Imitate Hayek

Mental ability declines with age. That’s the same for the brainy and the dim — and not just for humans; it’s measurable even in fruit flies. But minds that keep lively will suffer less than the lazy. In general, the more education you have, the more productive your old age will be.

~ The Economist (June 26, 2004)

In the summer of 1985, Mark Skousen, John Mauldin, and I were in Austria on a tour with several dozen of my Remnant Review subscribers and Skousen’s subscribers. Mauldin was my manager at the time.

Skousen had arranged an interview with F. A. Hayek, who had won the Nobel Prize in economics in 1974. He invited me to participate, possibly because I had a battery-operated tape recorder. The three of us drove to a town high in the Austrian Alps, just across the border from Italy, where Hayek was spending his summer. He was spending it well, in a beautiful hotel. He had obviously lived long, and was prospering.

Hayek had won the Nobel Prize at the age of 75. By now, he was 86 years old. I remember one of his comments. “They give you the Nobel Prize so you can’t get any work done. You’re too busy with interviews and speeches.” But he got paid for his speeches. As interviewers, we were freeloaders.

Skousen and I interviewed him for three hours. He never got tired. His comments were enlightening. His memory was sharp. I had expected as much. He was still writing, and I had noticed no fall-off in his mental processes. But writing is leisurely. You can take your time and look up facts to verify them. In an interview with a couple of younger men who are trained in one of your fields of expertise, you can’t fake it. If you are slowing down mentally, it will become obvious. It did not become obvious to any of us. He spoke of philosophy, history, and the spread of free market ideas.

When we were about to depart, he offered to let me take along a chapter of a book he was writing. I demurred, fearful that I might lose it, but I got someone at the hotel to photocopy it. In 1988, that chapter appeared in print in his final book, The Fatal Conceit, his epitaph for socialism, published the year before the Berlin Wall came down and three years before the Soviet Union collapsed. He was awarded the Medal of Freedom in 1991, the year before he died. He had outlived the Soviet Union.

At the time of the interview, I thought about his productivity. Here he was, 86 years old. No one made him write that book. He was not seeking tenure, since he had been retired for years. He was not seeking fame; he was world-famous already. He was writing it because he had something to say, and he had a major university press ready to pay him royalties to say it.

Nice work if you can get it.

A MISSED OPPORTUNITY

I thought of something else. Half a century before, he had been one of the most famous economists on earth. He was regarded by his peers as the most capable opponent of John Maynard Keynes. He had reviewed Keynes’ Treatise on Money unfavorably, and the two had engaged in a published exchange of opinions. In 1935, he was on the staff of the London School of Economics. The next year, Keynes wrote his incoherent classic, The General Theory of Employment, Interest and Money, which swept the academic community because, even though obviously incoherent, it provided intellectual support for the expansion of government spending and deficits in a time of worldwide depression. Keynes provided the political emperors of this world with a complete new wardrobe.

Hayek’s star faded fast after 1936. He made the major error of his career: he did not respond in print to The General Theory, when he was regarded as the one man who could take on Keynes and beat him. He had taken many hours to write his critique of Treatise on Money, and then Keynes had told him in private that he had abandoned that book’s ideas anyway — he had a new book planned. “Why waste my time?” thought Hayek.

That decision may have cost the world trillions of wasted tax dollars and debt. But probably not: the emperors were ready to replace their wardrobe, and Hayek would have pointed out its overly diaphanous material.

The General Theory was immediately published in Germany. In his 1936 Foreword to the German edition (and only here), Keynes admitted to Hitler’s disciples what the rest of the world’s cheering economists would not admit in public: his theory is best applied under totalitarianism.

The theory of aggregated production, which is the point of the following book, nevertheless can be much easier adapted to the conditions of a totalitarian state [eines totalen Staates] than the theory of production and distribution of a given production put forth under conditions of free competition and a large degree of laissez-faire. This is one of the reasons that justifies the fact that I call my theory a general theory. Since it is based on fewer hypotheses than the orthodox theory, it can accommodate itself all the easier to a wider field of varying conditions. Although I have, after all, worked it out with a view to the conditions prevailing in the Anglo-Saxon countries where a large degree of laissez-faire still prevails, nevertheless it remains applicable to situations in which state management is more pronounced. For the theory of psychological laws which bring consumption and saving into relationship with each other, the influence of loan expenditures on prices, and real wages, the role played by the rate of interest — all these basic ideas also remain under such conditions necessary parts of our plan of thought.

Too bad this did not appear in English for another three decades, and then only in an obscure libertarian journal.

Keynes’ theory of productive deficit spending swept the academic world, but Hayek did get another chance to fight back, at least indirectly. He wrote The Road to Serfdom in 1944, which was as clear and as eloquent in a subdued way as Keynes’ General Theory was not. This book, a detailed critique of central economic planning and the loss of freedom that it produces, was run as the “Condensed book” section of the Reader’s Digest the next year — by far the most scholarly book ever condensed by the Reader’s Digest. Hayek was on a ship from England to the United States when the issue appeared. When he got off the ship, he was met by reporters. The article had made him the most famous economist in the world, at least temporarily. Hayek told us this story in 1985. I had never heard it before.

