Courtesy of the
Pacific Academy for
Advanced Studies

Hosted by
Universidad Francisco

Armen A. Alchian interviews Friedrich A. Hayek (Part I)


Get the Flash Player to see this player.

Mark Video Segment:
[Hide] Copy and paste this link to an email or instant message:
[Hide] Right click this link and add to bookmarks:
Dock windowSearch
Loading ...

About this video

In this interview focusing on Hayek’s personal life, the importance of early academic experiences in his life are explored. Once in academia, his popular seminar and some of his colleagues are discussed. His methods of composition of essays and his ability to give spontaneous lectures are delved into. Hayek’s reflects on Keynes’s work, noting that he felt that Keynes did not have a firm grasp of economics. Further, the use of price signals in coordinating the economy, as well as the governmental origin of inflation is talked about. On a more personal level, Hayek talks about his family, including children and his marriages. Finally, Hayek describes a moral question he has had in his past, and its effects to the present.


Interview with Friedrich A. Hayek by Armen A. Alchian
Thanks to Pacific Academy Advanced Studies for permission to distribute this program.

Digitized by: New Media - UFM.
Digitization: Mario Estrada, Jorge Samayoa; content analysis: Alex Weller; content reviser: Daphne Ortiz; publication: Rebeca Zuñiga

More Interviews

Dock windowTranscript
ALCHIAN: Let's continue with the discussion of some of your early students--you mentioned Mrs. Lutz, Vera Lutz.  Where did you first have her as a student?  Was this in Vienna? 
HAYEK: At the London School of Economics.
ALCHIAN: Was she married then to-- 
HAYEK: No.  Oh, no. 
ALCHIAN: Did you arrange that? 
HAYEK: Almost.  I sent her to study [at the University of] Freiburg, and [Friedrich] Lutz was still in Freiburg.  She came back bringing Lutz to London, and after a while they married. 
ALCHIAN: This was Swiss Freiburg?
HAYEK: No, the Freiburg where I am now; Freiburg in Breisgau. 
ALCHIAN: Yes, I see. 
HAYEK: Lutz himself was a pupil of [Walter] Eucken in Freiburg.  At that time, which was already after the Nazis, Freiburg was the only German university which still had a fairly independent and active intellectual life.  She was doing the thesis on the development of central banking, and particularly the free-banking discussion in the middle of the nineteenth century.  So I sent her to Freiburg to become familiar with the German literature, and there she met Lutz and induced Lutz to come to London, in turn.  And ultimately they married.  
ALCHIAN: My recollection is that they were an attractive couple when I got to know them, which was maybe ten years ago.  But I suspect that when she was young, she might have been a pretty good-looking woman. 
HAYEK: She was a very good-looking woman, and extremely intelligent.  But she wasn't really very female; she had too much of a male intelligence. 
ALCHIAN: Well, our chauvinism comes out.  Let's go to a male student.  What about [Tibor] Scitovsky.  Did he just show up in one of your classes? 
HAYEK: Oh, no.  In that case, his father brought him to me from Budapest. 
ALCHIAN: Were you in Vienna? 
HAYEK: No, I was already in London.  He brought him to London and wanted somebody who was familiar with Central European conditions.  So he came to me and brought a young boy saying, "Will you look after him a little while he is a student; this is his first time in a foreign country."  And then we got on very well together.  I believe he did his thesis under [Lionel] Robbins.  When you ask about my pupils during this English period, in most instances I won't know whether he was really formally Robbins's or mine. 
We had a common seminar, and it was pure chance which of us undertook to supervise a thesis.  So in most instances I wouldn't know whether he was formally Robbins's or my pupil.  It was really a joint seminar and a joint arrangement. 
ALCHIAN: How did you run the joint seminar?  Did you assign topics to students, or did you and Robbins pick a topic and discuss it? 
HAYEK: There was always a main topic for the whole year, which-- I think in justice I can say Robbins did all the organizing work, including choosing the general topic.  But once it came to discussion, I more or less dominated discussion. 
ALCHIAN: Well, did the two of you dominate the discussion, or were the students doing most of the discussing? 
HAYEK: Oh, very much.  You see, we had gradually developed a sort of-- It was a large seminar; I suppose thirty or forty people attended.  But there was always a front row of people who had been members of the seminar for two or three years already, and they dominated the discussion.  This included not only students: there were people like John Hicks, who was a regular member of the seminar; Freddy Bennan was a regular member of the seminar; after a while, of course, [Nicholas] Kaldor had emerged--
ALCHIAN: He took over.  Yes, I see. 
HAYEK: So after a while, I would say almost that whole front row were assistants and junior lecturers at the [London School of Economics] LSE. 
ALCHIAN: Do you recall any of the seminar topics or main themes? 
HAYEK: I think it began and dominated almost all the--
ALCHIAN: This was 1930-31? 
