Hayek's Challenge: an intellectual biography of F A Hayek

The Austrian road to much of Blairism

F A Hayek's name is often linked with that of Milton Friedman, the other founder of Reaganomics and Thatcherism. That makes Hayek a hate-figure for the many whose "liberalism" was the mirror-image of his own.

Bruce Caldwell's intellectual biography of the great Austrian is a wonderful work, but an odd one. Hayek's best-known work is The Road to Serfdom (1944). Yet this receives scant attention from Caldwell. Perhaps it was too populist to be treated as seriously as Hayek's other books. But it did address his big political idea.

As Caldwell shows, Hayek had cut his economic teeth watching "statism" try to create a kindly society as Germany invented the welfare state (the model for our own Beveridge Report). He believed he had charted how benign interference descended into totalitarianism, but turned out to be wrong. After the Second World War, Western Europe became welfarist. But we arrived merely at stultification.

Was that because we avoided the full-on socialism he hated? The big argument for the past 50 years has been on Hayek's terrain. The Institute of Economic Affairs was founded in 1955 by a young idealist who had read a condensed Serfdom in the Reader's Digest, and its Hayekian agenda is now at least one half of Blairism and will surely unfold further. The state will own and do less in future.

Caldwell shows us how Hayek believed in a welfare safety-net, and was fascinated by how markets depend on institutions.

One of the oddities of Caldwell's book is it is 133 pages before we really meet the subject. Instead, we are taken back to the Austrian and German academic milieus of the 1870s, into whose legacies Hayek was born in 1899. Hayek was a child, like Wittgenstein, of the Viennese fin-de-siècle: the spawning-ground of logical positivism and its enemies.

In economics, he was interested in whether there was a testable way of talking about the many processes of exchange. This amounts to talking about a vast proportion of human interactions. Caldwell concludes with an essay suggesting that economics has never really succeeded in answering these big questions. By that count, it's almost a saving grace that Hayek was sceptical about much economic thinking. But he triumphantly helped to frame a rebellion against the unintended oppressiveness of do-gooders. Most of his brain-work was in a tradition of inconclusiveness: wonderful, then, that he produced one work of dazzling clarity.