But he faded again. He wrote many academic journal articles, but nothing as popular as The Road to Serfdom. He had another shot at academic fame in 1960, when his Constitution of Liberty appeared. It was well received by scholars. It was a defense of the free market as a social and political means of freedom. I had bought it and read it — well, most of it — in my sophomore year in college. It became a major influence in my thinking.

In the 1970s, his three-volume series appeared, Law, Legislation, and Liberty. These were more narrowly focused on legal issues. Hayek was an expert in law and legal theory, having earned his Ph.D. in law at the University of Vienna half a century earlier. (He also wrote a major book in psychology: The Sensory Order.)

NEVER GIVE UP

After World War II, Hayek took a job at the University of Chicago. He was not hired by the economics department, in what had to be one of the most flagrant put-downs in academic history. He taught in the obscure interdisciplinary program called the Committee on Social Thought, which produced few Ph.D.-level students because of its interdisciplinary nature: few teaching jobs were available to its graduates.

He did not let this get him down. He kept writing. He earned a good salary, which got better when the University of Freiburg offered him a job in the mid-1960s, which he took.

Then he won the Nobel Prize, with all the money that accompanied it.

The ups and downs of Hayek’s career were unique. He was a hot-shot kid in the 1930s, a has-been by 1943. He bounced back, but not to what he had been a decade earlier. He matured in the era of Keynes. He was generally ignored. But, in the mid-1970s, when Keynesian policies had produced international economic stagnation and price inflation, dubbed “stagflation,” he won the Nobel Prize. By the time of his death, he was a luminary. Yet he had spent the bulk of his career dismissed as a dinosaur.

He could write well, and he wrote a lot. He did not abandon his gift just because he was widely ignored. He did not have to write for a living. He had tenure at one of the most prestigious universities, although in the departmental equivalent of a janitor’s closet. He kept writing and lecturing through the era of Keynes. A handful of us read his books and journal articles and liked what we read. He became an example for those of us who were working our way through the liberal meatgrinder that academia had become — and remains. If he could do it, we should at least try.

USING YOUR BRAIN

He was still sharp at 86. I did not read The Fatal Conceit until a couple of years ago. It is an intelligent book. In some ways, it is his most profound book in terms of laying out his first principles, which I don’t accept: Darwinian evolution.

The fact that he was able to produce such a book in the middle of his eighties indicates that the brain is like a muscle. If you don’t let it fall into disuse, it stays in good shape. There is no indication in that book that he was not in his prime, intellectually speaking. In fact, I regard it as more profound philosophically than his work of the mid-1930s, which the Nobel Committee, forty years later, said had been the basis of the award.

He was slowing down physically. His wife was unhappy that we had absorbed so much of his time. “He will be exhausted tomorrow.” Maybe so, I thought, but we had our tapes and a memorable experience, and Hayek had the pleasure of knowing that a new generation of scholars was still reading him. At 86, that had to be gratifying. I knew it then, and I am even more aware of it now.

I think of Milton Friedman, another Nobel Prize winner, who is now in his early nineties. I still see published letters from Friedman. Skousen and I had dinner with him in 1997. He was still on the speakers’ circuit, still as contentious as ever.

Ludwig von Mises, from whom Hayek learned about the free market in the early 1920s, taught full time until he was 86. He, like Hayek, had been dismissed as a dinosaur — indeed, the ultimate dinosaur — after Keynes triumphed. But, unlike Hayek, no major university hired him. He was a visiting professor for two decades at New York University, which never paid him a salary. His salary was donated by businessmen. He died in 1973, the year before Hayek won the Nobel Prize. The great irony is that Hayek had used Mises’ ideas to write the books that won him the prize. He had dressed them up with a few charts, which Mises never used.

With the visible economic disintegration of the Soviet Union after 1987, it became clear to his critics that Mises’ criticism of socialism, written in 1920 and dismissed as crackpottery ever after by academic economists, had been correct. Robert Heilbroner, the millionaire academic socialist, admitted this in a 1990 New Yorker essay. It had taken 70 years.

Mises kept writing. He kept teaching. His last article appeared in The Freeman in 1966, when he was 85. His mind was still sharp when I spoke with him in 1971. He was 90 years old at the time. I asked a lot of questions about his days in Vienna. Later, I heard that his wife was quite upset with me. She told Bettina Greaves, my colleague and the Mises’ good friend, that Mises would be exhausted the next day. She thought Bettina had put me up to it.

GOOD NEWS AND BAD NEWS

The good news is that pay continues to rise as you age. The bad news is that you are over the hill mentally by age 30.

How can this be, if free market economics is true? How can you be paid more if your mental output declines?

Answer: because, as Forrest Gump’s mother would say, “output is as output does.”

The Economist (June 26, 2004) ran a story, “Over 30 and over the hill.” It reported on studies that show that above age 30, people’s brains decline. Their coordination also begins to fade. This is bad news for all of us, not just Michael Jordan.

