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The 1980 Visit

Hayek in Iceland

Geir Haarde, Friedrich von Hayek and I at Thingvellir 4 April 1980. Photo: Fridrik Fridriksson.

Hayek was one of the most remarkable persons I have ever met....

Today is the birthday of Anglo-Austrian economist and philosopher Friedrich August von Hayek who received the Nobel Prize in Economics in 1974. Hayek was born on 8 May 1899 in Vienna, but moved in the early 1930s to England where he taught at the London School of Economics and became a British citizen. In my opinion he is one of the most profound political theorists of all times, not least for his analysis of how knowledge is acquired, transmitted and utilised in a free society, both through the price mechanism and through spontaneously developed traditions, customs, conventions, manners and habits. Hayek’s best-known and most accessible work remains The Road to Serfdom which he published in 1944, an eloquent warning against socialism. When I first read it as a teenager, it had a huge impact on me. I felt that Hayek’s book provided a basis for views which I had already loosely formed, and it did so with great erudition, solid evidence and sound arguments. Perhaps I should use this occasion briefly to describe Hayek’s visit to Iceland in 1980, as I did in my chapter on Hayek in the second volume of my recent Twenty-Four Conservative-Liberal Thinkers.

Comments on Keynes and the Myrdals

A few like-minded friends and I had founded the Icelandic Libertarian Association on Hayek’s eightieth birthday, 8 May 1979. I had written to Hayek, telling him about this and inviting him to Iceland. He had graciously replied and told us that he would very much like to visit. He was able to fit a trip to Iceland into his schedule over Easter 1980. I arranged for him to stay in the guesthouse of the Central Bank of Iceland where a friend, Geir H. Haarde (later Independence Party Leader and Prime Minister), worked. At Reykjavik Airport on 1 April 1980, I met Hayek for the first time. He looked exactly the part, a tall, aristocratic scholar, old and dignified, friendly, but slightly reserved, white haired and wearing glasses. We drove him to the guesthouse and I gave him a copy of The Road to Serfdom which I had just translated into Icelandic. In the evening, Haarde and I took him to a seafood restaurant in the city centre. Iceland, a country of fishermen, offers some of the best seafood in the world, and our guest found the dishes excellent. With it he drank a Burgundy, his favourite wine, he told us. He sat opposite me and to Haarde’s left, as he was almost deaf in his left ear. ‘The irony is that I am deaf in my left ear, and Marx was deaf in his right ear,’ he joked. His English was elegant, but with a slight German accent, especially in the way he pronounced the r-s and the z-s.

Haarde is an economist, and the conversation turned to economists that Hayek had known, especially the most famous one, John Maynard Keynes. Our guest was not shy to share his opinion of Lord Keynes: ‘He was probably one of the most intelligent and charming men I have ever met, but I think he was fundamentally wrong, not least in his lack of a long-term perspective. His General Theory was really a tract for the times.’ Hayek recalled a nice letter that Keynes had written to him about The Road to Serfdom and told us about the last time he had met him. This was in Cambridge in January 1946. Hayek observed that some of his disciples, mentioning Richard Kahn and Joan Robinson, were presenting inflationary ideas. Was Keynes not worried about that? ‘No, Kahn and Robinson are really just fools. As you know, I wrote my book in the thirties when we had to tackle unemployment. If inflation becomes the main problem, then I shall turn public opinion around like that!’ Then Keynes snapped his fingers. Six weeks later he was dead.

Haarde asked Hayek about Gunnar Myrdal, his co-recipient of the 1974 Nobel Prize. Hayek said that he had known him in the 1930s when he had been quite a competent economist, but that apparently he had become a sociologist rather than an economist. Probably the prize had been shared between the two of them to reduce criticisms of the choice. ‘His wife Alva was very attractive,’ Hayek added with a twinkle in his eye. He told us however that he had thought highly of Myrdal’s compatriot Bertil Ohlin, and that it was a matter of regret to him that Ohlin had been unwilling to join the Mont Pelerin Society—a debating club for classical liberals that Hayek founded in 1947—probably out of consideration for his political career in Sweden. After dinner, Hayek took some snuff, and we drove him back to the guesthouse. We did not want the schedule of our eighty-one year old guest to be too heavy.

Comments on Laski and Beveridge

The next day, on 2 April 1980, Hayek gave a lecture at the University of Iceland, outlining proposals for competition in currency. Afterwards the professors at the Faculty of Economics and Business Administration invited Hayek to lunch. In the evening of the next day, 3 April, the governors of the Central Bank of Iceland gave a dinner for Hayek at a hotel in Reykjavik, inviting some prominent Icelandic economists along. One of them, Professor Gylfi Gislason, a former Leader of the Social Democratic Party, had personally known Harold Laski, Hayek’s colleague at the LSE and a prominent member of the Labour Party. He was astonished when he heard from Hayek that Laski was a pathological liar. Hayek told us about an evening in August 1939 when he and Laski met in the London house of a colleague. Laski had raved about the great achievements of the Soviet system. Then they listened to the wireless at half past seven, when the news came through that Stalin and Hitler were to sign a Non-Aggression Pact. Upon hearing this, Laski abruptly changed tack and used the remainder of the evening to attack Bolshevism. Another of Hayek’s colleagues at the LSE, Lord William Beveridge, was also well-known in Iceland: in 1943 a collection of his articles had been published in an Icelandic translation and it had influenced the Social Democrats who implemented some of his proposals when they were in government from 1944 to 1949. Hayek told us that in his opinion, Beveridge had no understanding whatsoever of economics. He was a lawyer, and what he could do deftly, Hayek said, was to deliver a lawyer’s brief.