HAYEK: Oh, '31 or '32.  I started teaching in London in the autumn of '31; I suppose it was in that year that we started on the theory of production.  It turned on a paper model of the production function which somebody had made.  And [Roy] Allen and Hicks were evolving their own theories. 
ALCHIAN: This is R.G.D. Allen? 
HAYEK: R.G.D. Allen and John Hicks were developing their own theories.  I don't think whether I ought to mention it--I doubt whether John Hicks remembers it--but it's almost a joke of history that I had to draw Hicks's attention, who came from [Alfred] Marshall, to indifference curves. 
ALCHIAN: That was a well-planted seed, all right.  How did you happen to know about indifference curves? 
HAYEK: Oh, I had of course spent all my early years on utility analysis and all these forms, and we had in Vienna-- [Paul] Rosenstein-Rodan, who wrote that great article on marginal utility, and with him we waded through the whole literature on the subject of marginal utility, including-- I was very attracted, in a way, by the indifference-curve analysis.  I thought it was really the most satisfactory form, particularly when it became clear that it unified the theory of production and the theory of utility with a similar apparatus.  So by the time I came to London, although I had never been thinking of it in algebraic terms, the geometry of it was very familiar to me. 
ALCHIAN: That's an aspect of background on Hicks I wasn't aware of; I wondered how come he suddenly got into that.  Well, I wanted to go back to that seminar.  Since I do some teaching, I like to know what others do. 
HAYEK: International trade was one year the main subject. 
ALCHIAN: And again it was you and Robbins who-- 
HAYEK: Oh, yes-- Well, from '31 till '40, till Robbins went into government service at the beginning of the war, every year we had this common seminar, which was the center of the graduate school in economics; and people who were sitting in were not only those younger junior teachers at LSE, and assistants who gradually became teachers, but people like Arnold Plant, who regularly sat in with us without taking an active part.  But he was extremely helpful with his great practical knowledge.  Occasionally, but only the first few years, even T[heodore] Gregory, who was the senior of the department, would still come in, but he was already somewhat remote.  
I think it is true to say that although formally, through the early part of the period, Robbins, I, and Gregory, the senior, were the three professors of economics, with Plant as professor of commerce joining in, Gregory was gradually getting interested outside the school of economics; so his influence was comparatively small.  I don't know; I may be forgetting-- Barrett Wale also came. 
ALCHIAN: Oh, Barrett Wale, yes.  Those are all familiar.  I started my studies of economics in 1933 and '34, and those names were well known then.  Where did these meetings occur? 
HAYEK: In the seminar room, which was then behind the refectory of the London School of Economics, where we had a sort of small hand library on the side for things we most frequently used.  We usually held it in the afternoon. 
ALCHIAN: If I were to go there now, could you tell me how to get there? 
HAYEK: No, you wouldn't find the same room.  In the course of reconstruction, it has disappeared. 
ALCHIAN: Now, were the topics for each week assigned, or did somebody have a paper? 
HAYEK: Oh, there were papers, but the discussion of any paper might go on for several weeks. 
ALCHIAN: Independently of the paper itself, sometimes.  Although you said that you maybe dominated the discussion after Robbins started, were there some of the people there who were very forceful personalities? 
HAYEK: Abba Lerner was very important. 
ALCHIAN: By virtue of intellectual power, rather than by-- 
HAYEK: Yes.  Among those people who started as students and continued as assistants and senior lecturers, [Nicholas] Kaldor, Abba Lerner, and for a time even Hicks took the position almost of a junior lecturer, and then rose gradually to a dominating personality.  There were two or three others whom I have lost sight of.  There was the unfortunate Victor Edelburg.  I don't know whether you know him. 
ALCHIAN: I know of him.  Did he die early? 
HAYEK: Well, I think he is finally in a lunatics institution. 
ALCHIAN: Oh, is that right? 
HAYEK: He completely went to pieces.  And a man called Iraki, whom I have completely-- [He was] not Japanese; Iraki is also a Japanese name.  [There was also] Ardler, who I believe is now with the international bank somewhere.  There was, as I say, a group of six or eight very senior students who were ultimately graduate assistants, who throughout the years-- Of course, there was a constant flow of American visitors.  I think every year we had one or two junior American lecturers, and even junior professors were passing through and spending a year with us, including-- Who was the former president of [University of California] Berkeley, who has recently-- 
ALCHIAN: Kerr?  Clark Kerr? 
HAYEK: Not Kerr, no. 
ALCHIAN: Hitch?  Charlie Hitch? 
HAYEK: Yes, it's Hitch. 
ALCHIAN: Yes, he was an Oxford scholar. 
HAYEK: He was one of them.  Arthur [D.] Lewis, who played a similar role in the seminar later. 
ALCHIAN: Did Abba Lerner still wear-- Was he then not wearing neckties and wearing open-toed shoes? 
HAYEK: Sandals, yes.  Well, he was a very recent convert to civilization. 
