In 1960, I regarded Hayek's book as one of the most profound books I had ever read. In retrospect, it was the first profound book that I had ever read. I have reread it two times since then, and I still regard it as a profound book. It is also a deeply flawed book. Part I of the book, The Value of Freedom, is a defense the ideal of freedom. Part II, Freedom of the Law, is his attempt to outline the kind of political order that is necessary to sustain freedom. Part III, Freedom in the Welfare State, is probably the most profound defense of conceptual errors in the history of the libertarian movement.
I knew at that point that I was dealing with a defender of the free market social order who had sold out intellectually to the fundamental error of the modern world, namely, the welfare state's programs for the aged ..
This is not a minor issue. The Social Security system, which includes state subsidized medical care for the aged, is by far the most widely accepted institution associated with welfare state economics. More than any other pair of institutions, in every western nation, Social Security and government medicine are guaranteed to bankrupt all national governments. There is no escaping this. There will be a great default. They will abandon the programs which have been promised to the masses as the absolute guarantee provided by the state. Hayek defended these programs in the name of liberty.
It was not just that Hayek was a puzzler in terms of not instantly correlating a new piece of information within an overall perspective. It was that Hayek, at a fundamental level, did not have a general principle of economic or political interpretation which enabled him to classify something as comprehensive and as crucial to the modern welfare state ideology as old age retirement and medical programs funded by the state. If a man cannot not identify these programs as inherently in conflict with the system of ordered liberty, then he lacks a fundamental understanding of how to link his general principles and specific cases.