Ask your average economist what Friedrich Hayek’s central claims in economics are — the claims that made Hayek the most controversial economist in the world over the last 100 years — and the likely answer will be: 1) Hayek claimed that the market is the best mechanism ever invented for efficiently allocating resources to maximize production; and 2) that there is a connection between the freedom of the marketplace and freedom more generally. The first of these in the economics literature is often called “The Hayek Hypothesis”. The second claim is sometimes referred to as “The Hayek-Friedman Hypothesis”.
These have been massively controversial and contested claims. But the current President of the United States, Barack Obama, is a believer in both, as Obama confessed to New York Times reporter David Leonhardt on Aug. 20, 2008: “The market is the best mechanism ever invented for efficiently allocating resources to maximize production. And I also think that there is a connection between the freedom of the marketplace and freedom more generally.”
How did Obama come by his understanding and belief in the Hayek Hypothesis and the Hayek-Friedman Hypothesis? Well, no doubt in part because Obama was reading Hayek and Friedman in the 1980s. Indeed, one of Obama’s closest intellectual associates is Hayek quoting U. of Chicago law professor Cass Sunstein, now a member of the Obama administration. And another is Obama’s chief economic adviser, Larry Summers, who explains his understanding of economics this way: “What’s the single most important thing to learn from an economics course today? What I tried to leave my students with is the view that the invisible hand is more powerful than the [un]hidden hand. Things will happen in well-organized efforts without direction, controls, plans. That’s the consensus among economists. That’s the Hayek legacy”.
No matter what you might think about the unfolding of contemporary political events, the world isn’t what is was in the 1930s and 1940s when the “Hayek Hypothesis” and the “Hayek-Friedman Hypothesis” stood as a shocking challenge to mainstream “progressive” thinking. As historian Alan Brinkley points out, the intellectual environment shifted decisively soon after the publication of Hayek’s The Road to Serfdom, even if it took decades for for “mainstream” economists — such as Paul Samuelson — to finally “get it”, and although it must be admitted that a few — such as Robert Heilbroner — never quite did. We are no longer living in the 1930s. And we shouldn’t pretend that we are.
And finally, it should be noted that the great intellectual “hero” of the 1930s — John Maynard Keynes — didn’t believe in either the Hayek Hypothesis or the Hayek-Friedman Hypothesis, as Roger Garrison and Ralph Raico explain. So for all the talk of “going back to Keynes” the talk in its most important sense is mere fantasy — we can’t go back again because it is impossible for us once again to be as economically and as politically naive as was John Maynard Keynes in the 1930s.