Hayek's Slippery Slope

Hayek's Slippery Slope

Mini Teaser: Friedrich Hayek's ideas,  particularly those set out in The Road to Serfdom, have been subject to extraordinary ups and downs in learned, as well as in popular and political, estimation.

by Author(s): Neil McInnes

It can scarcely be denied . . . that the capitalist countries are
moving in the direction of regimentation and that the ideology of
servility is rapidly gaining ground. The process has, of course, been
greatly accelerated by the war. . . . The absurdity of the pretences
of the advocates of a 'planned society' should be noted here. . . .
There is no one who is competent to make provision for all
departments and aspects of social life. . . . The expectation of such
benefits [as the Atlantic Charter promised] is of course delusive;
there is no system which can abolish insecurity and guarantee
sufficiency. But, by the time that is realized, it will not be
possible to have back for the asking the rights that have been
surrendered in the name of solidarity.

Hayek's main ideas, stated in Anderson's more moderate form, were not
unfamiliar in Britain, which is why his book was greeted there "along
party lines." Labour mp Barbara Wootton wrote a courteous rebuttal
(Freedom Under Planning) and LSE Fabian Herman Finer wrote one so
discourteous (Road to Reaction) that Hayek threatened libel action.
Churchill read the book during the 1945 election campaign and
incautiously told electors that Labour would "bring in a Gestapo",
which helped lose him the election. Chastened, he later told Hayek,
"You are absolutely right, but that will never happen in Britain."

The book's reception in the United States was another matter, a
tumult of acclaim and vituperation. An initial print run of 2,000 was
followed the next week by 5,000 more, and then the million-odd
condensations by Max Eastman. The New Republic said chambers of
commerce were placing bulk orders to inflate demand. There were think
pieces in the New York Times and Fortune, two contradictory reviews
in one issue of the American Economic Review, an angry radio debate
between Hayek and socialist academics, followed by a lecture tour to
overflow audiences across the country that lasted three months. Hayek
had hit the New Deal intellectuals on a raw nerve. Those of them
ensconced in Washington to run the war economy hoped to stay there
when capitalism, which had lurched from the Great Crash to war, fell
into the expected hole of postwar deflation, which they were sure it
would do unless it were planned into full employment. Hayek's assault
on their ideal of rational social reconstruction, and the new heart
it gave their opponents, caused panic. Milton Friedman said that,
thanks to Hayek, libertarianism and capitalism had become
intellectually defensible again. H. Stuart Hughes agreed in 1954:
"The publication ten years ago of F.A. Hayek's The Road to Serfdom
was a major event in the intellectual history of the United States...
it marked the beginning of that slow reorientation of
sentiment--both in academic circles and among the general
public--toward a more positive evaluation of the capitalist system
which has marked the past decade." Hayek assisted this reevaluation
of capitalism by rejecting laisser faire in the very first pages of
The Road to Serfdom, and saying that he favored government
intervention for monetary, environmental, and anti-trust policies.

Translations into European languages began at once, but the German
version (by Eva Röpke, Wilhelm's wife) published in Switzerland in
1945 met a curious fate. The four occupying powers in Germany had a
deal to ban books hostile to any one of them. Hayek's book hardly
mentioned the Soviet Union, taking Nazi Germany as the archetypal
planned economy, but the Russians saw it was directed at them, and
insisted on the ban. Typescript versions (Samizdat avant la lettre)
were soon circulating. In contrast, pamphlets about Beveridge's
projected welfare state not only circulated freely but had been
dropped from the air onto German cities during hostilities. In
Hitler's Berlin bunker were found minutes from officials on how to
respond. Hayek would have been gratified to learn that they
recommended saying that the Allies were just copying the Nazis'
social security system. (Beveridge would have preferred another
comparison. Ever tactless, he said to a journalist when his plan
was adopted, "Now we're half way to Moscow"; a horrified British
government made him recant.)

Actually, for all its polemical success, Hayek's book seems to have
had little influence on economic policy, anywhere, for a generation.
The socialists took over in Britain in 1945 and proceeded to do most
of the things Hayek said were fatal to democracy. When Churchill
returned to office, he remained loyal to the welfare liberalism he
had inaugurated in 1909 and 1911, and did little to dismantle
Labour's welfare state; the expression, welfare "from the cradle to
the grave" is Churchill's coinage, by the way. For thirty years after
Hayek's book, British governments followed policies nicknamed
Butskellism (from Tory Rab Butler and Labour's Hugh Gaitskell) and
later MacWilsonism--policies that reflected the quest for The Middle
Way that had been the title of a book Macmillan wrote in 1938. That
included flirting with central economic planning through such bodies
as the Industrial Reorganization Corporation and the National
Economic Development Councils (the Neddies).

