Magg, Herbert, 50, 98, 99, 219, 222 Magg, Walter, 27, 37, 43, 51n10, 74, 76, 98, 119; closest friend, 36, 50, 53, 118, 286; death of, 75 Mahr, Alexander, 721 Mair, Jessy, 355–56, 359–60 Making of Index Numbers, The (Fisher), 211 Malinowski, Bronislaw, 357 Man and Society in an Age of Reconstruction (Mannheim), 446–48, 536, 558 Mann, F. A., 697, 708n10, 710n1, 725–27, 728n19 Mann, Fritz-Karl, 205 Mannheim, Karl, 348, 361–62, 362n21, 437, 453, 456n13, 488, 521, 533, 540, 555, 561; Man and Society in an Age of Reconstruction, 446–48, 536, 558 Mantoux, Etienne, 460 Mantoux, Paul, 387 March, Arthur, 632 Maria Theresa, Empress of Austria, 103 Mark, Robert, 53, 179 market socialism. See under socialism Marschak, Jakob, 372n10, 391, 525, 525n4 Marshall, Alfred, 512; Principles of Economics, 138, 322, 336, 370 Marshall, George, 660 Marshall Plan, 183n10, 660 Marshall Society, 280, 281–82, 283n12 Martin, Kingsley, 290, 474, 566 Marx, Karl, 83, 151, 439, 482, 516, 519, 543, 549, 554, 688 Marxism, 20, 87, 91, 133, 246, 316, 324, 354, 436, 439, 460, 584; Hayek on, 146, 558, 665; labor theory of value, 110, 273, 273n3, 318–19; the men of science on, 441, 443, 444, 445, 536; no influence on British socialism, 273, 318, 440. See also Austro-Marxism Masses, The (periodical), 574 Massey, Raymond, 445 master of the subject, 14; Böhm-

Bawerk, 112, 127; Robbins, 342. See also “Two Types of Mind” (Hayek) Mathematics for the Million (Hogben), 442 Mauthner, Fritz, 129 May, Karl, 35, 35n6 Mayer, Hans, 116, 205, 243, 245, 246, 250, 278; after Anschluss, 393–94, 625–26; circle of, 208–9, 215, 394; economics chair at Vienna, 158–59, 204–5, 206, 239, 384–85, 686, 721; family history, 114–15; feud with Spann, 205–6, 207, 208, 246, 625; and Hayek, 207–8, 254, 341, 387, 627; Hayek’s habilitation, 246–49; and Mises, 48, 205, 209, 384; and Morgenstern, 204, 207–8, 385–86; and the NOeG, 148, 209, 394; on value theory, 147, 208, 215; Zeitschrift, editing of, 206–7, 254, 386 Mayerhofer von Eisfelden, August, 27 Mayerhofer von Eisfelden, Sidonie (née Bergenstamm), 27–28 McCormick, Brian J., 338n4 Mead, George Herbert, 689 Meade, James, 366 “Meaning of Competition, The” (Hayek), 609–11, 612. See also Hayek, Friedrich August: on competition Mein Kampf (Hitler), 67, 314, 422–23 Mellbye, Johan Egeberg, 95 Mendel, Gregor, 41, 66 Menger, Anton, 107 Menger, Carl, 13, 104, 113, 160, 202, 209, 351; Austrian school, 107–9, 111, 115, 233, 328; family history, 21, 107; Grundsätze der Volkswirtschaftslehre, 108, 137–39, 253, 350; Hayek on, 109, 484, 253, 484, 543, 545, 546; Hayek editing, 253, 350; Hayek reading, 137–38; on money, 137, 208; on organic institutions, 109, 133, 138, 543, 545; Untersuchungen über die Methode der Sozialwissenschaften, 108, 138

index Menger, Caroline, 107 Menger, Karl, 108, 150, 185, 209, 253n20, 332, 385 Menon, Krishna, 521 Merriam, Charles, 577, 678, 685 Meyer, Robert, 150, 151 Michels, Robert, 147 “middle way,” 321, 451, 594 Middle Way, The (Macmillan), 321 Miksch, Leonard, 254, 674 Mill, James, 498–99, 607 Mill, John Stuart, 188, 482, 484, 559, 607; Hayek as a Mill scholar, 435–36, 486, 486n10, 488, 498, 627, 694; On Liberty, 575; A System of Logic, 129, 484 Miller, Loren, 595n6, 596, 598n8, 648n9; at the FEE, 656–57, 664, 672; Hayek’s job search, 679n4, 681, 682, 684, 684n8, 685, 687–89, 691, 693, 702; at MPS, 648, 657, 684n8, 689, 706 Mills, Frederick C., 183; Statistical Methods, 250 Milton, John, 521, 551 Mintz, Alexander, 150, 383 Mintz, Ilse (née Schüller), 202, 230 Mintz, Max, 32, 53, 148, 150–52, 164, 202, 383, 393 Mises, Ludwig von, 48, 147, 160, 245, 279, 353, 377, 386–87, 513, 524, 546; at the Abrechnungsamt, 88, 139, 140–42, 156, 196, 218; apriorism, 331–32, 543, 545–46, 548; on Austrian economic policy, 91, 119, 144–45, 238; and the Austrian Institute, 195, 201, 228–29, 237; Austrian school, 111, 113–14; at the Chamber, 114, 203, 228–29; circle of, 150, 153, 195–96, 201–3, 205, 207–9, 230, 247–48, 331, 382, 397, 543; escape to the US, 477– 79, 518, 593; at Geneva, 242, 387, 396, 478, 649n10; and Hella, 258, 406, 429–30, 711, 724; Jewish descent of, 114, 121, 158, 203; on liberalism, 313,