ALCHIAN: He told me that when he was a very young child, they were so poor his mother used to put water in the milk, and he always thereafter liked skim milk. 
HAYEK: Very likely, very likely.  He was then a Trotskyist who had, before he came to the university, I believe, failed in business and become interested in economics because he had failed in business.  But from the beginning, he was extremely good. 
ALCHIAN: He failed in what? 
HAYEK: In business.  He had been a practical businessman of some kind--some sort of small shop or something.  I never found out quite what it was. 
ALCHIAN: Smuggling books, maybe. 
HAYEK: Possibly.  In the end-- Well, that, I think, ought to be under lock and key for the next twenty-five years. 
ALCHIAN: Although he would probably tell it himself if he was here, I don't want to press on a matter which would be under lock and key. 
HAYEK: No, I don't think it would benefit to make it public now.  I was going to say simply this: in the end, we had the problem that both Kaldor and Lerner were clearly such exotic figures that we couldn't keep them both in the department.  And one of very few points on which Robbins and I ever disagreed was which of the two to retain. 
ALCHIAN: I'd heard that there was a dispute.  My impression or recollection--you needn't correct it or say it's right or wrong--was that you favored Lerner and he favored Kaldor. 
HAYEK: Yes, that's perfectly correct. 
ALCHIAN: They all make mistakes. 
HAYEK: I don't think it was a mistake. 
ALCHIAN: No, I think that you were right. 
HAYEK: It would have done a great deal of good to England if Lerner had stayed and Kaldor had gone to America. 
ALCHIAN: Oh, you've wished that all your life.  Lerner's become a very good friend of mine.  In fact, his book Economics of Control was the first book I read after the war, about 1945, when I was in Texas in the air force.  I had a chance to go to a library, and I pulled off the shelf Lerner's Economics of Control.  I just saw this book--how it got there I don't know.  
It was in Fort Worth, Texas.  And I also pulled off the shelf later an article by the economist at Princeton [University] who was writing an attack on Marshallism--I forget who that was.  It's just as well that I've forgotten his name, because it was a terrible article.  I read it and was so distressed that I said, "What's this?  What's happened in economics in the year that I've been away?"  Then I read Lerner's book, and it was a very influential book. 
HAYEK: I still think it's a very good book.  He's mistaken some points, but-- 
ALCHIAN: Yes, it's very good. 
HAYEK: Oh, another person who was for a time a member of the seminar--it's obvious why I remember him after Lerner--was Oskar Lange. 
ALCHIAN: Yes, he was one of my teachers, but-- 
HAYEK: Oh, was he? 
ALCHIAN: Yes, he was here at Stanford [University] and came once a week to give a course in mathematical economics.  We learned standard mathematics, but no economics as such.  We just learned how to formulate the models, and then we would walk from the campus to what was then the railway station, and he'd tell me some things about why socialism was a good thing.  Somehow it never quite took.  Fortunately, I should say.  In those seminars did you go to a blackboard very much?  Are you a blackboard user? 
HAYEK: Not I personally.  Occasionally for a diagram, but the blackboard was used much by people like Hicks and Allen. 
ALCHIAN: Somehow I've never seen you at a blackboard.  I wondered what you'd be like; whether you'd use it a lot.  I cannot work without a blackboard, just to make marks, if nothing else.  Were you always white-haired?  Of course not. 
HAYEK: Oh, no. 
ALCHIAN: Were you very dark-haired, or light, or blond? 
HAYEK: It was a darkish brown, and I think I retained it into my late fifties. 
ALCHIAN: And how did you have it?  Was it always parted on the side? 
HAYEK: Oh, parted.  It was just a little fuller than it is now. 
ALCHIAN: Never a severe problem for you?  You never wore it in wild manners to annoy your parents? 
HAYEK: Oh, I did once.  You see, I now use as a very effective opening with American students the phrase: "Fifty years ago, when I first grew a beard in protest against American civilization--" 
ALCHIAN: Well, there's still some left; a little bit left, I see.  So there's a mild protest.  But when did you first grow a beard? 
HAYEK: On my visit here in '23 and '24. 
ALCHIAN: Oh, you came in '23 and '24, then.  Let's see, you were then about twenty. 
HAYEK: I was the first Central European student who came over on his own without a Rockefeller [fellowship], on the basis of a quasi invitation from Jeremiah W. Jenks, if that name still means anything.  He was the author of the standard book on trusts, and [he was] president of the Alexander Hamilton Institute at New York University [NYU].  He came to Vienna in '22, where I met him and explained to him that I was anxious to go to America to improve my knowledge of economics.  He assured me by saying, "I am going to write a book about Central Europe; so if you come over next fall, I can employ you for a time as a research assistant."  
