Invaluable insights in unintelligible speech

Howard Davies praises a work that introduces the ideas of a key intellectual figure to a new generation and asserts the value of economic history.

Friedrich Hayek first arrived at the London School of Economics in January 1931. He was invited over from Vienna by Lionel Robbins, who had read Hayek's work in German, to deliver a series of four lectures that eventually formed the basis of Prices and Production , published in 1935.

At that stage, Hayek's work was little known outside Austria, but his impact was immediate. Although his English was, by his own admission, partly unintelligible, the lectures were quickly seen to be a major event in the intellectual life of the LSE and, shortly afterwards, Lord Beveridge appointed him the Tooke professor of economic science and statistics. According to this book by Bruce Caldwell who has, it would appear, better access to the LSE's archives than its current director, the vote in favour of the appointment was unanimous.

Whether or not that is true (unanimity is not always easy to achieve at the LSE, I might add), there is little doubt about the excitement Hayek's arrival generated among the economics faculty. Writing some years later, Ronald Coase described it as: "Undoubtedly the most successful set of public lectures given at the LSE during my time there... After hearing these lectures, we knew why there was a depression. Most students of economics at the LSE and many members of staff became Hayekians."

But this enthusiasm did not extend to the other end of the M11, as it then wasn't. John Maynard Keynes described Prices and Production as: "One of the most frightful muddles I have ever read. It is an extraordinary example of how, starting with a mistake, a remorseless logician can end up in bedlam."

For most of the next 20 years, Hayek lived and worked in London, or, during the war, in Cambridge, where the LSE decamped. He finally departed only at the end of 1950, in circumstances that remain somewhat unclear. Caldwell, who is coy to the point of obscurity about the personal details of Hayek's life, notes that he moved to Chicago "under fairly traumatic circumstances as (he) was also in the process of getting a divorce". Some of his then LSE colleagues took a dim view of his private life, it seems, and were not unhappy to see him go.

Nonetheless, 50 years on, his influence and presence at the school remains significant and distinctive. At the first reception for students I gave after my arrival, I was presented ceremonially with a copy of The Road to Serfdom by the assembled committee of the Hayek Society. No one has yet given me any other works from the distinguished LSE bookshelf - not even Karl Popper or Beveridge have shared Hayek's distinction.

In one sense, the reason is not hard to find. As even Keynes' biographer, Robert Skidelsky, noted: "Hayek became in his later years the dominant intellectual influence of the last quarter of the 20th century." He famously influenced Margaret Thatcher and, perhaps more significantly in current circumstances, Irving Kristol, the chef de file of the neoconservatives advising George W. Bush. Hayek evidently enjoyed his link with Lady Thatcher in his old age; whether he would have been as proud of the later American connection is not so clear.

But Caldwell is not especially concerned about this more recent influence, or even notoriety. Hayek's Challenge is accurately subtitled "An Intellectual Biography". Only the bare facts of his personal life are described, and very little is made of his political influence. It is perhaps sobering to a British reader to note that Margaret Thatcher's name is not mentioned once in 500 pages.

Caldwell is an economic historian at the University of North Carolina. And it gradually becomes clear that part of his purpose in writing Hayek's Challenge is to argue the case for the study of economic history, which he thinks has been unjustifiably excluded from most US economics departments by, as he sees it, an excessively analytical and positivist approach to social science.

The LSE, which, uniquely among British universities, still maintains a separate economic history department, might escape the sharpest edge of Caldwell's criticism. But his points are nonetheless a challenge to any school of social science, and it is true that most economics students here do not now study economic history or the history of economic thought.

Caldwell's approach to the task of deconstructing Hayek's intellectual influence is an original one. Indeed, Hayek does not make an appearance in the first five chapters, which describe the origins of the Austrian school and its opponents - historicists, socialists and positivists. In 100 or so densely argued pages, we run through Menger's principles of economics, the German Historical School, Max Weber, Joseph Schumpeter and Ludwig von Mises. So it comes as something of a relief when we finally learn that "Friedrich August von Hayek was born 8 May 1899 in Vienna". There is then the most cursory treatment of his early life and student days, both generally unremarkable, before we plunge into monetary theory and the methodological debates of the 1930s.

The central section of the book, which will be of the greatest interest to most readers, is called "Hayek's journey". But it is the intellectual voyage that interests Caldwell, not his movements back and forth from Vienna to London, Chicago and back. He charts his lengthy struggle with multiple equilibria and attempts to reconcile what have often seemed inconsistencies in his thinking. And he shows how Hayek's interests, in later life, shifted away from pure economics and towards political theory and philosophy.

The final, shorter section is an attempt to assess his legacy or, in the tiresome transatlantic usage, his "multiple legacies". It is in this last section that Caldwell adopts, and perhaps adapts, some of Hayek's arguments to support his own contention that some of the directions taken by the economics discipline in the 20th century were wrong. In particular, he believes that what he describes as "the positivist vision" is a false one.

He ridicules "the positivist hope that the steady agglomeration of new techniques would one day solve the riddles of empirical and theoretical adequacy that had for so long eluded economists", noting that economists have posed more problems than they have solved. And he closes with "the plea that the history of economic thought be restored to the graduate curriculum".

This is tough talk. And I doubt whether Caldwell helps his cause in the senior common room by overstating the case to the extent he does in what is described as a personal epilogue. Indeed, the polemical prose serves to obscure the value of much of what has gone before.

His exegesis of Hayek's main works is outstandingly lucid and may bring his ideas to the attention of a new generation of students who necessarily do not have the privileged opportunity of hearing a series of unintelligible lectures at first hand or the benefit of membership of the LSE Hayek Society. The review of the Austrian school is, similarly, a very valuable piece of synthetic work - and perhaps even better than that. So on both these counts, Hayek's Challenge can be recommended to both the specialist and generalist reader.

Unfortunately, there is a second flaw, over and above the exaggerations I have quoted, that is bound to temper one's enthusiasm. Caldwell engages, throughout, in a kind of cheery dialogue with the reader, constantly chivvying us along, signposting the route and confiding his personal thoughts and anxieties to us.

So, at the start, Caldwell seeks our sympathy for him in the substantial job he has taken on. "I am an historian of economic thought, and my own self-image is that I am a careful one," he writes. "One need not be a genius to recognise that writing outside one's field is not a good way to be careful." Perhaps, to some eyes, this confessional tone generates sympathy and tolerant understanding. To me, the effect is the opposite. If even the author thinks he doesn't know what he's talking about, who are we to disagree?

But, for once, I think it would be right to conclude that Caldwell is more capable and competent than he professes to think. Indeed, I suspect that all this modesty shows is that he is a terrible tease.

In spite of his apparent lack of interest in the political influence Hayek wielded, especially in his later years, Caldwell amply shows why Hayek remains a presence on today's campus. As Francis Fukuyama has noted elsewhere: "Hayek fully anticipated the rise of what we now know as the study of complex adaptive systems, or complexity science." While Coase may no longer be right that we are all Hayekians now, there is still a place for his brand of methodological individualism in some English-speaking universities, at least.

Howard Davies is director, London School of Economics and Political Science.