In the United States, the 1946 full employment legislation
inaugurated a generation of Keynesian policies, accompanied by
generalized government intervention in favor of farm price supports,
minimum wages, pro-union discrimination, rent controls, protective
tariffs, and middle class welfare in various forms. Planning was so
little discredited that Hubert Humphrey and economist Wassily
Leontief campaigned in 1974-76 for a national economic planning
board. In continental Europe, France's "indicative planning" and even
many features of West Germany's social market economy were anathema
to Hayek.

Ignored by policymakers, Hayek took the long way round and rallied
several score apostles of the free market to a movement he founded,
the Mont Pelerin Society, named for its first meeting place, near
Vevey in Switzerland, in 1947. Hayek denied it was a propaganda
organization and indeed attendance at its annual gatherings did not
mean accepting the prophecies of The Road to Serfdom. Milton
Friedman, a member who is popularly linked with Hayek, was, as an
economic theorist, poles apart from him. Other members implemented
economic reforms in Europe (Ludwig Erhard in West Germany, Jacques
Rueff in France, Luigi Einaudi in Italy, and Reinhard Kamitz in
Austria), but not by following Hayek's prescriptions. Those ideas
moved nearer to practice with the foundation, sponsored by Hayek, of
the Institute of Economic Affairs in London in 1957, followed by
similar free-market think tanks from America to Australia. The
accession to office of Margaret Thatcher in 1979 and Ronald Reagan in
1981 marked the triumph of two avowed readers and admirers of The
Road to Serfdom.

By then "serfdom" and the "servile state" had been renamed, less
theatrically and more clinically, "dependency culture", and some
attempts were now made to curb it. This was described by opponents as
gutting the welfare state, but nothing of the sort happened in the
United States or the United Kingdom. Reagan reduced the
appropriations desired by Congress, but social outlays and spending
on the poor continued to grow under his administration. The British
welfare budget, in constant expansion from 1945 to 1976, leveled out
at a steady two-thirds of government spending, or one quarter of GNP.
Elsewhere, welfare flourished; in France, for example, the minimum
wage has continued to increase as a proportion of the median wage,
and 75 percent of French families now get family allowances.
Worldwide, recent adjustments made to social budgets have been
responses, not to Hayekian or any other ideology, but to cruel
necessity: the growing number of the elderly, the proliferation of
one-parent families, increased consumption of medical services and,
in most advanced economies, high levels of unemployment have combined
to make the burden intolerable.

The next surge of interest in The Road to Serfdom came with the
crumbling of the Soviet empire. The economists in Poland and Russia
who emerged as the first wave of reformers had long before secretly
made Friedrich Hayek and Milton Friedman their patron saints. All the
former satellites soon followed: "Whereas in the West it may still be
fashionable to decry The Road to Serfdom as a 'mere political
pamphlet', it is widely read in newly democratized countries like
Czechoslovakia and Hungary", said Willem Keizer in 1994. That being
so, these converts to capitalism would soon discover that Hayek
demonstrated not only the impossibility of central planning but also
the futility of other centrally organized quick fixes such as instant
capitalism, the "leap into the market", "capitalism by design", "free
markets in 500 days", and other disasters visited upon these
disorganized societies by zealots. The professor of international
economics at a Budapest academy says that in Hungary at least it is
now understood that Hayek showed that capitalism must evolve slowly,
organically; it cannot be bestowed by social engineers on societies
suffering institutional void, insecure and uncertain property rights,
and coordination failures.

Having reviewed the reception of The Road to Serfdom first at the
popular level and then by the policymakers, it is time to consider
what Hayek's peers, the economists and political scientists, made of
it. Apart from some rearguard skirmishes by retreating socialist
economists, there was agreement that Hayek had won his main point,
the one that shook many left-leaning intellectuals from their
dogmatism: what he called the synoptic illusion. There is no one
point where all the information that can bear on an economy (and
should bear, in a free society) can be concentrated, no one man's
head, no committee, no planning board. Such information is hopelessly
dispersed, and it is changing faster than it could ever be collected.
Some of it is not even articulate, but it nevertheless becomes
effective in the bids and offers of market participants. The market
is thus the only place where all relevant information becomes
available, revealing in price mismatches and anomalies opportunities
for entrepreneurs. Once that is accepted, the possibility of central
direction or control vanishes, and with it Karl Marx's vision of
society as "the product of freely associated men . . . consciously
regulated by them in accordance with a settled plan." Any attempt at
such a thing would be either (Hayek varied on this) bound to fail or
enormously inefficient.

Essay Types: Book Review