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Hayek’s Conference at the University of Richmond: Hayek and My Life

English Pages, 12. 4. 2013

Many thanks for giving me a chance to address this distinguished audience. This is my first visit to the University of Richmond and, if I am not mistaken, my first stay in the state of Virginia as well.

Some of you may know that I am enjoying the first days and weeks of my post-political life. A month ago, I completed my second term as the President of the Czech Republic and it means – with a very high degree of probability – an end to my political career, which started in the moment of the fall of communism in November 1989. I am slowly discovering a new life – for the first time in two decades, I am moving about in this country without being accompanied by the U. S. secret service.

I take it as a great honor to be asked to speak here today about a man I admire and have admired for decades. Today’s conference is not my first opportunity to speak about this great man. I spoke about him more comprehensibly in May 2009 in Germany[1] when I was awarded the Hayek Prize by the Hayek Foundation. It was in the city of Freiburg where he spent last three decades of his long and extremely fruitful life. Last time I spoke about him was in September 2012 at a Hayek Colloquium in Obergurgl, Tyrol, which is another of his places. As a devoted mountaineer he spent most of his European holidays there and, as is well-known, he wrote his Constitution of Liberty[2] there.

You have had a chance to listen to several scholarly speeches today, focused on one or another aspect of Hayek’s legacy. I don’t intend to compete with these distinguished speakers. As an economist who behaves rationally – at least I’d hope so –I always try to maximize my comparative advantages and I am well aware of the fact that after 23 years in politics they are not in the scholarly and detailed analysis of Hayek’s very diverse contributions to the economic theory and other fields of social sciences.

I will try to add a more personal note to today’s conference and will speak about Hayek as I saw him, as I was influenced by him and as I saw his role during half a century of my adult life – when I was an ordinary citizen of the communist Czechoslovakia, an academic economist, and lately a politician who got the challenging task to transform the country from communism, from this oppressive political system and this irrational and inefficient centrally planned economy into a free society, parliamentary democracy, and market economy along the Hayekian lines.[3]

We all have our heroes and Hayek was for me one of the greatest ones. It all started already in the 1960s. My country, then Czechoslovakia, experienced at the beginning of the decade an unexpected and for communist leaders ideologically unexplainable and indefensible economic recession, the first which happened in a centrally planned communist country in peacetime. It was something unheard of, something unimaginable. Planning was supposed to guarantee a permanent and harmonious economic growth. This surprising and unpleasant experience led even the most dogmatic communist politicians to think about a relatively far-reaching economic reform and to start implementing it. As is well known now, they tried to accomplish “a mission impossible”, to put into reality “a third way”, this utopian dream of all socialists and progressives, based on the belief in the possibility of having a fuzzy combination of plan and market.

It led to the weakening of the planning system and to the increase of the independence of – mostly state-owned – firms. It was a movement in desirable direction. The Soviet politicians together with our own hardliners criticized the reform from the left. The Czech economists of my generation (I founded and even became president of the Club of Young Economists then) criticized the reform from the right, for its evident insufficiency and inconsistency.

At that moment, in the mid-1960s, we discovered the famous dispute about socialism, the so-called socialist calculation debate[4], between Austrians Ludwig von Mises and Friedrich von Hayek on one side and American socialists Lange and Lerner on the other which occurred in the 1930s. This debate gave us many powerful arguments about the impossibility of economic calculation under socialism and about the futility of the idea to play the market instead of introducing a real market. It enhanced the doubts we were obtaining from observing the evident inefficiency of our own economic system. It is a pity that this famous debate is not part of an obligatory reading list for contemporary students. The highly regulated and subsidized economies in Europe (and in this country as well) should be discussed using the old, already canonical Hayekian arguments.

The real revelation came when we came across Hayek’s article “The Use of Knowledge in Society”[5] originally published in 1945. You may ask how it was possible to get access to such articles in a totalitarian communist regime. Yet, it was possible. We couldn’t get into our hands the Wall Street Journal, Newsweek or the Time
Magazine, but in the libraries of academic institutions we could get
the American Economic Review and similar journals. They were sufficiently scientific and, therefore, incomprehensible for the communist censors. Even now, I give this Hayek’s article to my students as the best introduction into rational economic thinking. To understand the impossibility to centralize dispersed knowledge is one of the most important ideas in the economic science, comparable to the classic formulations of Adam Smith.

Our relatively far-reaching and for that time rather unique economic reforms led to significant changes in the political life as well. In this respect, we got a lot of inspiration from Hayek’s “The Road to Serfdom”.[6] 

This book was illegally and unofficially translated in my country in the 1960s. It was widely read, and – what is even more important – it was understood as a decisive and final rejection of all kinds of totalitarisms, collectivisms and interventionisms and as an
authoritative defense of liberty. At least for our generation which saw its task differently from students in Western Europe and America at that time. We wanted to introduce capitalism, not to destroy it.

Our promising era did not last long. In the morning of August 21, 1968, the armies of Soviet Union and other Warsaw Pact countries invaded Czechoslovakia and crushed the – so called – Prague Spring. That was, paradoxically, the first and the only moment I saw Hayek.