Now, that was immediately after the end of the inflation in Austria; so to collect enough money even to pay my fare was quite a problem.  I had saved even the money on the cable announcing that I would arrive.  As a result, when I arrived in New York, I found that Professor Jenks was on holiday and left instructions not to be communicated with.  So I had arrived in New York on March 23 with exactly twenty-five dollars in my pocket.  Now, twenty-five dollars was a lot of money at that time.  So I started first presenting all my letters of introduction, which [Joseph] Schumpeter had written for me, and which earned me a lunch and nothing else. 
ALCHIAN: Well, that's more than most letters today will earn you.  Was this in New York, or was this in Boston? 
HAYEK: New York.  With the help of another five dollars which somebody had slipped in the box of cigarettes they gave me after the luncheon, I lasted for over two weeks on that money.  Finally I was down to--after having reduced my ambitions more and more--accepting a post as a dishwasher in a Sixth Avenue restaurant.  I was to start next morning at eleven o'clock.  But then a great relief came to me-- but that I never started washing dishes is a source of everlasting regret now.  But on that morning, a telephone call came.  Professor Jenks had returned and was willing to employ me. 
ALCHIAN: Well, I was just about to say we have one thing in common.  I also worked as a dishwasher when I first came to Stanford.  But you do not have that honor on your record.  Well partly that episode is one that Axel may want to explore as part of your earlier life. 
HAYEK: Oh, there's one episode in connection with this.  I was then working for Jenks for six months in the New York Public Library on the same desk with [Frederick] Macaulay. 
ALCHIAN: Oh, the bond man of the National Bureau? 
HAYEK: Yes, and Haggott Beckhart and Willard Thorp.  Thorp got me to do the parts on Germany and Austria in his business annals.  You will find in the preface that in fact almost my first publication is a contribution to the business annals. 
ALCHIAN: Was Jenks at NYU at that time? 
HAYEK: Jenks was at NYU, yes.  But I spent much of my time in New York gate-crashing at Columbia [University], without having any formal contact with Columbia. 
ALCHIAN: My first year I did the same thing. 
HAYEK: I read the last paper in the last seminar of John Bates Clark. 
ALCHIAN: Oh, you had the honor or the privilege of going to one of his seminars?
HAYEK: He invited me personally, and that was one effect of the Schumpeter letters of introduction. 
ALCHIAN: This reminds me that when I was in New York in 1939, I gate-crashed again on the lectures of [Harold] Hotelling and Abraham Wald.  And I've been very, very pleased to think back on having seen them.  Let me switch a little bit to some of your works.  In '30-31 you gave the lectures which became Prices and Production.  
HAYEK: In January of '31, yes. 
ALCHIAN: Why was that the topic you talked about? 
HAYEK: Oh, I was extremely lucky.  In fact, I owe my career very largely to a fortunate accident.  Of course, by that time I was invited to speak on a subject I had more or less already published--that book on monetary theory and the trade cycle.  Robbins, who did not know me personally, made this the occasion of asking me to give the lectures but the form which the lectures took was due to a fortunate accident.  I had accepted writing the volume on money for the great German Grundriss der Sozialökonomik, which still hasn't got that volume, because one or two people died, and I went off to England before completing it.  
But what I had already done for what was meant to be a great textbook on money was a part of the history of money and monetary theory.  So I arrived in London to lecture on monetary theory better informed about the English monetary discussions of the nineteenth century than anyone in my audience, and the great impression I made was really knowing all about the discussions at the beginning of the nineteenth century, which even Gregory didn't know as intimately as I did at that time.  
Of course, nobody knew why I had this special knowledge, but it became extremely useful.  The first lecture of Prices and Production really gives a sketch of the development of these ideas.  The ideas themselves were also due almost to an accident.  When I came back from the United States in '24, I wrote an article on American monetary policy since the Federal Reserve Act, which had a passage suggesting that an expansionist credit policy leads to an overdevelopment of capital goods industries and ultimately to a crisis.  
I assumed that I was just restating what [Ludwig von] Mises was teaching, but [Gottfried] Haberler, who was as much a pupil of Mises, said, "Well, it needs explanation; that is not sufficient."  
So I first put in that article a very long footnote--about [number] 25--sketching an outline of what ultimately became my explanation of industrial fluctuations.  Then I started writing that, first in the monetary theory and the trade cycle, and then-- At this moment, when I had in my mind a clear conception of the theory, but hadn't worked it out in detail, I uniquely had the faith in my being able to give a simple explanation without being aware of all the difficulties of the problem.  And in this fortunate position, I was asked to give these lectures.  
So I gave what I still admit is a particularly impressive exposition of an idea, which if I had become aware of all the complications, I couldn't have given.  
A year later it probably would have been a highly abstruse argument which nobody in the audience would have understood.  But at this particular fortunate juncture of my development, I was able to explain it in a way which impressed people, in spite of the fact that I still had considerable difficulties with English.  I had had this year in the United States before, but I had never lectured in English.  In fact, I am told, or have been told since, that so long as I stuck to my manuscript I was partly unintelligible; but the moment I found I could explain freely, without following the manuscript, I became intelligible. 
