Had Hayek been largely an anonymous person, his interaction with the transformations of his era would still be worthy of social history attention: the increasing power of socialist and communist parties and the rise of the Welfare State; the final demise of the remnants of the Ancien Régime Empires (and the Habsburg Empire in particular); World War I and its repercussions; the inter-war dislocations that elevated a fellow Austrian into a Führer and the resulting reunification of Germans (Anschluss) and World War II; the Cold War; the libertarian revolt against collectivist trends; the deregulation movement and the decline of trade union power; the Thatcher–Reagan counter-revolutions; the collapse of Communism; and the rise of a new threat – revived fundamentalist religions. Hayek’s life was shaped by nine of these ten forces: the average educated person reader has the ‘knowledge’ that he – more than any other individual – influenced five of them.

Yet little is currently known about the precise nature of his involvement in these forces. Hayek’s public pronouncements – The Road to Serfdom (1944), for example – have been pored over by scholars and disciples; but so far there has been little or no attempt to connect Hayek’s life to the sentiments he expressed. These chapters of collaborative biography are the first systematic attempt to describe, interpret and integrate Hayek’s life, beliefs and philosophy. They constitute an attempt to persuade scholars, disciples and other readers that there is something profoundly interesting and informative going on beneath the surface. No axe – ideological or otherwise – is being ground: the authors come from most parts of the appropriate spectrum. The merit of such a collaborative biographical approach is obvious: an expert perspective is brought to bear on each aspect of Hayek’s life and work.²

The origins of the Austrian School of Economics can be traced back to Carl Menger’s (1840–1921) 1871 Principles of Economics (Grundsätze der Volkswirtschaftslehre) and his 1883 Investigations into the Method of the Social Sciences with Special Reference to Economics (Untersuchungen über die Methode der Socialwissenschaften und der politischen Ökonomie insbesondere). The second book contained an attack on the inductive methods of the German Historical School; Gustav von Schmoller’s (1838–1917) review of the book apparently used the derogatory label ‘Austrian’ to indicate an unfavourable contrast with the dynamism of Prussia.

The second generation Austrian School is associated with Friedrich von Wieser (1851–1926) and Eugen von Böhm-Bawerk (1851–1914) and the third generation with Hans Mayer (1879–1955), Ludwig von Mises (1881–1973) and Joseph Schumpeter (1883–1950). Hayek was the most famous member of the fourth generation, while Murray Rothbard (1926–1995) and others built an American-Austrian School to continue the Misean tradition. A fifth generation – split between Misesians and Hayekians – continues to prosper. Hayek was influenced by both traditions: Wieser and Mises were his most important early intellectual influences.

Hayek’s published work has a life of its own; several additional layers of meaning and significance also need to be investigated. On the surface, there is the material contained in The Collected Works of F. A. Hayek (1988–) – a project initiated by Hayek’s appointed biographer, William Warren Bartley III. A considerable amount of surface textual analysis has already been undertaken, mostly from somewhat predictable ideological positions. Below this surface, Hayek left a considerable number of recorded conversations, some of which have been ‘doctored’ and some of which remain in the private hands of a bogus ‘doctored’ disciple and look set to be destroyed on the implausible basis that Hayek intended them to be secret. In addition, Hayek left his archives for scholarly inspection at the Hoover Institution on War, Revolution and Peace.

Hayek’s surface material influenced world history: these chapters will integrate that surface material with the insights provided by the underlying and parallel, archival reality.

Hayek (1994 [1972]: ix) concluded that he had lived ‘an externally rather uneventful life’. At the time, Hayek was in the middle of the second of three major depressive episodes. Two years later he was awarded the Nobel Prize for Economic Sciences; in 1978 he reflected expansively on his life and influences in interviews (available on the UCLA oral history website). In the mid-1980s, Bartley recorded a large number of interviews, some of which have been reproduced in Hayek on Hayek: An Autobiographical Dialogue (1994). This introductory chapter will integrate these sources with an appropriate historical framework to illuminate Hayek’s life and work.

Hayek explained that initially the term Austrian School meant ‘marginal-utility analysis’.³ The marginal revolution of the 1870s produced three overlapping traditions: Austrian (Menger), British (William Stanley Jevons, 1835–1882) and Swiss-French or Lausanne (Léon Walras, 1834–1910). All three traditions attempted to reconstruct classical economics by reaffirming social harmony as a framework within which to interpret and promote market exchange.

The relationship between government and the governed was transformed in the three centuries from John Locke’s (1689) Letter Concerning Toleration to the fall of the Berlin Wall. A British king had been executed 40 years before Locke’s Letter; the French Revolution began a wider assault on the Ancien Régime 100 years after the Letter. Almost simultaneously came the American colonists’ 1776 Declaration of Independence, which Thomas Jefferson hoped would be ‘the signal of arousing men to burst the chains under which monkish ignorance and superstition had persuaded them to bind themselves, and to assume the blessings and security of self-government’.

Adam Smith’s Inquiry into the Nature and Causes of the Wealth of Nations (published four months before the Declaration) sought to provide a philosophy and a policy framework within which order could be maintained in an increasingly post-feudal social universe.

Classical economics was the product of the Enlightenment revolt against inter-State and intra-State conflict. Mercantilist (pre-Classical) State-based doctrine viewed international trade as a zero sum, conflict- ridden game; one of the unintended consequences of the religious wars of 1517–1648 was the emerging philosophy of tolerance. Classical economics emphasized harmony – both externally (trade as a positive sum game) and internally (self-interest was harnessed to produce social benefits when embedded in a competitive market environment).

The industrial revolution further undermined the Ancien Régime. Henry Sumner Maine’s (1861) Ancient Law: Its Connection with the Early History of Society and Its Relation to Modern Ideas emphasized the associated transformation from status to contract. In the same year, an American dispute over labor contracts erupted into civil war.⁴

Two centuries after the 1648 Peace of Westphalia, The Communist Manifesto declared that

Marx expropriated the classical labour theory of value of Smith and David Ricardo as a theory of exploitation and thus a justification for revolution. The neoclassical revolution replaced the labor theory of value with the equilibrium intersection of privately optimal supply and demand curves. Thus marginal-utility analysis replaced class-based analysis: individual consumer choice became the basic unit of analysis. Trade allowed ‘consumer surplus’ and ‘producer surplus’ to be extracted from the anonymous market (surplus values that would otherwise be lost). Trade unions, tariffs, taxation and interferences with the price mechanism all produce ‘deadweight losses’ by reducing these surpluses.

Austrians saw marginalism ‘as a deliverance from an ideological impasse’ (Raico, 2012: 28). As deference to inherited status diminished, a new, more legitimate, king emerged: ‘consumer sovereignty’ (Hutt, 1990 [1936], Chapter 16). Simultaneously, producers earned zero economic profits in long-run competitive equilibrium.

The pre-1914 balance of power had been constructed by Otto von Bismarck, who dominated European affairs from the 1860s to his dismissal in 1890. Klemens von Metternich, Foreign Minister of the Holy Roman Empire and its successor state, the Habsburg Empire, dominated European diplomacy fr...