I happened to attend a conference in the beautiful Austrian ski resort of Alpbach, which was the Austrian, much smaller version of today’s World Economic Forum in Davos. This is where I heard about the brutal occupation of my country and about the collapse of our plans and dreams to get rid of communism. A group of Czechoslovak participants stayed there for the following few days not knowing what to do. Some of us decided to return home, some decided to emigrate. As an irony of history the next day after the invasion, Hayek was scheduled to speak at the conference. This was in his “The Constitution of Liberty”[7] years and his speech could be more understandable for sophisticated constitutional lawyers than for a young economist from communist Czechoslovakia. I sat down in the auditorium, saw Hayek, heard his voice, but was not able to concentrate on his complicated argumentation. My head was full of thoughts about my occupied country.

It took us long twenty years to finally get rid of communism and of our Soviet oppressors. When this happened, I was, accidently, again in Austria. The day before the student demonstration in Prague in November 1989 which started our Velvet Revolution, I was giving a lecture at the University of Linz. During my meeting with the economic faculty professors in the afternoon, I asked them about the role of the Austrian School of Economics and of Hayek in the country where he was born and where he spent an important part of his life. Their answer was very depressing: “Hayek is dead in Austria now. He is not on our reading list anymore.”

In the evening, the university organized a panel discussion about the then ongoing reforms in Central and Eastern Europe with several hundred students attending. In answering one of the questions, I made an unprepared but proverbial statement: “If Hayek is dead in Austria, we will bring him to life in Prague very soon.” Of course, I did not know what would happen in Prague the next evening.

Very rapidly – in the middle of December, when the first non-communist government was formed – we started dismantling communism and its institutions. As a minister of finance in charge of the transformation of the Czechoslovak economic system, I was – at least I hope – truly Hayekian. My radical reform program was

- to liberalize;
- to deregulate;
- to privatize;
- to desubsidize the economy.

We also understood that Hayek’s concepts of spontaneous order, of dispersed knowledge, of human action vs. human design, etc., were relevant not only for the understanding of normal functioning of a free economic and social system, but also for the process of its transformation. It became evident that the transformation of a complex system cannot be organized from above. The long time prepared sophisticated reform blueprints became – practically overnight – irrelevant. Such a transformation process is inevitably a complicated mixture of spontaneity and constructivism and it must follow the logic of Hayekian evolution rather than the dreams of the always ready to be involved constructivists.

I dare say that we more or less succeeded in our task – more rapidly and with lower costs than the other post-communist countries. The country became a parliamentary democracy and market economy relatively very soon. At the same moment, Hayek published his last book “The Fatal Conceit”[8] which – I have to admit – I have never found time to read. Communism was a fatal conceit, undoubtedly, but for me, and for many of us, it was already over. We were preoccupied with the task to build a different society and we assumed – correctly or incorrectly – that we knew enough about “the errors of socialism” (which was the subtitle of his book).

I don’t want to say that Hayek is not relevant now. I do believe that he is as important and worth studying as in the past. We are again in a world which is based on a new, perhaps only slightly new conceit. Today’s society in Europe, and I am afraid more and more in America as well, is based on a similar error as in the past. Hayek was right in his “Road to Serfdom” that interventionism is a very unstable system which inevitably evolves away from a free market economy (and society) into a more and more controlled, regulated and administrated system. This truth should never be forgotten. We should read Hayek again and again.

The economic system in Europe at the beginning of the 21^st century is not a free market economy, but a “social market economy” (soziale Marktwirtschaft) with a very heavy load of environmentalism in it. Such a system is not tenable – it cannot function in the long run at all and it cannot function efficiently in the short run. European sluggish economic growth, currently even stagnation, high unemployment and increasing indebtedness are the inevitable (and expected) outcomes. The tragic mistake – the attempt to monetarily unify Europe by introducing European common currency – made it only more visible and more rapidly moving towards the end.[9]

Hayek’s ideas returned to the fore of our attention also with the financial and economic crisis at the end of the last decade (which my country survived relatively well). It seems evident that Hayek proved to be more relevant than Keynes in the analysis of the causes of such a crisis. Hayek tells us that a crisis is usually the result of “easy money policy”, of the irresponsible playing with interest rates and of the dream that fiscal policy can substitute for the much needed restructuring of the economy. The currently popular “quantitative easing” would be no doubt considered a pseudomedicine by him.  Those who do not know it should reread his “Prices and Production”[10]published 70 years ago.

Europe needs Hayek and his merciless analysis of the overregulated, controlled, centrally administered European economic system and of the slippery road to serfdom which we have already set out on. I wish the American students – here in Richmond and elsewhere – could get a chance to understand this new “fatal” conceit. In the current American intellectual, political and ideological, politically-correct climate, it is not easy. That is another reason for expressing my thanks to the organizers of this conference which makes the free discussion of these issues possible.

Václav Klaus, address at conference on Friedrich von Hayek, University of Richmond, Virginia, USA, April 12, 2013.

Also published as a part of the book F. A. Hayek and the Modern Economy. Palgrave Macmillan, New York, 2013.