ALCHIAN: I wanted to ask one line of questioning, but I'm going to divert for a moment to another line, and then come back to this, if I don't forget.  The other question was going to be: Do you write your manuscripts by longhand, or do you talk them out and have somebody-- 
HAYEK: I write and write and write.  I begin with cards, with notes, and I always carry this sort of thing with me. 
ALCHIAN: Those little five-by-eight cards.  I see. 
HAYEK: And all my ideas I first put down in this form.  Then I still write it out in longhand from these cards the first time, and that is the longest process.  Then I still go on myself typing it out in what I suppose is a clean manuscript. 
ALCHIAN: You type it yourself? 
HAYEK: Yes.  And then starts the problem of correcting, giving it to a typist, correcting it again; so I suppose everything of substance which I have written has been in written-out form three or four times before I send it to the-- 
ALCHIAN: I want every graduate student to hear that, because I tell them, "You've got to write, and rewrite, and rewrite," and they resist strongly the idea that they should rewrite.  If they can just get it down in black and white, they think that's it. 
HAYEK: At present moment I'm very unhappy, because this epilogue to the Hobhouse Lecture, which I have only finished in May and is going finally into print now, with the result that as I was correcting the page proofs, I finally had to insert at the end of the book additions to the text.  I always get the best formulations of my ideas after they have already been on paper. 
ALCHIAN: Yes.  For some people, [Fritz] Machlup for one, when I read his work I can see the man talking, I can hear him, just by the words that come out.  
And somewhat similarly with you, when I read your work, I can see you standing there talking, because the sentences of your written material are very much like your oral sentences.  They are well phrased, well put together.  The first time I ever heard you--I think maybe it was at Princeton in maybe '57; I'm not sure where--you got up and gave a spontaneous lecture, and all I could say was, "I don't know what he was saying, but how can he phrase that so beautifully, so elegantly?"  You've always done that; that's a remarkable talent that some have.  How did you develop it, or was it just natural?  Whatever naturalmay mean. 
HAYEK: It was comparatively late, and I learned it, I think, in the process of acquiring English as a lecturing language.  I don't think I could have done it in German before.  I certainly learned a great deal in acquiring a new language for writing, although I have retained one effect of my German background: my sentences are still much too long. 
ALCHIAN: Yes, they are long.  But they're put together well.  Karl Brunner, who is a very good friend of mine, has the same thing.  He says, "If you can say it long, you can say it longer in German."  Let me go back to Prices and Production, because it has a particularly warm place in my heart.  
The first book in my first year in upper-division work in economics--in 1934, the year I came to Stanford--we took a technical book that was not a textbook.  There were two books: one was Adolf Berle's The Modern Corporation and Private Property; and your book, Prices and Production.  I tried to go to the library and get that book that I had used, but I couldn't find it.  Those two books I've read, and I've reread them, and they've both been influential.  One I think is grossly full of error-- The Modern Corporation and Private Property; yours may be grossly full of error, but I haven't yet caught them all.  But, nevertheless, it was a book that set a tone of thinking for me.  
I reread it again, knowing I was going to get a chance to talk to you.  There's one point in there I wanted to make to you.  In the first lecture, you quote [David] Ricardo, I believe, on [Thomas] Malthus fourth saving doctrine.  
I don't recall having read it earlier--it was the first time I read it--but fifteen or twenty years ago I did some work on inflation and the fourth saving doctrine.  I was impressed when I read that particular quote that you had there, because it contains, I think, the correct and the incorrect implications of that doctrine.  Then I began to look at the rest of your work to see whether you rested upon the correct or the incorrect doctrine, and fortunately you rested on the correct doctrine, I think.  But I want to explore it again.  
I won't press you on it, but let me just say that there are two doctrines in there: one is that when you increase the stock of money, as so eloquently said by Ricardo, the larger stock of money chases the same amount of goods, and someone has to go with less.  
And the quote does correctly say, "Those who have money, lose the value of their money."  Then he goes on to make the next statement, which, as it turns out--I will assert here--is incorrect.  And that is that business firms make large, unusual profits because of this.  There is the seed of-- Instead of simply saying that the wealth transfer goes from money holders to those who first get the money to spend, he goes on to say there's a transfer of wealth from wage earners to-- 
Although he doesn't say wage earners, he says there is a gain to the businessman, that is, those who are selling, with a price lag, and that's in error.  It's just the first thing that counts.  So, in reading your first chapter through, I was paying particular attention to see which of these two you rested your argument on.  Fortunately, whether you know it or not, it was not on the second one.  It was on the first one. 
HAYEK: Well, you know, I don't suppose I saw it as clearly as I see the thing now, but I think it all began with my becoming aware that any assumption that prices are determined by what happened before is wrong, and that the function of prices is to tell people what they ought to do in the future. 