829

455, 457, 460–61, 519, 649, 662, 664– 65; and Machlup, 204, 384; on money and the cycle, 212, 232–33, 255, 261, 283, 298, 300n11; at MPS, 547, 649, 653, 658, 664–65, 706, 728; the NOeG, 148–49, 209; socialism, critique of, 11, 111, 114, 145, 276, 313, 322–24, 455, 605; in the US, 477–78, 492, 518, 519, 522–23, 576, 612, 657n18; at the Verein für Sozialpolitik, 245–46; and the Vienna economics community, 114, 122, 142–43, 158, 203–5, 208–9, 247, 385, 394–95, 626, 629. See also Hayek, Friedrich August: and Mises Mises, Ludwig von, works of: Die Gemeinwirtschaft, 145–46, 276; Geldwertstabilisierung und Konjunkturpolitik, 255; Human Action, 472; Nationalökonomie, 472, 478; Notes and Recollections, 518, 518n1; Omnipotent Government, 573; Socialism, 322–23; Theorie des Geldes und der Umlaufsmittel, 114, 143, 146 Mises, Margit von, 478–79, 518, 518n1 Mitchell, Wesley Clair, 13, 158, 204, 210, 211, 221, 308–9, 392, 436, 548; course called “Types of Economic Theory,” 169, 186–89, 186n14, 350, 468, 605; exchange on Wieser, 189–90, 210–11, 219 Mitic, Max, 230 Moggridge, Donald, 296 Mohr Siebeck (publisher). See Siebeck, Oskar Moll, Bruno, 147 Mombert, Paul, 205 Monakow, Constantin von, 130 Monatsberichte des Österreichischen Instituts für Konjunkturforschung (periodical), 231–32, 234, 236n4, 237, 258 Monetary Equilibrium (Myrdal), 365, 367 Monetary Nationalism and International Stability (Hayek), 302, 412

830

index

monetary theory. See Hayek, Friedrich August: on cycles and crises; Hayek, Friedrich August: on money Monetary Theory and the Trade Cycle (Hayek), 196, 258, 259–62 Money (Catchings and Foster), 211 Mont Pèlerin Society (MPS). See Hayek, Friedrich August: and Mont Pèlerin Society Moore, G. E., 499, 500n9 Morbus Viennensis, 30 Morgenstern, Oskar, 242, 246, 248, 258, 278, 345, 383; the Austrian Institute after the Anschluss, 394, 396, 627n21; Die Grenzen der Wirtschaftspolitik, 385, 385n4; family history, 204; Mises seminar, 155, 202–3; at Princeton, 396, 612, 653, 679; and the Vienna economics community, 204, 207, 208, 209, 215–16, 257, 393, 626, 627, 629–30, 632. See also Hayek, Friedrich August: and Morgenstern Morley, Felix, 648, 651n11, 655, 655n15, 670, 727 Morrison, Herbert, 581, 583 MPS. See Hayek, Friedrich August: and Mont Pèlerin Society Müller (Müller-Armack), Alfred, 254 Müller, Adam, 116 Mumford, Lewis, 321, 453, 487 Munich Accord. See Hitler, Adolf: Sudetenland crisis Murbeck, Svante, 95 Musil, Robert, 42n15 Myrdal, Gunnar, 298, 366, 368, 368n6; Monetary Equilibrium, 338n5, 365, 367 Nation (periodical), 517, 519, 573 Nationalökonomie (Mises), 472, 478 Nationalökonomische Gesellschaft (NOeG), 148–49, 209, 242–43, 260n28, 332, 626; Hayek’s papers at, 247, 332n13, 382 Nation and Athenaeum (newspaper), 289n20

Nature (periodical), 480, 520–21, 536 Needham, Joseph, 347, 441, 443, 445, 520, 561 Nef, John U., 611; and the Committee on Social Thought, 678, 689–91, 693, 711; Hella’s letter to, 705–6, 711–12, 712n3, 728–29, 729n21; negotiating with Hayek, 678, 691, 701–7, 709–10, 713 Neisser, Hans, 241, 245, 251, 254, 298, 391 Nemschak, Franz, 627 neoliberalism, 8, 8n8, 461, 595n2. See also liberalism Neue Zürcher Zeitung (newspaper), 425, 594 Neumann, Elisabeth, 97 Neumann, John von, 612n17, 680n6 Neurath, Otto, 111, 145, 323, 347n15, 348, 436, 487, 548, 549, 555, 561, 604–7 New Deal, 437, 439, 449n5, 491, 581; Lippmann on, 451–52, 454, 457 New Fabian Research Bureau (NFRB), 321, 322 New Left Book Club, 438 New Republic (periodical), 173, 450, 519, 575 New Statesman (periodical), 566 New Statesman and Nation (periodical), 290 Newsweek (periodical), 654 New World Order, The (Wells), 446 New York Herald Tribune, 451 New York Herald Tribune Weekly Book Review, 573 New York Times, 178–79, 525, 573 New York Times Book Review, 573 Next Five Years, The (Liberty and Democratic Leadership), 321 Niebuhr, Reinhold, 573–74 Night of Broken Glass, 427–28, 427n14 NOeG. See Nationalökonomische Gesellschaft Notes and Recollections (Mises), 518, 518n1

