The Economics of
Friedrich Hayek
G. R. Steele
Second edition

Contents
Preface ix
Preface to the First Edition (1993) xi
1 Introduction 1
Friedrich Hayek 1
Background 2
Hayek’s intellectual contribution 7
The Austrian School 10
Pseudo-scientific exactitude and measurement 13
Hayek’s economics 14
Neutral money 18
Capital 19
The business cycle 20
The international money order 21
Hayek and modern liberalism 22
The revival of Austrian Economics 25
2 The Sensory Order 27
Origins 29
Limits to understanding 30
Connectionism 31
What mind is 34
The adaptation of mind 38
Man and society 40
3 Liberty, Reason and Rules 43
Knowledge and rationality 43
Freedom and the spontaneous order 44
The meaning of liberty 46
Reason, liberty and justice 48
Reason and ‘constructivist’ rationalism 50
The organisation 51
Common law and legislation 52
Democracy and constitution 57
4 Liberty and the Market 61
The primacy of property 61
Neighbourhood effects 62
The industrialised workforce 64
Art, literature and civilised values 65

Capitalism and the social order 66
The public sector and the burden of taxation 67
Social welfare benefits 70
Social justice and central planning 73
Liberty, utilitarianism and the free market 74
5 Economic and Social Science 78
The interpretation of information 78
Simplicity and complexity 80
Objective and subjective knowledge 81
Scientism 85
Economic facts and economic theory 89
The economic problem and economic analysis 90
Equilibrium 92
The division of knowledge 95
Levels of economic planning 98
Market coordination 101
The meaning of competition 102
6 The Socialist Calculation Debate 104
Classical economics 105
Marx’s critique of capitalism 106
Capitalism and economic calculation 108
Mises’s counter to Marx 109
Socialism and economic calculation 112
Institutions 116
Freedom and the economic system 119
7 Neutral Money and Monetary Policy 125
Neutral money 125
The concept of neutral money 126
The objectives of monetary policy 128
The natural rate of interest 130
Forced and voluntary saving 131
Keynes: the added dimension 132
8 Capital 134
Capital as a factor of production 134
Austrian capital theory 136
The Ricardo effect 137
The yield from capital investment 138
The diversity of capital 139
Investment, the division of labour and technical progress 140
The dimensions of capital 140

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