When F.A. Hayek won the Nobel Prize in Economic Science in 1974 for his “pioneering work in the theory of money and economic fluctuations,” the world was a particularly dark place for the Austrian economist. Three years earlier, Richard Nixon had scrapped the gold standard. Nixon spent his presidency instituting wage and price controls, creating new bureaucracies, and, along with Federal Reserve Chairman Arthur Burns, expanding the money supply to create an artificial boom economy (conveniently in time for Nixon’s 1972 reelection bid). If Nixon’s and his successors’ policies suggest anything, it is the vindication of Hayek’s warnings.
Hayek began his famed Nobel lecture, “The Pretence of Knowledge,” by speaking frankly about the prominent economists of his day: “We have indeed at the moment little cause for pride: as a profession we have made a mess of things.”
Many economists had assumed they knew what was best. Everything would be just fine if only the nations of the world would agree to central interventions by governments. Where Keynesians made prescriptions for society based on idealized aggregates, Hayek offered a plea for intellectual humility in his magnum opus, The Constitution of Liberty:
The case for individual freedom rests chiefly on the recognition of the inevitable ignorance of all of us concerning a great many of the factors on which the achievement of our ends and welfare depends.… Liberty is essential to order to leave room for the unforeseeable and unpredictable; we want it because we have learned to expect from it the opportunity of realizing our many aims. It is because every individual knows so little and, in particular, because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.
Today, you would think the inherent incompetence of government would speak for itself: from children trapped in failing schools to a health care website that still doesn’t work as of this writing, the pretense of knowledge still afflicts political elites. Intellectuals are no less human than the people they seek to control. As such, they are no less fallible.
Hayek recognized that the great achievements of civilization grew “from the free efforts of millions of individuals,” not from the whim of a bureaucrat’s central plan. With Ludwig von Mises and Milton Friedman, he paved the way for the resurgence in classical liberal thought. Forty years later, Hayek’s concerns are still relevant, and they’re still being ignored.