ALCHIAN: That's the modern rational expectation.  You can see it in there.  As I read it through last week-- 
HAYEK: But-- Forgive me for interrupting, but it's of course the other way around.  It's by discovering the function of prices as guiding what people ought to do that I finally began to put it in that form.  But so many things--  The whole trade-cycle theory rested on the idea that prices determined the direction of production.  You had, at the same time, the whole discussion of anticipations.  I found out that the whole Mises argument about calculation really ultimately rested on the same idea, and that drove me to the '37 article, which then became the systematic basis of my further development. 
ALCHIAN: I was struck that that first essay would be an interesting essay to look at on the history and development of ideas--how the error, the erroneous part of it, was picked up by [John Maynard] Keynes, when he talked about excess-profits taxes and the lag of wages behind prices, and then picked up by E. J. Hamilton, who had this big explanation of the development of society as a result of inflation which hurt the wage earners and transferred wealth to the merchants.  
That's all fallacious, and the evidence disproves it as well.  But in the Ricardo statement they are both there, and I looked to see-- As I say, to repeat myself, you're stuck with the right part.  Consciously or unconsciously, I don't care; it doesn't make any difference.  What's also interesting is that I just read a paper--some thoughts by Axel Leijonhufvud on the Wicksellian tradition.  
I read it, I guess, in the last couple of days, at the same time [I reread yours].  And the similarity between that chapter, your first chapter, and [Knut] Wicksell's exposition is quite strong and clear.  Again, in reading that paper of Axel's I can again see how the error that--I call it error--came in Keynes's work, in the Treatiseand more in the General Theoryexplicitly, where he again--I shouldn't say again--where he also abandoned the so-called rational-expectations idea of prices depending on foresight.  
He slipped into making the error that somehow we expect prices to go down some more tomorrow; so we wait for them until they do go down--an error the denial of which is the basis for the very recent work on rational expectations.  But I do remember my earlier work here at Stanford with Holbrook Working, who kept telling me that all prices reflect future anticipations.  
So when we got to Keynes's book on the general theory, Ed Shaw, who was then a professor here at Stanford, gave a course which I and two others took, and he just tore that general theory apart for the errors it made in economics.  One of them was this one about expectations.  That's a long digression, but I'm going to go back and say that in that first chapter, there are these two points, and I was just curious to know whether or not you looked back yourself at what you'd written to see if you were consciously aware of having gone down the right path rather than the other path, which led to the kind of error that was in [Keynes's] General Theory
HAYEK: You know, I am almost inclined to give the famous answer which [Arthur] Pigou once gave to an inquiring American professor: "I am not in the habit of reading my own books." 
ALCHIAN: That's a very good trait, yes.  But I put this in here not so much to tell you but, since this is an oral history--and I hope that in maybe ten or twenty years in the future, parts of it will be made available to other graduate students--that they will give some heed to what I've said in looking back and trying to evaluate the role of your work in the development of-- 
HAYEK: One point which deserves mention in this connection is that Keynes knew appallingly little about nineteenth-century economics, or about nineteenth-century history.  He hated the nineteenth century for esthetic reasons.  While he was a great expert on Elizabethan history, he just disliked the nineteenth century so much that beyond Marshall and just a little John Stuart Mill and Ricardo, he knew nothing of the literature and very little about the history of the period. 
ALCHIAN: I can't resist the remark that I've read, I think, all of Keynes's work, and the one that I regard as superbly good was the tract on monetary reform, where he does not make the error he made later on. 
HAYEK: That reminds me of another thing: it sounds almost ludicrous today that it shouldn't have been generally known, but while I was working in America in '23 and '24, my first essay on monetary theory was never published because Keynes's book came out--the one you mentioned, the tract on monetary reform.  But I had taken great pains to demonstrate what I thought was the new argument that he couldn't at the same time have a stable price level and stable exchange rates, which was a completely new idea.  But Keynes put it that way, and so there was no point in publishing my article. 
ALCHIAN: Well, that's the way it goes.  In Prices and Production, on page 29 of the second edition, I ran across a sentence I didn't remember you having made at that time.  You made the prediction about the future, which turned out to be wrong, unfortunately.  You said something to the effect--I don't have the exact quotation--that in the future the theorists will abandon the concept of a general price level and concentrate on relative price effects in the change of the quantity of money. 
HAYEK: It was a wish. 
ALCHIAN: It was a wish, and I think it's beginning to now come about.  The recent work on monetary economics is emphasizing now more the relative price effect, but up to the very recent time it's all been on general price level. 
HAYEK: The future was just a little more recent than before. 
ALCHIAN: Well, that may be correct.  That leads me to a question I wanted to ask you, which is again a side issue and something I'd like to contemplate, but I'm unable to get anyplace.  And that is predicting what it's going to be like a hundred years from now.  Have you ever tried that, and are you totally frustrated by it? 
HAYEK: No, I am much encouraged by the developments among the younger economists now. 
