It is an honor to receive the Hayek Prize for First Principles and a special pleasure to give the Hayek Lecture. The first piece by Hayek I read was his famous paper “The Use of Knowledge in Society,” published in the American Economic Review in 1945. It’s a beautiful paper, showing why economic prosperity is best achieved by letting individuals interact together using their unique knowledge sets which people at the top do not have. It is the same paper that Matt Ridley focused on in last year’s Hayek Lecture. I recall reading this paper as a college student, but I have re-read it many times, and I still recommend it.
But today I want to focus on another part of Hayek’s work, a part that I came to appreciate much later, after years of research and experience with economic policy. This is his work on policy rules, the rule of law, and the importance of predictability—topics he discusses in The Road to Serfdom and in much more detail in The Constitution of Liberty. I have been interested in policy rules or strategies as a way to make policy for as long as I have been doing economics. I was drawn to this way of thinking because of the kind of dynamic economics I was first taught in college, originally by a young assistant professor E. Philip Howrey. As I will show in this lecture, Hayek’s work on these topics goes well beyond economics into fundamental issues of freedom and the role of government. And that is why we need to keep reading Hayek.
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