As we look back on the excitement caused by the publication of Friedrich Hayek's Road to Serfdom, we wonder how it could have happened. It is a tribute to him, and to his small book, that we should be able to say this. The principal theses of the book are by now so very well known, even if they are not by any means universally accepted, that they appear almost self-evident.

Mr. Hayek has always taken scrupulous care to give credit, if it is faintly plausible to do so, to others who articulated ideas before he did. But Hayek cannot shrug off the credit for having brought much of it together: the integrated perception of the relation between law and justice and liberty. And, in an age swooning with passion for a centralized direction of social happiness and economic plenitude, it is a squirt of ice water, presaged by the quotation he selected as epigraph to his book, the wry observation of David Hume that "it is seldom that liberty of any kind is lost all at once." Rather, Hayek explained, it is lost gradually; and it is lost by assigning vague, extralawful mandates to men of political authority who take on tasks that they could not be expected to perform without absorbing all the knowledge, values, preferences, and passions of all their fellow men; and this no political authority--indeed no animate or inanimate body--can do. Accordingly, the political authority has no alternative but to usurp. The necessary result of that usurpation is the corresponding loss in the freedom of the body politic. Over a period of time, that kind of movement must lead us down the road to serfdom, into that amnesiac void toward which, Orwell intuited, evil men were for evil purposes expressly bent on taking us.

Hayek brought to his thesis the great prestige of an economist unblemished by the tattoo of ideology. Indeed, during the 1930s his reputation was almost exclusively technical, and we are informed that historians will in due course remark that the great technical debate of that decade was between Hayek and Keynes. One can only hope that by the time they get around to saying this, they will get around to saying that Hayek won.

One can leave it at this, that the Nobel Prize Committee took pains to honor Professor Hayek's technical contributions to economic science, alongside Gunnar Myrdal's contributions to something or another. One is reminded of a sentence from Hayek's essay "The Intellectuals and Socialism":

It is especially significant for our problem that every scholar can probably name several instances from his field of men who have undeservedly achieved a popular reputation as great scientists solely because they hold what the intellectuals regard as "progressive" political views; but I have yet to come across a single instance where such a scientific pseudo-reputation has been bestowed for political reasons on a scholar of more conservative leanings.

Abstract   The rise of the blogosphere raises important questions about the elicitation and aggregation of information, and about democracy itself. Do blogs allow people to check information and correct errors? Can we understand the blogosphere as operating as a kind of marketplace for information along Hayekian terms? Or is it a vast public meeting of the kind that Jurgen Habermas describes? In this article, I argue that the blogosphere cannot be understood as a Hayekian means for gathering dispersed knowledge because it lacks any equivalent of the price system. I also argue that forces of polarization characterize the blogosphere as they do other social interactions, making it an unlikely venue for Habermasian deliberation, and perhaps leading to the creation of information cocoons. I conclude by briefly canvassing partial responses to the problem of polarization.

Innovativeness raises uncertainties. The future outcome of an innovative action poses ambiguity: the law of "unanticipated consequences" applies (Merton, 1936); entrepreneurs have to act on their "animal spirits," as Keynes (1936) put it; in the view of Hayek (1968), innovations are launched first, the benefit and the cost are "discovered" afterwards. The innovating itself and the changes it causes make the future full of Knightian uncertainty (1921) for non-innovators too ...

Innovativeness also transforms jobs. As Hayek (1948) saw, even the lowest ranking employees come to possess unique knowledge yet difficult to transmit to others, so people had to work collaboratively ...


At Yale and at RAND, in part through my teachers William Fellner and Thomas Schelling, I gained some familiarity with the modernist concepts of Knightian uncertainty, Keynesian probabilities, Hayek's private know-how and M. Polyáni's personal knowledge. Having to a degree assimilated this modernist perspective, I could view the economy at angles different from neoclassical theory ...

The other severe limitation of the research view was, of course, that business people are the conceivers of the bulk of the innovations of a capitalist economy.  Capitalism is Hayek country. In such an economy, Hayek says, there is a "division  of knowledge" among different persons - not only dispersed information  ("knowledge of current prices") but, crucially, dispersed know-how about "how commodities can be obtained and used."31 (Hayek, 1937). Hayekian entrepreneurs are constantly striving to expand their knowledge into some area where knowledge is scarce or non-existent in order to see whether they might develop something commercially saleable that no one else has conceived before. This is creativity - acquiring ideas that no one else has (or likely will have without doing the necessary exploration). Later he sketched a model of how the entrepreneur, not really knowing its commercial value, has to launch the innovation on the market to "discover" its value, if any32 (Hayek, 1968).

I have tried in recent years to elaborate and apply Hayek's theory of innovation. A recent paper formalizes the theory of innovation with the theoretical device of a periodic fair in which entrepreneurs and financiers meet and enter into matches despite incomplete information (Phelps, 2006b). I have also been fortunate in coming up with some empirical findings: The presence or absence of important financial institutions, such as the stock market, appears to be quite important for the readiness of an economy to seize an
innovative opportunity (Phelps and Zoega, 2001). Furthermore, various attributes
of a country's economic culture serve to animate entrepreneurs and, more broadly, to encourage them by offering them a willing workforce and a receptive marketplace for their innovations. (Phelps, 2006c) (See Tables 1, 2a, 2b and 3.) The direction in which I have mainly gone is to argue that, in advanced economies at any rate, innovation mechanism and discovery largely shape the experience and the rewards of participating in the economy.