For most workers, decreased abilities will lead to lower productivity; only a minority will find know-how, knowledge and the ability to prattle convincingly outweighs their failing powers. And even for these, returns diminish; experience only counts for so much. This tilt is becoming steeper: technological change puts a premium on adaptability, and a discount on experience. Even those employees who remain highly productive will be likely to shine only in a narrow field.

The article goes on to say that studies show that in supervisors’ reports, there is no clear correlation between age and perceived productivity. On the other hand, when other employees’ views are surveyed, the correlation does show up.

My conclusion: try to get hired by a supervisor who is older than you are. His failing perception, along with his bias in favor of older people, will keep you on the payroll longer.

Why should mentally declining people get paid more? The article mentions this possibility: the younger workers’ abilities are uncertain. The older workers are a known quantity. Their output is more predictable. Predictability counts. Therefore, “hiring someone older is a safer bet.”

This protection is not going to work for much longer. Outsourcing works in favor of competition. Prices fall, as should be the case with rising output. The good old boy relationship between middle-aged middle managers and their underlings is being undermined by the disappearance of middle managers. This has been going on for three decades. Computerization is having its effect.

In a segment on the PBS “Lehrer News Hour” earlier this week, the interviewer spoke with a Harvard professor of management regarding outsourcing. The professor made a good point. First, the computer is the main source of outsourcing. The Indian workers in Bangalore can be replaced, too. If a task is governed by precise rules, the computer will take over the task. Second, he said that an employee who does face-to-face work is safest. He gave this example:

You hear the word “bill.” Is it a piece of paper money? Is it a piece of legislation? Is it the front end of a duck?

The computer doesn’t know — yet. The context is too complex. So, there is employment security for those who do face-to-face work. The interviewer seemed relieved.

THE BEST DEFENSE IS A GOOD OFFENSE

What should you do to protect yourself against a failing brain and outsourcing?

First, if you specialize in a field in which verbal or written communication has high value, you have an employment advantage. The computer has not caught up with you yet. Of course, it will. Moore’s law, which says that computer chip capacity doubles every 12 months — it used to be 18 months — will either cease to apply or else a chip will exceed the capacity of the human mind, probably by 2050. It will double every year thereafter. You may not be around, but your children probably will be.

When software starts designing software because only software is smart enough to design software, Asimov’s I, Robot scenario may become a problem.

Second, if you keep up with your field, reading constantly and carefully, thinking about what you are reading, and applying it in your work, you will keep ahead of the kids, not to mention the Indians in Bangalore.

Third, if you start your own business, and you have a knack for dealing with people in a money-extracting way — a skill that seems not easily taught — you will not have to worry about outsourcing.

Fourth, if you can hire these youthful hot-shots, you can profit from their output.

Fifth, the best way to avoid being outsourced is to do the outsourcing. Hire and fire. The consumer is outsourcing suppliers all the time. This is the genius of the free market. For the consumer, producers are one gigantic bundle of outsourceables. If you can stay in the consumer’s good graces, he will outsource the others and let you prosper.

The fact is, you are getting older. Your coordination is fading. Your memory after age 45 will begin to fade. Technology can help. Someday, there will be an easy-to-use free-form data base program that will collate all the words you speak into it using voice-recognition software. But you are over the hill, brain-cell-wise.

Your experience counts. No matter what youngsters think, it is experience in applying general principles to specific circumstances that counts the most. The school of hard knocks is the best place to learn this skill. It charges very high tuition. Most people don’t like to pay this tuition, so they attend only part time.

Take risks. Make mistakes. Coach John Wooden, the greatest college basketball coach ever, taught his players to take risks. In a book published in 2003, when he was 92 years old, he wrote this:

The person who is afraid to risk failure seldom has to face success. I expected my players to make mistakes, as long as they were mistakes of commission. A mistake of commission happens when you are doing what should be done but don’t get the results you want, such as anticipating a pass by the opposing player but not actually picking it off.

I didn’t want mistakes of omission. That happens when you are not doing something you should be doing, such as failing to cut off the baseline. I would rather have a player try to make a play and fail to make a play than be afraid to try. (Coach Wooden One-on-One, Day 51.)

CONCLUSION

Everyone dies of something. The goal is to remain productive until you die. Give death a run for the money. Avoid permanent outsourcing for as long as you can.

The best way is to exercise your mind. Why this keeps the brain working better, longer, I don’t know, but evidence indicates that it does.

Specialize. Know one thing really well. Then get someone to pay you for what you know or the output of what you know. As The Economist says, “those employees who remain highly productive will be likely to shine only in a narrow field.”

Most of all, read LewRockwell.com six days a week. Your brain cells will say, “Thanks. We needed that.”

August 21, 2004

Gary North [send him mail] is the author of Mises on Money. Visit http://www.freebooks.com. For a free subscription to Gary North’s newsletter on gold, click here.

Copyright © 2004 LewRockwell.com

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