index NSDAP (National Socialist German Workers’ Party), 314–16, 416, 420n4, 431, 618, 623, 624 Nurkse, Ragnar, 630 O’Brien, George, 498, 499n7, 607 Observer (newspaper), 564 Occident (journal), 600, 644, 646, 653n13, 654 Offenheimer, Elly, 202 Ohlin, Bertil, 243, 279, 340n8 Old Oast House, 503–7 Old World and the New Society, The (National Executive Committee of the Labour Party), 521 Omnipotent Government (Mises), 573 On Liberty (Mill), 575 Open Society and Its Enemies, The (Popper), 553, 556, 557, 559, 560 Oppenheimer, J. Robert, 682 Orage, A. R., 320 Orton, William, 647n8, 668 Orwell, George, 564–65 O’Shea, Sans, 169 Ostwald, Wilhelm, 131 Oswalt, Henri, 242 Ottolenghi, Constantino, 236 Overhoff, Julius, 53, 121 Paish, Bea, 402 Paish, Frank, 340, 401, 455, 456, 512–13, 716, 730 Palla, Edmund, 237 Palyi, Melchior, 241, 251, 391–92 Paper Credit of Great Britain (Thornton), 253, 350, 353 Papini, Giovanni, 406 “‘Paradox’ of Saving, The” (Hayek), 249, 250, 289; translated, 279, 280, 286, 286n16; “Widersinn,” 251, 279 Pareto, Vilfredo, 189, 362–63 Parti Populaire Français, 651 Pauer, Harry, 171 Pauli, Wolfgang J., 66 Peart, Sandra, 684n8

831

Pechel, Rudolf, 593 Penguin Books, 521, 524 Perels, Emil, 141, 148 perfect/imperfect competition. See competition Pernkopf, Eduard, 415, 636n34, 639 Perutz, Leo, 154n21 Perutz, Max Ferdinand, 154n21 Petertil, Ellie, 99, 122, 162, 163, 165 Petraschek, Beata. See Juraschek, Beatrix von Petraschek, Karl, 222 Pew, J. Howard, 656–57 Philippovich, Eugen von, 115, 116; Grundriß der politischen Ökonomie, 115, 250 Philosophy of a Business Civilization, The (Laski), 440 physicalism, 111, 487, 548–49, 604–6 Pierson, N. G., 147–48, 323 Pigou, Arthur Cecil, 289, 289n20, 297, 304–5, 370, 372, 497–98, 499, 502 Pisko, Oskar, 125, 395, 397 “Plan for the Future of Germany, A” (Hayek), 595n3, 597–98 Planned Society (MacKenzie), 321 Plan or No Plan (Wootton), 336 Plant, Arnold, 304, 307, 335–36, 338, 386, 401, 455, 466, 501, 513 Plato, 127, 554 Plenge, Johann, 536 Pokorny, Alois, 25–26, 46 Polanyi, Karl, 538 Polanyi, Michael, 456n14, 460, 520, 564–65, 595n3, 653–54, 673 Pollak Foundation, 221, 249 Popper, Karl R., 1, 3n4, 151, 233n9, 360, 411, 500–501, 513, 605, 631, 712, 718; and W. W. (Bill) Bartley III, 6–7; Logik der Forschung, 347, 348, 472, 557, 558; at MPS 1947, 649, 653, 670, 673; The Open Society and Its Enemies, 553, 556, 559–60; The Poverty of Historicism, 347, 555–57; scientism and, 542–62; wartime correspondence with Hayek, 542,

832

index

Popper, Karl R. (continued) 549n5, 553–61, 563. See also under Hayek, Friedrich August: at LSE Popper, Simon, 151 Populärwissenschaftliche Vorlesungen (Mach), 129 Positive Program for Laissez-Faire, A (Simons), 449, 687n11 positivism: legal, 126, 432; logical, 109, 111, 128, 347, 347n15, 604; nineteenth century, 482–83, 485, 489 Postelberg, Elisabeth (Lisa), 100 Postelberg, Emil, 99 Poverty of Historicism, The (Popper), 347, 555–57 Power, Eileen, 351, 353, 358, 360, 497, 512, 513, 538 Prescott, Orville, 573 Pribram, Alfred Francis, 126, 154n21, 243 Pribram, Karl, 148, 148n12, 154n21 Prices and Production (Hayek), 196, 217, 258, 259, 260, 262–64, 284, 286, 300n11, 338, 345, 346, 351, 365, 379, 384, 524; “beautiful simplifications,” 371, 372, 375, 378; German edition, 257, 264, 284; Keynes’ attack on, 297; LSE lectures on, 257, 258, 282– 83, 284, 286; the Marshall Society talk, 280, 281–82, 283n12; Sraffa’s review, 298, 299–300. See also Hayek, Friedrich August: on capital; Hayek, Friedrich August: on cycles and crises; Hayek, Friedrich August: on money Priestley, J. B., 517, 536 Principles of Economics (Marshall), 138, 322, 336, 370 Profits, Interest, and Investment (Hayek), 305, 369, 378–79, 472, 504, 524. See also “Ricardo Effect, The” (Hayek) Prosperity and Depression (Haberler), 379, 383–84 Przibram, Hans Leo, 66, 154n21 Pure Theory of Capital, The (Hayek),