ALCHIAN: By "frustration" I meant not dislike but just the inability to-- I feel helpless in trying to predict. 
HAYEK: Well, after all, I now see that these things are having effects forty years later than I hoped they would.  The general phrase which I am using so often that you probably have heard of it is that I am pessimistic in the short run, optimistic in the long run.  If the politicians don't destroy the world in the next thirty years, I think there's good hope for it.  But the chances are not very good. 
ALCHIAN: That's a shame.  But do you have any predictions or beliefs, not about economics but about the state of society? 
HAYEK: I think the great danger is that the so-called fight against inflation will lead to more and more controls and ultimately the complete destruction of the market. 
ALCHIAN: Oh, I'm convinced of that, rightly or wrongly, hopefully or unhopefully. 
HAYEK: Well, you see, I hope that on Monday there will be a letter from me in the Wall Street Journal, which just suggests that I hope they would put in every issue in headline letters the simple truth: "Inflation is made by government and its agents.  Nobody else can do anything about it." 
ALCHIAN: --for the benefit of government and its agents.  But I just gave a talk at the Southern Economic Consolidation meetings in Washington on Thursday, and I criticized [President] Carter, not in name, for complaining about human rights abroad while destroying them at home by denying us property rights here.  I said the way to do it is to have an inflation, put on controls, and that's the politician's best friend.  I'm convinced it's true.  Did you know William Hutt? 
HAYEK: Oh, very well indeed. 
ALCHIAN: Well, you haven't mentioned him yet, and I kind of thought you did.  I was interested in where you met him and-- 
HAYEK: I met him through Lionel Robbins, and it may not have much to do with the story, but it's an amusing story.  Bill Hutt had been a fighter pilot in World War I.  And on that particular day he had bought his first car, and he had never driven a car before.  He took Lionel and me up to Lionel's home in that car driving fighter-pilot style. 
ALCHIAN: Without parachutes. 
HAYEK: It was a somewhat exciting experience.  No, I came to know him very well indeed, and sympathized with him very much.  I am rather proud of having invented the title of his book Economics and the Public for him, and I think fundamentally we are very much in agreement. 
ALCHIAN: His book The Theory of Vital Resources, I think, is a superb book. 
HAYEK: Excellent. 
ALCHIAN: Much ignored.  In fact, many ideas that I thought I had developed, and others had developed, I have discovered, in looking back, that there they are!  I've had a copy of the book made--it's been out of print--but now I think it's back in print again. 
HAYEK: I think he's much underestimated.  I don't know.  You see, he sometimes impresses people as being naive by having an extraordinary gift of putting things in a very simple manner. 
ALCHIAN: That's right.  The first time I met him, I couldn't believe it was the same Bill Hutt who wrote this book.  But as I got to know him better, I appreciated-- 
HAYEK: Well, I spent some time with him in South Africa once, when I came to know him and his wife. 
ALCHIAN: Were you touring the South African wine country when you were there?  He's a great wine buff. 
HAYEK: Yes.  I know, yes.  He took me to a wine-sampling party. 
ALCHIAN: Just as I've had the pleasure of having you in my home, he was in my home once, too, and we served him a particularly good wine, it turned out.  I had no idea he knew wines, and he just liked the wine and complimented us. 
HAYEK: Well, I think he was president of a wine society. 
ALCHIAN: Yes, he is.  So we were very pleased about that.  I want to, for the record, I guess, tell a little episode about your visit to our house.  You know, in our house we've had four Nobel Prize winners, now that I think about it.  We've had you, [Paul] Samuelson, [Milton] Friedman, Hicks, [Wassily] Leontief.  
When you walked into our house-- You impressed my wife enormously, because the first time she met you, you walked in, and we happened to have on the little table a Greek kylix.  
You walked up to it, the first thing--you didn't say hello to anybody--you walked up to it, and you said, "Oh, 400 B.C.," or something like that.  She nearly fell over.  So you were a big hit on that.  Where did you learn about wines? 
HAYEK: Well, as I say, beyond Burgundies, I have never been very expert.  Burgundies I just liked very early and took every opportunity to drink them. 
ALCHIAN: Did your parents have wine every night at dinner? 
HAYEK: No.  So far as they drank anything, it was beer rather than wine.  I am not particularly fond of the Viennese wines, although I discovered since-- 
ALCHIAN: Green wines? 
HAYEK: Up on the Danube [River], slightly north of Vienna, they produce some very good ones.  But the famous Vienna Grinzinger and so on, and Gumpoldskirchner, I didn't particularly care for.  In general, till fairly recently, my preference was red wines.  It's only now that in this fortunate position at Freiburg, where all around they produce first-class, very small vintages of white wines, that I'm getting very interested in wines. 
ALCHIAN: That means, then, you like to drink your wine before dinner.  Usually the red wine is something you'll drink with dinner.  Is that right? 
HAYEK: Both.  I drink it normally with dinner, except occasionally after dinner in the evening I take a bottle of wine to my desk and go on drinking. 
