First off, I want to echo the other reviewers in my praise for the book. The background in economic history was valuable to me and helps put the work that Hayek did into perspective. Though it may be "academic" (any look at the philosophy behind economics is probably not for the same audience as more instrumental books -- like "How to be successful" or whatever). That being said the book is well written and if anyone is interested in the influence of positivism on economics, the division of psychology and economics into separate disciplines, the roots of socialism and other foundational material, this book presents that information in a logical, clear way.
It cautions at the beginning that Hayek's work was complex and interdependent. There is a tendancy to take a paragraph by Hayek from one place and use it as a representation of the whole, like the blind men and the elephant. I would suggest strongly that to call him foundational in the current US conversativism is probably wrong. One clue is that as an extra to the "Constitution of Liberty" there is an essay by Hayek called "Why I am not a conservative."
Hayek was fascinated with "knowledge" in the sense that somehow humans manage to coordiante activity and believe that we share knowledge, but in reality it is not possible. Each of sees what we see and we do not see what others see. Somehow, unconsciously, we have evolved a way of being able to use the knowledge of others as well as our own.
His argument against socialism was basically that it breaks some of the ways of knowing what others are doing. A standard definition of Economics is that it is about how people make decisions in conditions of scarcity. In other words, there is an assumption that there is never enough to go around. If you think about it, even people with virtually unlimited amounts of money still compete with each other for status and other such things. We are all often in a position that if we choose X, then we cannot have Y.
Hayek thinks that that decision should be left up to the individual. He says that the mistake that people who believe that scientific central planning make is that they believe there is more of a consensus that there is. Someone's choices wind up overriding other's choices. There is more to it than this, but this is the basis of the argument. It is simple and not really one that falls easily on a liberal/conservative spectrum.
It is, however, probably the source of the claim that he is "conservative." Maggie Thatcher was a fan of Hayek as was, apparently, Ronald Reagan. It can be construed that the opposite of governments actively trying manage economies is lazie fare, hands off, anything goes conservativism. But that would be a misreading of Hayek and simply because a conservative likes Hayek's arguments about one topic does not make Hayek a conservative.
There is another point where Hayek would probably diverge widely from current "conservatives." By popular demand the borders in the US are getting tighter. For instance, it is now difficult to come back and forth from Canada, foreign graduate students are looking elsewhere, the "conservative" governor of California (himself an Austrian and alledgedly a fan of Hayek) is supporting vigilanties to prevent border crossings from Mexico. It does not seem that this is condusive to "knowledge" in the sense that Hayek uses it, as something that is distributed throughout humanity.
Hayek's greatest interest was in how we each take our little snapshot of the world and interact with others to build stable social structures without any direction. It is not that someone decides that we should have a structure like such and such, we find that these structures are there and we can all recognize them. In a way, he is talking about the "invisible hand" of Adam Smith. Somehow we coordinate activity so that I can be writing this right now on a computer I got somewhere, a DSL connection and so on and I have not talked to the people involved with making it happen, they have not talked to each other and no one directed them to do it.
Hayek is interested in the rules that make that happen. Now we talk of complex adaptive systems and the idea of "spontaneous order" is widely studied to day. Current work on "connectionist networks" now mention Hayek. He was way ahead of his time.
I also want to point out that even though some call him "the father of libertarianism" he was not against governments making rules that cause markets to function better, for instance, regulation against monopoly. Libertarians were up in arms against the threatened breakup of Microsoft, something Hayek would not have been against in principle.
I hope more people will read this book. It is remarkable how many ideas we think are brand new have been around for a while. This book helped me understand how they got sidelined. It is really a lively book, filled with people as well as ideas, which is important, because sometimes politics trumps insight. Hayek's remarkable ideas are just beginning to be widely noticed and recognizing what is happening is an exciting benefit of this book.
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