by Research Division HIMA ESP FEB Unpad
Friedrich August von Hayek was a prominent economist who was born in Vienna, in 1899. Hayek studied economics and political science at the University of Vienna and received both doctoral degrees in 1921 and 1923. He spent most of his academic career at LSE (London School of Economics) from 1931 -to 1950. Then he held a professorship at the University of Chicago from 1950 – to 1962. Later on, he became a professor at the University of Freiburg until his retirement in 1968.
Throughout his life, Hayek had contributed to many areas of social sciences. His works vary from fields of economics, political science, philosophy, psychology, to the history of thought. Hayek was endorsing the Austrian school of economics, which heavily relied on the concept of methodological individualism. Hayek was also advocating free-market economics, he believed that the market system provides a “discovery process” that would give incentives to entrepreneurs for the discovery of new products. He also believed that the free market enhances the coordination of plans among economic agents.
In his seminal works “Geldtheorie und Konjunkturtheorie” published in 1929. Hayek theorized that the natural rate of interest acts as an intertemporal price. The interest rate would adjust investors’ and savers’ behavior throughout time. When a cycle occurs at a certain phase of time, this showed that actual interest rates diverge from their natural rates. Direct consequences from this phenomenon were the distortion of capital stock and incompatibility between savers and investors. Another result of this process was a recession, which is a condition when unemployment was high.
While many of his fellow scholars were assuming full information models. Hayek disagree with this assumption and argued that it would vanish the role of market prices. He believed that knowledge is dispersed among economic agents. To incorporate with this condition, the free market would enable agents to build up their expectations and perception into the real world condition. Hayek’s analysis about the relationship between market and information was the first among economists, which would be developed thoroughly by Nobel-winning economists such as Joseph Stiglitz and Leonid Hurwicz.
Hayek received his Sveriges-Riksbank Nobel Prize in 1974 along with his well-known opponent Gunnar Myrdal. Hayek and Myrdal cited by the Nobel prize committee “for their pioneering work in the theory of money and economic fluctuations and their penetrating analysis of the interdependence of economic, social and institutional phenomena”. In particular, the committee also considered Hayek for his earlier analysis on the possibilities of an economic crisis in 1929.
Sweden, B. of. (1974). The Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel 1974. http://nobelprize.org/nobel_prizes/economics/laureates/1974/index.html
Skarbek, D. B. (2009). F.A. Hayek’s Influence on Nobel Prize Winners. Review of Austrian Economics, 22(1), 109–112. https://doi.org/10.1007/s11138-008-0069-x
Friedrich Hayek – Wikipedia. (n.d.). Retrieved February 20, 2022, from https://en.wikipedia.org/wiki/Friedrich_Hayek#Nobel_Memorial_Prize
Machlup, F. (1974). Friedrich Von Hayek’s Contribution to Economics. The Swedish Journal of Economics, 76(4), 498. https://doi.org/10.2307/3439255
Caldwell, B. J. (2021). F.A. Hayek – Hayek’s intellectual contributions. Britannica. https://www.britannica.com/biography/F-A-Hayek/Hayeks-intellectual-contributions