259, 338, 341, 342, 358, 364, 370, 371, 374–77, 378, 380, 462, 472; capital project, 371–72, 373, 373n13; Machlup’s comments on, 373, 373n13, 374; reviews of, 377–78. See also Hayek, Friedrich August: on capital puzzler, 14; Hayek, 14, 56, 127, 293, 342; Wieser, 112, 127. See also “Two Types of Mind” (Hayek) Rappard, William, 387, 455, 593, 599, 611, 616, 645–46, 649, 651, 661, 661n20, 671, 673 Rath, Ernst vom, 427 Rathenau, Walther, 123n7, 145, 323; Von kommenden Dingen, 123 Rationale of Central Banking, The (V. Smith), 344, 344n12 Raum und Zeit in der gegenwärtigen Physik (Schlick), 129 Read, Herbert, 556 Read, Leonard, 612, 648, 655, 655n15, 656, 677n3, 727 Reader’s Digest (periodical), 526, 539, 574–76, 622n11, 647n8, 654 Redlich, Alfred, 203 Reform Club, 352, 403, 556, 584, 704, 722 Reisch, Richard, 147, 206, 229, 242, 243, 384, 394 Reitz, Ludwig, 24n6 Reitz-Brachelli, Ludwig, 424 “Re-Nazification at Work” (Hayek), 623, 629 Renner, Karl, 89, 113, 125 rent controls, 146, 209, 246; in Gibraltar, 568–72 Rentsch, Eugen, 596, 596n5 “Report on Some Economic Problems” (Hayek), 567–72 Reprints of Scarce Tracts in Economics and Political Science (LSE series), 350 Retreat from Reason (Hogben), 445 Révay, George, 647n8, 651n11, 655

index Review of Economic Studies, 339, 346, 365 Ricardo, David, 245, 311, 319n17, 498– 99 “Ricardo Effect, The” (Hayek), 379, 380 Ricci, Umberto, 243 Riehl, Alois, 129, 131 Riehl, Gustav, 65 Rise of Liberalism, The (Laski), 438 Risk, Uncertainty and Profit (Knight), 328, 336, 350 Rist, Charles, 650, 654 Ritter, Gerhard, 599 Road to Reaction, The (Finer), 463, 678 Road to Serfdom, The (Hayek), 11, 15, 317, 356–57, 361, 402, 432, 436, 462, 496n2, 587, 592, 602, 619, 643n3, 660; anticipation in earlier work, 317, 460, 468; common criticisms, 537– 41; finding an American publisher, 523–26; Keynes on, 531; key themes, 526–37; motivations for writing, 491, 516–22; Popper, discussions with, 554–57, 559, 563; postscript to, 531n8, 532n10, 567n6, 685, 685n10; promotion and reception in the United States, 572–78, 654–66, 677–78; Reader’s Digest condensation of, 574, 576–77; reception in England, 563– 67, 580–84, 669; writing of, 521, 523, 536–37, 550 Robbins, Iris Gardiner, 276, 276n5, 286, 400, 402, 429, 490, 716, 717, 718 Robbins, Lionel, 13, 307, 317, 321, 347, 348, 350, 351–52, 361, 386, 387, 394, 401, 551; academic assistance, 363, 361, 396; battle with Keynesian thought, 289–90, 301, 304–6, 368; and Beveridge, 353, 354–56; Colloque Lippmann, 449–50, 455, 457n16, 460; defending economic theory, 308–13; early career, 235, 255, 274–77; at Economica, 249, 512–13; The Economic Causes of War, 472; Economic Planning and International Order, 472; An Essay on the Nature and Signifi-

833

cance of Economic Science, 308–11, 332, 445; The Great Depression, 305, 306; and Kaldor, 280, 340, 368–69, 501–2; LSE, administrative duties at, 348–49, 368–69, 501–2; LSE, teaching at, 271, 335–43, 362, 371, 508; and Mises, 276, 332, 332n18, 353; at MPS, 654, 655, 670–73, 718; during WWII, 465–66, 472–77, 490, 493, 503. See also Hayek, Friedrich August: and Hella, divorce from; Hayek, Friedrich August: and Robbins Roberts, Michael, 668 Robertson, Dennis H., 242, 266, 281, 306, 499, 502, 515 Robinson, Austin, 366, 504–5n13, 614n20 Robinson, Claude, 677–79, 677n3 Robinson, Joan, 278n8, 281–82, 310, 339, 340, 365–66, 367, 502, 504, 504– 5n13, 508n15, 512, 515, 579 Rockefeller, David, 340, 340n7 Rockefeller Fellowship, 157, 191, 203, 325, 367, 383–85, 566 Rockefeller Foundation, 205, 230, 239, 243, 344, 353–54, 387, 396, 523, 578– 79, 629–32, 680 Roosevelt, Franklin Delano, 417, 439, 451, 491, 523, 578, 581, 651. See also New Deal Roosevelt, Theodore, 450 Röpke, Wilhelm, 254, 345, 381, 387, 477, 628, 721; Civitas Humana, 593; at the Colloque Lippmann, 455, 460, 462; critic of Keynes, 267n39, 671; Die Gesellschaftskrisis der Gegenwart, 593; at Geneva, 242, 387–88, 478, 593–96, 628, 649n10; on the German question, 666, 668, 671–72; a German Ricardian, 245–46; Internationale Ordnung, 593; at MPS, 651–54, 666, 668; and Occident, 644–46, 653n13, 654. See also Hayek, Friedrich August: and Röpke Rosenstein-Rodan, Paul N., 207–9, 247, 250, 345, 350, 387, 566