ALCHIAN: Do you have any favorite?  Is there a white wine or a sweet white wine? 
HAYEK: Yes, but they are very specialized.  Mark graefler of the south--south of Freiburg--now. 
ALCHIAN: If I wanted to go to see where you grew up, could you have drawn a map and said, "Go to this little place, and you'll see where I was a child, where I grew up"? 
HAYEK: [That would be] very difficult, because, you see, my father was a district physician and was moved around Vienna.  So we were living, in my childhood; in four different districts of Vienna, and there is no particular one which I feel very much at home in.  
And of course, in general, Vienna has so much changed.  Present-day Vienna I no longer feel at home in. 
ALCHIAN: How about London? 
HAYEK: In London, of course, we had our little village in Golders Green, a Hampstead Garden suburb, where all the economists lived: the Robbinses and I were practically neighbors, Arnold Plant, Frank Paish, George Schwartz; we all lived in that region. 
ALCHIAN: Do they have little porcelain plaques on the wall saying-- We should do that.  We'd have them all around. 
HAYEK: Well, if you ever are in London, the one who still lives in the same house is Lionel Robbins. 
ALCHIAN: He does?
HAYEK: Yes, he still lives in the same house. 
ALCHIAN: Do you know the address, or has it escaped you? 
HAYEK: 10 Midway Close. 
ALCHIAN: I'll have to get that recorded.  I want to ask you one question which is impertinent.  But it's serious, and I hope that maybe later you will be willing maybe to answer it.  Forgive me for asking it, but I detect a strong respect for moral standards and their importance in society.  
Now, all of us, I'm conjecturing, in our lifetime have faced problems where we have said, "Here is a moral standard, and I want to break it."  I have done that, and I've thought back at times, "How did I justify that?"  I said, "Well, I justified it."  You must have had some; I'm assuming you've had some.  Would you be willing, in that private tape of yours, to maybe indicate what some of them were? and what went through your mind at the time, if that happened, and what your response would be now to someone in the same situation?  
I was impressed by this when you were talking to Bob Bork about the sense in which our moral standards and restraints are part of our civilization.  I liked that very much--why, I don't know--but I thought one way-- I've been thinking myself of things I've done that I would not want to discuss even on a tape maybe, but still it would be interesting if in, say, fifty years we could-- 
HAYEK: Well, if it's on that unmarked tape, I'm quite willing to talk about it.  There's only one thing-- 
ALCHIAN: I'm not trying to inquire.  I just want to raise the issue. 
HAYEK: There's no reason for [hesitation] when it's after your lifetime.  I know I've done wrong in enforcing divorce.  Well, it's a curious story.  I married on the rebound when the girl I had loved, a cousin, married somebody else.  
She is now my present wife.  But for twenty-five years I was married to the girl whom I married on the rebound, who was a very good wife to me, but I wasn't happy in that marriage.  She refused to give me a divorce, and finally I enforced it.  I'm sure that was wrong, and yet I have done it.  It was just an inner need to do it. 
ALCHIAN: You'd do it again, probably. 
HAYEK: I would probably do it again. 
ALCHIAN: You have children by your first marriage?
HAYEK: By my first marriage only. 
ALCHIAN: I see.  Is your first wife still living?
HAYEK: No, she is dead now.
ALCHIAN: I see.  Well, let me ask, where are your children now? 
HAYEK: In England. 
ALCHIAN: Are they a boy and a girl, or two boys? 
HAYEK: A boy and a girl.  The boy is married; he's a doctor, or rather has become now a bacteriologist.  He is staff bacteriologist to a big hospital in Torquay, and so he lives in Devon, in ideal conditions.  He has three children--an English girl is his wife.  
My daughter is unmarried, an entomologist, a specialist in beetles in the British Museum of Natural History in London. 
ALCHIAN: Oh, she puts all the pins through all the beetles? 
HAYEK: No, you see, beetles are a very-- There are more beetles as a species than all the other animals together, with the result that at anyone time there is in the world only one expert on anyone group of beetles.  So she is the world expert on one particular group of beetles. 
ALCHIAN: They will take over the world someday, I suppose.
HAYEK: Maybe.
Final credits
Dock windowTable of Contents
Earlier students: Mrs. Vera Lutz
Seminar at the London School of Economics
Indifference curves
Meetings at the London School of Economics
Abba Lerner
Oskar Lange
Use of blackboards
Hair style and beard
First days in the United States
Prices and Production
Composing and writing articles
Giving spontaneous lectures
Monetary theory in Prices and Production
Use of price signals
Keynes's knowledge of economics
Inability of economists to predict
William Hutt
Hayek's interest in wine and family life
Hayek's life in London
Moral questions in Hayek's past
Hayek's family
Final credits
Creative Commons License
Content on this site is licensed under a Creative Commons License
© 2010 Universidad Francisco Marroquín,