The Floor Above:  Before Friedman (and after), there was F.A. Hayek

Milton Friedman may have been the face of neoliberalism familiar to most Americans. But the man who, in the 1940s and ‘50s, pioneered the dual role economist and cultural entrepreneur had an office on the floor above the economics department in the Social Science building at the University of Chicago.  Friedrich Hayek may have had as much influence as Friedman in the revival of enthusiasm for markets, a revival that occurred during the second half of the twentieth century,

The story is well-told in The Great Persuasion: Reinventing Free Markets since the Great Depression (Harvard, 2012), by Angus Burgin, of Johns Hopkins University. Burgin’s book is a valuable prequel to related accounts, especially Jennifer Burns new biography, Milton Friedman: The Last Conservative (Farrar Straus and Giroux, 2023)

An Austrian economist, Hayek was an unlikely leader when, as a newly-minted PhD, he was called from Vienna to the London School of Economics in 1930 to controvert the views of John Maynard Keynes, LSE at the time was the Chicago of its day, a bastion of free-market economics preparing for battle after Keynes’s essay “The End of Laissez Faire” was published in 1926.

The LSE hadn’t seen anything yet.  The Great Depression was just beginning.  Keynes’ Treatise on Money came out in 1930, followed in short order by The General Theory of Employment, Interest, and Money, in 1936. “Demand management” of economies was found to be government’s responsibility; fiscal policies – deficit spending in lean times, tax surpluses in booms – were its principal tools.

Hayek failed to deliver plausible alternative explanations for what was happening to the global economy or offer persuasive advice about how to turn things around.  After an unsuccessful essay in capital theory, he retreated to Cambridge to write The Road to Serfdom, a condemnation of government planning and economic control, dedicated to “socialists of all parties.”.

Even today, Road to Serfdom seems a little overheated, compared to, say, George Orwell’s allegorical fable Animal Farm or his dystopian novel Nineteen Eighty-Four. But this was wartime, Churchill, Hitler, and Stalin locked in a terrible battle for Europe, their armies and supply chains necessarily organized as bureaucracies. In the United States, key programs of Franklin Roosevelt’s New Deal had been successfully implemented. To describe income tax withholding, bank deposit insurance, rural electrification, administrative oversight of various industries, and the Social Security system as a challenge to private ownership of the means of production seemed over the top.

Still, when Readers Digest in the US printed a condensation of Road to Serfdom, a million reprints were sold to corporations and individuals. Hayek moved to the United States.

After landing a job at the multi-disciplinary Committee on Social Thought at the University of Chicago, Hayek turned his attention to formulating a group of like-minded philosophers, lawyers, historians, and economists to reflect on the problems of social order. Thirty charter members of the Mont Pelerin Society met at the base of a Swiss alp in April 1947. Along for the ride went Friedman, newly installed in the economics department at the University of Chicago, and Friedman’s old friend and fellow economist. George Stigler.

Burgin traces the details of what happened next: the internecine scuffles around the society’s imperious secretary, Albert Hunold; the gradual distancing of  Friedman from its proceedings; the rise of new varieties of conservatives, notably William F. Buckley, and his National Review.

The Mont Pelerin Society continued to grow – from 39 members at its founding to 258 in 1961.  But professional economists had begun to outnumber the business executives, lawyers, and philosophers who had been its original core.  Friedman had turned his attention to money. The economists, mostly “price theorists” concerned with particular markets, went ahead and “reframed and recaptured control over a broad range of public debates, of journalistic analysis, guided a new generation of politicians, and established an array of think tanks that reshaped the process of policy formation.”

In a chapter titled “The Invention of Milton Friedman,” Burgin takes an externalist view. Friedman came of age in the early stage of the Cold War, he writes. He viewed the task of his generation to set the course of American economic policy in opposition to an implacable enemy. “While his predecessor’s work was ingrained with a sense of caution at the knife edge of catastrophe, Friedman’s was infused with Cold War dualism.” Burgin writes. “[His] philosophical models brooked no concessions to communism, and the America of his time found a ready audience for a a philosophy that did not allow itself to be measured by degrees.”

I’m not so sure. Friedman’s zest for technical economics seems to have been motivated mostly by internal considerations: he had got hold of the quantity theory of money, and to a man with a hammer, the whole world looks like a nail. In his other role as a cultural salesman, the popular books – Capitalism and Freedom and Free to Choose, with his wife, Rose Director Friedman – were distinguished mainly by their enthusiasm for markets, the former being the Old Testament account, he would joke, the latter the New Testament version.

As Friedman’s reputation began to rise, Hayek’s sunk under the horizon. Burgin writes:

“He found himself in a peculiar position in the Eisenhower years. The popular valence of The Road to Serfdom and the eclipse of Austrian business-cycle theory had marginalized him within the community of professional economists, and the relative obscurity and poor sales of his subsequent books had eroded his reputation as a public intellectual with broad popular reach.”

Aging, exhausted, Hayek decided to return to Germany. At a farewell dinner in 1962, Friedman told the audience that Hayek was remarkable for having straddled  “two kinds of worlds.” The role of spreading ideas among the public at large was “very seldom combined with thorough, deep, and profound scholarly work that can influence the course of science.” Friedman could have been talking about himself:  Both A Monetary History of the United States 1867-1960, with Anna Schwartz, and Capitalism and Freedom were about to appear. Fifteen years later, with a new Nobel medal tucked away in his luggage, Friedman himself left Chicago for California.

Hayek may have had the last laugh. Recalled to life by the Nobel Memorial Prize he shared with Gunar Myrdal in 1974, Hayek plunged deeper into technical economics, this time with a newfound interest in evolutionary processes. He found popularity again in Britain with the rise of Margaret Thatcher. And he collected old writings and completed new works that otherwise might not have seen the light of day. All the more reason to look forward to the second volume of Bruce Caldwell and Hansjoerg Klausinger’s monumental biography.

Hayek died in 1992, Friedman in 2006. Burgin’s account of their lives is panoramic. The Great Persuasion belongs on the shelf beside two other intellectual histories of those years: Age of Fracture, (Harvard, 2012) by Daniel Rodgers, of Princeton University; and The  Free World: Art and Thought in the Cold War ( (Farrar Straus and Giroux), by Louis Menand, of Harvard University.  If Burgin’s book has a flaw, it is the insufficient attention it pays to the countercultural with which Hayek and Friedman were jousting. Happily, for that we can turn next week to historian Keith Tribe’s Strategies of Economic Order: German Economic Discourse 1750-1950 (Cambridge, 1995).

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