Bruce Caldwell notes that “challenge” describes the career of Austrian economist F. A. Hayek in several senses. Hayek frequently challenged prevailing ideas. He opposed economic planning when its popularity was at its zenith. He rejected the theories of John Maynard Keynes even as the vast majority of economists and policy makers enthusiastically embraced them. He asserted that the social sciences need not ape the methods of the physical sciences, at a time when any other approach was considered “unscientific.”
Furthermore, Hayek delved into economics, history, psychology, law, politics, and philosophy, leaving those less intellectually nimble breathless. Since he was always willing to reconsider his earlier ideas, it is often hard to pin down just what he thought on some topic. And the many thinkers offering diverse explanations of what Hayek was really getting at do not make matters easier. In fact, Caldwell says the “secret title” of his book is Caldwell’s Challenge. Nevertheless, he has created a masterful work: thorough, engaging, and itself challenging.
The first section of the book examines Hayek’s intellectual forebears, beginning with Austrian school founder Carl Menger. Caldwell’s concise, informative historical survey is a wonderful bonus in a book focused on Hayek.
In the next section, “Hayek’s Journey,” we find our protagonist in Vienna, in the 1920s. Hayek, just out of graduate school, was under the tutelage of Ludwig von Mises, whose writings had converted Hayek from socialism. Hayek worked on elaborating Mises’s theory of the business cycle, as well as other aspects of monetary and capital theory.
In the 1930s Hayek moved to the London School of Economics, where he had a profound influence on noted economist Lionel Robbins. He and Mises were at the forefront of what became known as “the socialist calculation debate.” While developing their arguments against socialism, they became aware of fundamental differences between their Austrian approach and the emerging neoclassical mainstream.
That dawning awareness opened new vistas to Hayek. Beginning with his 1937 paper, “Economics and Knowledge,” he began to explore the themes typically characterized as “Hayekian”: the dispersion of knowledge, the evolution of spontaneous social orders, and the limits of human reason. Caldwell consistently succeeds in highlighting one or two key ideas essential to a particular stage in Hayek’s journey. During “The Abuse of Reason Project,” Hayek focused on how ignoring the limits of human reason results in “rationally planned” disasters. “Individualism and the Sensory Order” characterizes a period when Hayek revisited his early interest in psychology and sought to differentiate true individualism from its caricatures. “Rules, Orders, and Evolution” refers to the maturation of his ideas on law, morality, institutions, and social order.
The final section of the book surveys the journey from an aerial perspective, both summarizing Hayek’s achievements and examining what basis they might offer for further research. Already, others have built on his legacy. Contemporary theorists in cognitive science often have proceeded along Hayekian lines. Hayek’s work on complexity and spontaneous order anticipated the contemporary surge of interest in such topics by decades. He is cited as a forerunner of agent-based computational economics, an emerging field studying how complex macroeconomic phenomena can arise from agents following simple rules.
In a few places I disagree with Caldwell’s interpretations. For instance, he disputes the common notion that Hayek’s paper “Scientism and the Study of Society” marked a “hermeneutic turn” in his theorizing. (The hermeneutic approach to social science focuses on people’s own interpretation of their circumstances as an explanation for their actions.) Instead, Caldwell writes, Hayek wanted to refute materialist reductionists and behaviorists on scientific grounds. Therefore, he came to emphasize the distinction between simple and complex phenomena, rather than that between human actions and mechanical occurrences.
It is true that Hayek shifted his emphasis. But I dispute two aspects of Caldwell’s account. First, while I agree that the paper “Scientism” did not represent a hermeneutic turn for Hayek, that is because Austrian thought generally has followed a broadly hermeneutic approach, so that we find Hayek emphasizing meaning well before “Scientism.” Second, if it is true that meaning is essential to comprehending human action, then there is nothing “scientific” about discounting its importance.
Caldwell also disapproves of Mises’s contention that economics is, at its core, an a priori discipline, based on insight into universal principles that underlie all action. However, in several other passages Caldwell asserts the primacy of “basic economic reasoning” in the subject. But it was never clear to me how Caldwell’s notion differs significantly from Mises’s. Is it just that it doesn’t contain the offensive term a priori?
Despite such quibbles, I highly recommend Caldwell’s book. Indeed, I believe it is mandatory reading for anyone attempting to seriously engage Hayek’s work.