834

index

Rougier, Louis, 459, 459n19, 460–61, 478, 478n7, 518 Rudinger, Christine, 179, 616n4 Rudolf, Crown Prince of Austria, 23, 108 Rueff, Jacques, 460, 650, 654, 673, 688 Russell, Bertrand, 153, 334, 500n9, 519 Rüstow, Alexander, 245–46, 387, 460, 594 Rylands, Dadie, 497, 508n15 Saint-Simon, Henri de, 357, 467, 481– 84, 486–87, 543, 607, 650; Introduction aux travaux scientifiques du dix-neuvième siècle, 487 Salter, Arthur, 304, 304n17 Samuelson, Paul A., 123, 485n8, 539, 600n12 Sander, Fritz, 207 Santayana, George, 450n7 Sartre, Jean-Paul, 632 Saturday Review of Literature, 597 Saxl, Fritz, 627 Schacht, Hjalmar, 245 Schäffle, Albert, 107 Schams, Ewald, 208, 209n12, 246, 278, 394 Schedlbauer, Grete, 164, 169 Schenk, Erich, 628–29; “Schenk-Adler affair,” 628–29 Schenk, Josef, 141, 142 Schiele, Egon, 101 Schiff, Arthur, 151 Schiff, Erich, 151–52, 203, 230, 250, 393, 395, 397 Schiff, Georg, 150–52, 397 Schiff, Jenny, 151 Schiff, Walter, 151 Schiller, Friedrich, 37, 42, 468; “Schiller on Hitler” (Hayek), 468n4; Wilhelm Tell, 42 Schlesinger, Karl, 203, 393 Schlick, Moritz, 128–29, 150, 396; Allgemeine Erkenntnislehre, 128–29;

Raum und Zeit in der gegenwärtigen Physik, 129 Schmidt, Wilhelm, 46, 103, 424, 618 Schmitt, Carl, 536 Schmoller, Gustav von, 108, 109, 182, 488, 549 Schnabel, Franz, 650, 668 Schneider, Oswald, 256 Schönerer, Georg von, 60 Schönfeld, Leo, 394; Grenznutzen und Wirtschaftsrechnung, 215 Schreier, Fritz, 203, 207, 397 Schreyvogl, Friedrich, 52, 52n12, 102, 121, 122n5, 136, 136n17 Schrödinger, Erwin, 82, 94, 631 Schrödinger, Robert, 94 Schröter, Carl, 93 Schüller, Richard, 202, 205–6, 237, 394, 396 Schumacher, E. F., 579, 580; Small Is Beautiful, 580 Schumpeter, Joseph A., 48, 91, 111, 113, 138, 144, 157, 164, 231, 251, 278, 566, 629; academic career, 113, 115, 116, 157, 158, 367, 383; Austrian school, 107, 113; contacts with Hayek, 13, 157, 164, 182, 494, 600n12; Das Wesen und der Hauptinhalt der theoretischen Nationalökonomie, 113, 138n18; Minister of Finance, 90, 113; in the NOeG, 148–49; Theorie der wirtschaftlichen Entwicklung, 113 Schuschnigg, Kurt, 389n6, 390, 414, 419, 419n3 Schütz (Schutz), Alfred, 150–52, 202, 332, 332n13, 393, 397, 460, 506–7, 513, 706, 724; Der sinnhafte Aufbau der sozialen Welt, 151 Schwab, Joseph J., 678 Schwartz, George, 279, 340, 466 Schwarzwald, Eugenie (Genia), 47, 92; Lyzeum, 47, 97, 217, 254; Villa, 100, 163 Science for the Citizen (Hogben), 442, 445

index Scientific Attitude, The (Waddington), 536 “Scientism and the Study of Society” (Hayek), 436, 488, 515, 542, 543–46, 548–50, 554, 555, 561–62; debating with Popper, 555, 557–60; in the making, 490, 517, 519 Scitovsky, Tibor, 180, 340, 340n7; Joyless Economy, The, 180 SDAP. See Social Democratic Labor Party Second World War, 519, 520, 578; American isolationism, 491–92; Dunkirk, 475–76; London Blitz, 489–90, 524; the Phoney War, 467, 473–74, 475; preparing for war, 464–65. See also Hayek, Friedrich August: in WWII Sedgwick, Ellery, 453 Seipel, Ignaz, 144–45 Self-Government in Industry (Cole), 320 Sensory Order, The (Hayek), 588, 600, 606, 707, 711; 1920 precursor of, 95, 129–30. See also “What Is Mind?” (Hayek) Serkin, Rudolf, 100 Seyfert, Hans, 150 Seyschab, Adolf, 216–17 Seyschab, Maria Philomena, 217 Shackle, G. L. S., 291; changed his thesis topic, 343, 346; Expectations, Investment, and Income, 346; at LSE, 338, 340, 344–45, 366n3; “years of high theory,” 271, 338, 338n5. See also under Hayek, Friedrich August: at LSE Shaw, George Bernard, 101, 273, 306, 320, 334 Shils, Edward, 678 Sickle, John van, 205, 243 Siebeck, Oskar, 251, 251n16, 252–53 Simons, Henry C., 321, 449, 525, 553, 661, 678, 691; death, 612, 613n18; defense of liberalism, 449, 449n5, 456, 457, 462, 531n8, 663–64, 686–87,