Haarde asked Hayek whether he had foreseen the Great Depression. Hayek replied that some remarks of his from early 1929 had been dug up occasionally, but that he could not claim that they were a prediction of the Depression. The establishment economists at the dinner politely expressed reservations about Hayek’s proposal for competitive currencies, some privately produced. Hayek explained that he had as a young economist supported a gold standard as a means to achieve monetary stability and restrain government, but that it was no longer practical. ‘The gold standard is a bit like monarchy. It certainly works, but it depends on an illusion, and once that illusion is broken, it ceases to work,’ he said.

Comments on Thatcher and German Politicians

On 3 April, Geir Hallgrimsson, Independence Party Leader and former Prime Minister, held an afternoon reception at his home in honour of Hayek. In 1945, as a law student at the University of Iceland, Hallgrimsson had come across the condensation of The Road to Serfdom in Reader’s Digest. He persuaded one of his teachers, Economics Professor Olafur Bjornsson, to translate the extract, which was published in a few instalments in the conservative-liberal daily Morgunbladid. A heated public discussion ensued in Iceland, with the organs of the left socialists and the social democrats attacking Hayek, sometimes viciously, and Morgunbladid, Hallgrimsson and Bjornsson defending him. A young economist in the Socialist Party, Jonas H. Haralz, was one of Hayek’s fiercest critics. Later Haralz turned his back on socialism and became a highly effective spokesman for economic freedom. Now, some 35 years after their debate, Bjornsson and Haralz were both at the reception.

Afterwards our group in the Libertarian Association took Hayek to dinner at a nice restaurant, full of Icelandic paintings. Hayek recalled the years he had spent as a voice in the wilderness after writing The Road to Serfdom. For example, at a meeting of the American Economic Association at the end of 1949, he had congratulated a young economist on a new book he had just published. He was later told that after he had left, colleagues of that economist had gathered around him and commented: ‘Now you have just got the kiss of death!’ Certainly, times had changed. Hayek told us that he thought highly of British Prime Minister Margaret Thatcher. Her ideas on economics were sound, he said, but her problem was that she lacked support in her own party. He mentioned that at our forthcoming meeting he would be saying something on the same lines as he had done in a talk at the Monday Club in London on 26 March, only a few days earlier. It was intended as an indirect response to arguments given by Thatcher’s opponents in the Conservative Party, the ‘Wets’. Hayek also discussed German politics. It was a pity, he said, that the two ablest politicians in the country, Economics Minister Otto Count von Lambsdorff of the Liberal Democrats and Bavarian Minister President Franz Josef Strauss of the Christian Social Union, could not work together. ‘A man combining their best qualities would really be a formidable leader.’ He recalled how old he was and joked: ‘I tried old age, but I didn’t like it so I abandoned it!’

‘The Muddle of the Middle’

On 4 April, Good Friday, Haarde and I took Hayek to Thingvellir, the site of the old parliament, established in 930. For more than three hundred years, until 1262, Iceland was ruled by law, but without a government. The Icelandic Commonwealth, as it is called, has been held up by some libertarians as an example of the possibility of privately producing law and order. The weather was rough, as it often is at that time of year in Iceland, windy and rainy. We shivered. We visited Thingvellir Church where the Guardian of the Thingvellir National Park received us and gave an outline of the history of the place.

On 5 April, Hayek gave his second talk in Iceland at a meeting of the Libertarian Alliance, on ‘The Muddle of the Middle’. He explained that the muddle was John Stuart Mill’s belief that a meaningful distinction could be made between laws on production on the one hand and laws on distribution on the other hand, so that what had been produced by one could be freely distributed to another. Hayek stressed that income was a price and that it was an indispensable signal about how one could use one’s abilities to satisfy the needs of others. Hallgrimsson, Bjornsson and Haralz were all in the audience, and so were some young people who were to play an important role in the comprehensive liberalisation of the Icelandic economy after 1991.

In the evening, the Icelandic Chamber of Commerce held a sumptuous dinner in honour of Hayek, with forty guests. The Minister of Fisheries and Leader of the rural Progressive Party, Steingrimur Hermannsson, told Hayek that he thought economic principles did not apply to such a small country as Iceland. Hayek disagreed, politely, but firmly. Economic principles were valid everywhere, he said. On 6 April, Easter Day, one of our group in the Libertarian Association, Fridrik Fridriksson, took Hayek to dinner at his parents’ home. Fridriksson also went with Hayek to the Western Fjords where they lunched with a local entrepreneur and visited a fish processing plant. Impressed by the modern machinery, Hayek exclaimed: ‘Now I understand why you are so prosperous!’

Three of us in the Libertarian Association had lunch with Hayek on his last full day in Reykjavik. We discussed the plays of Tom Stoppard some of which were about individual freedom. Fridriksson asked Hayek whether he could recommend any universities in the United States, as he wanted to pursue graduate studies there. Hayek told us that he found most interesting the research on property rights by Armen Alchian and Harold Demsetz at the University of California in Los Angeles, UCLA, and the economic analysis of politics, often called ‘public choice’, by James M. Buchanan and Gordon Tullock at Virginia Polytechnic Institute and University in Blacksburg. On 8 April, Hayek left for London.

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