835

687n11; and Aaron Director, 597, 611–13, 678; Economic Policy for a Free Society, 686, 687n11; A Positive Program for Laissez-Faire, 449, 687n11 Simson, Otto von, 711 Skrbensky, Otto, 624, 628–29, 639 Small Is Beautiful (Schumacher), 580 Smith, Adam, 95, 186, 311, 320, 521, 551, 594, 607, 608, 661, 670; The Wealth of Nations, 137, 518, 687 Smith, Vera, 344–45, 358–59, 374, 596, 679; The Rationale of Central Banking, 344, 344n12 Smithies, Arthur, 377 Snow, C. P., 503, 515n21; Two Cultures, The, 440n2 Social Democratic Labor Party (SDAP) (Austrian), 59, 61, 89–90, 111, 119, 121, 125, 226, 309–10, 431, 604 social democrats: Durbin, 638; Hayek, 531n9; Popper, 347, 554, 559; Rathenau, 123 Social Economics (Wieser), 189, 210, 219, 242 Social Function of Science, The (Bernal), 443 socialism, 120, 122, 312, 344, 486; British, 313, 318–22, 344, 438–40, 473, 577 (see also Labour Party [British]); Christian, 320; Fabian, 112, 123, 188, 273, 318–20, 436; guild, 274, 319–20; market, 322–25, 328–29, 340, 435, 473, 526; and planning, 111, 321–22, 442–43, 453–54, 517, 523; socialist economic calculation, 11, 111, 114, 143, 145, 148, 276, 313, 322–26, 333. See also Hayek, Friedrich August: on socialism Socialism (Mises), 322–23 Social Policy Party (Austria), 58, 60n2, 119, 120 Social Relations of Science movement, 520 Somary, Felix, 250

836

index

Sombart, Werner, 188, 528, 536, 549; Händler und Helden, 78 Sonnenfels, Joseph von, 107 Sophie, Duchess of Hohenberg, 69 Soviet Communism (Webb and Webb), 443 Soviet Union, 11, 317, 322, 324, 437, 448, 451, 487, 519, 532n10, 536, 554, 574, 615–16, 621, 658–60, 670, 673 Spann, Othmar, 125, 136, 144, 151, 246, 257, 286, 385, 427n13, 536; and the corporate state, 133, 287, 390; Der wahre Staat, 133–35; economics chair at Vienna, 88, 116, 125, 132, 204, 205, 239, 384, 393–94, 625; family history, 116; feud with Mayer, 205–6, 207, 208, 246, 625; Fundament der Volkswirtschaftslehre, 132–33, 137, 161; Haupttheorien der Volkswirtschaftslehre, 116, 132, 137; and Hayek’s habilitation, 246–49; Hayek’s teacher, 134–39, 146, 149, 160–61; and the NOeG, 148–49, 209; Zeitschrift, editing of, 146, 206–7 Spectator (periodical), 471, 473, 564, 620, 623 Spengler, Oswald, 136, 174, 536, 549 Spiethoff, Arthur, 206, 286, 300n11 Springer (publisher), 207, 234, 234n11, 247, 249, 250, 371 Sraffa, Piero, 279, 281, 351, 467n2, 498–99, 499n7; review of Prices and Production, 297n4, 298, 299–300 stabilization, 211–12, 214, 255, 303, 308; Fisher on, 213, 214, 279; Keynes on, 184, 213, 308; price level, 184, 211–13, 262–63, 279, 284, 654. See also under Hayek, Friedrich August: on cycles and crises Stabilizing the Dollar (Fisher), 211, 213 Staël, Madame de. See de Staël, Madame Stallner, Johanna Christine, 25, 27, 34 Stallner, Moritz, 27n11, 219 Stamp, Josiah, 289, 289n20, 302, 304, 307

Stanka, Rudolf, 136, 136n17 Stark, Werner, 351 Statistical Methods (Mills), 250 Stebbing, Susan, 347, 499, 554 Stein, Lorenz von, 107 Steinach, Eugen, 66 Steindl, Josef, 230, 393, 395–96 Stewart, Walter, 680, 682 Stigler, George, 319n2, 518, 539, 572, 647, 653, 653n13, 660, 667, 678, 687n11 Stöhr, Adolph, 126, 128, 130–31 Stolper, Gustav, 117, 120–21, 123n7 Stooss, Carl, 125 Strachey, John, 438, 497n3 Streissler, Erich, 210 Streit, Charles, 473, 667; Union Now, 472, 667 Strigl, Richard, 245–46; and the Vienna economics community, 203, 208, 209, 257, 387; after the Anschluss, 393–94, 626 Suess, Eduard, 25, 93, 103 Sulzbach, Arthur, 392 Sulzer, Hans, 644n5 Sweezy, Alan R., 573, 573n8 Sweezy, Paul, 339, 367 Swieten, Gerard van, 103 Système de politique positive (Comte), 483 System of Logic, A (Mill), 129, 484 Taft, Robert, 491 Tagblatt campaign, 238, 302n13, 384 Tandler, Julius, 105, 415 Taussig, Frank, 158, 181, 341n8 Tawney, R. H., 320, 351, 358, 360, 474– 75, 475n5, 488, 521, 538, 556, 690 Taylor, Fred M., 322, 326, 473 Taylor, Harriet, 188, 694 Teschemacher, Hans, 256 Thalmann, Friedrich, 150, 383, 393 Theoretische Sozialökonomie (Cassel), 138 Theorie der gesellschaftlichen Wirtschaft (Wieser), 137, 189

index Theorie der wirtschaftlichen Entwicklung (Schumpeter), 113 Theorie des Geldes und der Umlaufsmittel (Mises), 114, 143, 146 Theory of Political Economy, The (Jevons), 138 Theory of Wages, The (Hicks), 339 Thiede, Klaus, 246 Thierry, Augustin, 482 Thomas, Brinley, 340, 366, 366n3, 367–68 Thornton, Henry, An Enquiry into the Nature and Effects of the Paper Credit of Great Britain, 253, 350, 353 Thorp, Willard, 183, 183n10, 204, 210; Business Annals, 183, 221 Thorsch, Ernestine, 99 Thun und Hohenstein, Franz von, 28 Time and Tide (periodical), 468n4, 621, 654, 655 Times (London), 526; Hayek’s letters to the editor, 146, 153n20, 303, 304, 305, 621 Tinbergen, Jan, 236 Tingsten, Herbert, 654–55 Tintagel, 292, 490–91, 505 Tintner, Gerhard, 230, 250, 278, 396, 629 Tocqueville, Alexis de, 525, 581, 593, 607 Toldt, Carl, 105 Tor Cottage, 465, 490, 493, 503 totalitarianism, 364, 437, 532n10, 535– 36, 538–40, 554, 582, 592, 604, 607, 638, 666–67, 669 Townshend, Hugh, 379 Tractatus Logico Philosophicus (Wittgenstein), 81, 83, 131 Tract on Monetary Reform, A (Keynes), 184 Treatise on Money, A (Keynes), 235, 251n17, 294–300, 346 Trend of Economics, The (Tugwell), 187, 311n4 Trévoux, François, 654 Trollope, Anthony, 403 Troyan, Kathryn, 7

837

Tsiang, S. C., 513 Tucholsky, Kurt, 104n3 Tugendhat, Georg, 51, 276, 276n4, 280, 280n11, 386, 627 Tugwell, Rexford, 183; The Trend of Economics, 187, 311n4 Turner Close, 308, 399, 401, 404–5, 407–8, 424, 465, 504, 506, 677n2, 717 Twelve Studies in Soviet Russia (Cole), 322 “Two Types of Mind” (Hayek), 14, 112. See master of the subject; puzzler Unemployment (Beveridge), 274 Union Now (Streit), 472 University of Chicago, 12–13, 156, 182, 516, 392; economists at, 285– 86, 286n17, 319n2, 385, 455, 457, 488, 522, 524–26, 613n18, 645, 653; Hayek’s job search, 657, 678, 693– 99, 701–2, 704–10, 713, 720–23, 728; Hayek’s 1946 trip, 611–14, 619, 678; Nef and the Committee on Social Thought, 689–91, 693–95; Press, and The Road to Serfdom, 524–25, 572–74, 576–77, 580 University of Vienna, 4, 14, 48, 52, 150, 151, 184, 204, 206, 207, 243, 424; after the Anschluss, 66, 394, 415, 625, 626; anti-Semitism at, 63, 65, 66, 104, 105, 126, 208, 384, 396; the Austrian school at, 107–15; economics chairs in the interwar period, 115–16, 132, 158–59, 239; habilitations at, 207, 246–47, 248–49; August Hayek at, 32, 64, 219; Erich Hayek at, 199, 222, 225, 414; Heinz Hayek at, 199, 222, 415; Hayek on, after WWII, 632–34; rise and decline, 103–7; after WWI, 47, 92, 106–7, 124; after WWII, 588, 622–26, 630. See also Hayek, Friedrich August: career at the University of Vienna; Hayek, Friedrich August: as a student; Mayer, Hans; Spann, Othmar

838

index

Untersuchungen der Methode der Sozialwissenschaften (Menger), 108, 138 “Use of Knowledge in Society, The” (Hayek), 11, 327, 520, 529n7, 568, 600–602, 611; “tin example,” 520, 601–2 Value and Capital (Hicks), 339, 509n17 Veblen, Thorstein, 182, 187–88 Veit, Otto, 392 Verein deutscher Ärzte (Association of German Physicians), 30, 64–65, 67, 154 Verein für Sozialpolitik (German Economic Association), 241, 243; dissolution, 246, 256; factional disputes, 245–46; meetings of, 204–5, 242–46, 248, 256 Verrijn-Stuart, C. A., 279 Verrijn-Stuart, G. M., 279 Verworn, Max, 131 Vienna, fin-de-siecle, 29n12; Hayek born into, 14, 19, 28 Vienna, life in post-WWI, 92–94 Vienna, life in post-WWII, 588, 615–16, 617–20, 621–22 Vienna Chamber of Commerce, 141, 148, 154n21, 156, 202, 204, 230, 238n17, 383, 627; Mises at the, 114, 201, 203, 211, 228–29 Vienna Chamber of Physicians, 30, 64, 65 Vienna Circle of Logical Positivism, 103, 111, 128–29, 150, 204, 331, 385, 396, 487, 604–6 Vienna health office, 30–31, 218 “Vienna schools,” 103 Vierhapper, Friedrich, 426n11 Vierhapper, Hedwig, 426n11 Viertel, Berthold, 97 Viner, Jacob, 242–43, 282, 285, 341n8, 402, 476, 479, 485–86, 485n8, 488, 513, 522, 680; at Princeton, 678–80, 682 Vishinsky, Andrei, 183n10

Vleugels, Wilhelm, 242, 256 Voegelin, Erich, 136, 149–50, 151–52, 191, 202, 393, 397, 518n1, 629 Volker Fund. See Luhnow, Harold Von kommenden Dingen (Rathenau), 123 Vorlesungen über Nationalökonomie (Wicksell), 138 Voss, Hermann, 418 Voynich, Wilfrid, 169, 169n2 Waddington, C. H., 347, 536, 555; The Scientific Method, 536 Wagemann, Ernst, 228, 232–33, 235–36, 393–94, 396, 627 Wagner, Adolph, 147 Wahrmund, Ludwig, 104–5 Waismann, Friedrich, 396–97 Wälder, Robert, 383 Wallas, Graham, 273, 275–76, 450n7, 455 Wallis, Allen, 706 Ware, Richard (Dick), 657, 684, 684n8, 689, 706 Warhanek, Carl, 162, 197 Warhanek, Hans (father), 162–66, 197– 98, 409–11, 675, 724–25 Warhanek, Hans (son), 197, 412, 620n7, 676, 693, 699 Warhanek, Helene (née Bitterlich). See Bitterlich, Helene Warhanek, Karl, 162, 197 Warhanek, Max, 197–98, 197n1, 412 Wasserman, Janek, 134n16, 145n9, 229n5, 238n17 Watts, Orval, 648, 655n15, 656 Wealth of Nations, The (Smith), 137, 518, 687 Webb, Beatrice, 188, 436; Hayek on, 359, 362; and LSE, 273–74, 355; and the men of science, 443, 446; Soviet Communism: A New Civilization?, 443 Webb, R. K., 488 Webb, Sidney: a Fabian socialist, 320, 350, 436; Hayek on, 358; and LSE,

index 188, 273–74, 350, 354; Soviet Communism, 443 Webb, Ursula, 339 Weber, Adolf, 241, 255 Weber, Alfred, 245–46 Weber, Max, 112, 116, 132, 549; Grundriß der Sozialökonomik, 147, 196, 251–52; Wirtschaft und Gesellschaft, 472 Webster, Charles, 351 Weddigen, Walter, 257 Wedgwood, Veronica, 650, 655, 665–66 Wegscheider, Rudolf, 222 Weigel, Helene, 97 Weimar Republic, 124, 244, 305, 314–16, 387, 428n16, 636 Weiß, Franz Xaver, 148, 159, 206, 251 Weissel, Elisabeth (Elsa), 97 Weissel, Josefine, 97 Welbourne, Edward, 507–8 Wellesz, Egon, 628n24, 629, 529n25 Wells, H. G., 153, 344, 487; The Fate of Homo Sapiens, 446; The New World Order, 446 Welter, Erich, 245, 251 Wettstein, Fritz von, 51 Wettstein, Richard von, 32, 51, 66, 117, 120–21, 426n11 Wetzler, Bernhard, 99 Whale, P. B., 513 “What Is Mind?” (Hayek), 602–6, 613, 707n9 Whig Interpretation of History, The (Butterfield), 498 White, Larry H., 343n11, 356n20 Wicksell, Knut, 157, 261, 283–84, 295, 297n4, 298, 350, 365, 377, 626; Vorlesungen über Nationalökonomie, 138 Wicksteed, Philip, 273, 309, 319, 341, 350; The Common Sense of Political Economy, 336 Wieser, Friedrich von, 22, 48, 120, 147, 206, 251; Austrian school, 107, 109, 111, 112; Das Gesetz der Macht, 112, 189, 210; economic calculation, 112,

839

322, 509n17; at economics chair at Vienna, 107, 111, 115–16, 132, 205–7; on imputation, 112, 160–61; pure vs. social economics, 112, 509n17; puzzler, 112, 127, 342; the “simple economy,” 111–12; Social Economics, 189, 210, 219, 242; Theorie der gesellschaftlichen Wirtschaft, 112, 137, 189, 210; vaguely Fabian, 112, 139, 342. See also Hayek, Friedrich August: and Wieser Wieser, Marianne, 100n7 Wieser, Paula, 109, 137, 159 Wiesner, Julius von, 32 Wilde, Johannes, 150, 383, 467n2 Wildgans, Anton, 37, 37n9 Wilhelm Tell (Schiller), 42 Wilkie, Wendell, 491, 525 Wilson, Harold, 566 Wilson, Tom, 379 Wilson, Woodrow, 450 Winkler, Wilhelm, 205 Winternitz, Emanuel, 150, 152, 202, 394, 397 Wirtschaft und Gesellschaft (Weber), 472 Witt, John, 710n1, 725–26, 728–30, 729n20 Wittgenstein, Hermine (Mining), 35, 67, 707, 714n7 Wittgenstein, Karl, 25n7 Wittgenstein, Leopoldine (Poldi) (née Kalmus), 25n7, 36, 49, 67, 218 Wittgenstein, Ludwig, 1, 65n10, 66, 81, 154n21, 499–501, 500nn9–10, 707; “poker incident,” 500; Tractatus Logico Philosophicus, 83, 131 Wittgenstein, Paul, 42 Wlassak, Moritz, 125 Wolf, Abraham, 556 Wolf, Hugo, 219 Wolter, Charlotte, 142n5 Wootton, Barbara, 322, 358–59, 472, 539; Plan or No Plan, 336 Wriston, Henry, 647n8 Würffel, Ludwig (Louis), 219, 405

840

index

WWI. See First World War WWII. See Second World War Yagi, Kiichiro, 159 Young, Allyn, 235, 277 Young Men’s Christian Association (YMCA), 170–71, 173 Zeitschrift für Nationalökonomie (journal), 202, 207, 234, 386 Zeitschrift für Volkswirtschaft und Sozialpolitik (journal), 206–7

Zilliacus, Konni, 564 Zoologisch-Botanische Gesellschaft (ZBG), 32, 41, 66 Zrzavy, Franz Josef, 230, 393, 395 Zuckerkandl, Bertha, 51 Zuckerkandl, Emil, 51, 105 Zuckerkandl, Robert, 147 Zuckerkandl, Viktor, 51 Zuckmayer, Carl, 97, 100 Zundritsch, Richard, 6, 51n9, 53n13, 72n5, 167n1, 173n4, 622n11 Zweig, Stefan, 48