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Looking at one of the most popular books in the conservative canon: The Road to Serfdom

7 July 2010

Summary:    The Road to Serfdom has rocketed to become a best-seller.  Hayek’s warning that government economic planning leads to totalitarian-like societies.  His theories are certainly politically useful to the Right.  But are they accurate?

Perhaps the worst effect of WWII on America was to crack our collective reasoning machinery.   The heady experience of wielding great power against absolute evil crashed our sense of proportion, pushing us into a perpetual Goodwin Law violations.  It’s always 1942.  Every enemy is an existential threat and absolute evil.  We’ve not only lost our ability to see the world in color; we’ve lost our ability to distinguish greys.

This ailment afflicts both Left and Right when looking at domestic and foreign affairs.  Domestically, Bush and Obama are both evil to many of their opponents (oddly, both are often described as fascists).  That’s useful to our political elites.   It generates emotional intensity among their followers, with two good effects: builds support and masks the deep similarity between policies of the Republican and Democratic parties.

This post looks at the Right, seen in its current fascination with The Road to Serfdom by Friedrich Hayek (1944) — which has driven it to the best-sellers lists.   The first and greatest of the (exaggeration for emphasis) do this and you’ll become Nazis!  Should we worry about his warnings?

Contents

  1. Summary
  2. Economic planning by government leads to bad things
  3. From the Forward to his 1956 edition
  4. From the Forward to his 1976 edition
  5. Rebuttals to Hayek
  6. For more information

Summary

The post-WWII era provided two great sociological experiments. 

  • The phenomenal economic success of the Asian Tigers — esp vs. the more statist nations of Latin America — proved the superiority of government-regulated but essentially free-market systems.
  • The success of the Scandinavian nations — along with the US and UK — have disproven the fears of Hayek and others.  Mixed-system economies, with their high degree of government intervention in the economic sphere, do not tend to slide down the slope to totalitarianism.  At least over the few generation-long horizons which Hayek and others discussed.

Hayek’s work provides a salutary warning, but the passage of 66 years have disproven his specific forecasts.  Western governments have grown in breadth and reach since 1944, esp in Scandinavia.  Yet none have succumbed to totalitarianism, or even moved visibly in that direction (Hayek gave himself an out by saying this was “not inevitable”).

In fact America has moved in the reverse direction.  When Hayek wrote a large segment of America’s people lived under goverment-sponsored oppression.  Beatings of Black veterans in Mississippi and South Carolina (e.g. Isaac Woodard) sparked President Truman’s historic executive orders taking the first step to rolling back the South’s successful counter-revolution after Reconstruction.  This continued at a high but decreasing level though the 1960’s (e.g., the 1965 murder of  Viola Liuzzo).

How many conservatives reading his book see these contradictions with history?  My guess:  very few.   It’s such a useful theory, even if false (creationism serves a similar role)!  Now, on to Hayek’s Road to Serfdom.

(2)  Economic planning by government leads to bad things

Hayek opens with a violation of Goodwin’s Law:

The very magnitude of the outrages committed by the National Socialists has strengthened the assurance that a totalitarian system cannot happen here. But let us remember that 15 years ago the possibility of such a thing happening in Germany would have appeared just as fantastic not only to nine-tenths of the Germans themselves, but also to the most hostile foreign observer.

There are many features which were then regarded as ‘typically German’ which are now equally familiar in America and England, and many symptoms that point to a further development in the same direction: the increasing veneration for the state, the fatalistic acceptance of ‘inevitable trends’, the enthusiasm for ‘organization’ of everything (we now call it ‘planning’).

The character of the danger is, if possible, even less understood here than it was in Germany. The supreme tragedy is still not seen that in Germany it was largely people of good will who, by their socialist policies, prepared the way for the forces which stand for everything they detest. Few recognize that the rise of fascism and Marxism was not a reaction against the socialist trends of the preceding period but a necessary outcome of those tendencies. Yet it is significant that many of the leaders of these movements, from Mussolini down (and including Laval and Quisling) began as socialists and ended as fascists or Nazis.

In the democracies at present, many who sincerely hate all of Nazism’s manifestations are working for ideals whose realization would lead straight to the abhorred tyranny. Most of the people whose views influence developments are in some measure socialists. They believe that our economic life should be ‘consciously directed’ that we should substitute ‘economic planning’ for the competitive system. Yet is there a greater tragedy imaginable than that, in our endeavour consciously to shape our future in accordance with high ideals, we should in fact unwittingly produce the very opposite of what we have been striving for?

… No sensible person should have doubted that the economic principles of the nineteenth century were only a beginning – that there were immense possibilities of advancement on the lines on which we had moved. But according to the views now dominant, the question is no longer how we can make the best use of the spontaneous forces found in a free society. We have in effect undertaken to dispense with these forces and to replace them by collective and ‘conscious’ direction.

It is significant that this abandonment of liberalism, whether expressed as socialism in its more radical form or merely as ‘organization’ or ‘planning’, was perfected in Germany. During the last quarter of the nineteenth century and the first quarter of the twentieth, Germany moved far ahead in both the theory and the practice of socialism, so that even today Russian discussion largely carries on where the Germans left off. The Germans, long before the Nazis, were attacking liberalism and democracy, capitalism, and individualism.

By the time Hitler came to power, liberalism was dead in Germany. And it was socialism that had killed it. To many who have watched the transition from socialism to fascism at close quarters the connection between the two systems has become increasingly obvious, but in the democracies the majority of people still believe that socialism and freedom can be combined. They do not realize that democratic socialism, the great utopia of the last few generations, is not only unachievable, but that to strive for it produces something utterly different – the very destruction of freedom itself. As has been aptly said: ‘What has always made the state a hell on earth has been precisely that man has tried to make it his heaven.’

It is disquieting to see in England and the United States today the same drawing together of forces and nearly the same contempt of all that is liberal in the old sense.

Although he said otherwise later, the 250+ references to Nazis and totalitarianism in his book imply a slippery slope from government economic planning to evil.

(3)  From the Forward to his 1956 edition

Twelve years latter Hayek remained confident in his forecasts.

The century of socialism in this  sense probably came to an end around 1948. Many of its illusions have been  discarded even by its leaders, and elsewhere as well as in the United States the  very name has lost much of its attraction.

… Yet though hot socialism is probably a thing of the past, some of its conceptions   have penetrated far too deeply into the whole structure of current thought  to justify complacency. If few people in the Western world now want to remake  society from the bottom according to some ideal blueprint, a great many still  believe in measures which, though not designed completely to remodel the  economy, in their aggregate effect may well unintentionally produce this result. 

And, even more than at the time when I wrote this book, the advocacy of policies which in the long run cannot be reconciled with the preservation of a free  society is no longer a party matter. That hodgepodge of ill-assembled and often  inconsistent ideals which under the name of the Welfare State has largely replaced socialism as the goal of the reformers needs very careful sorting out if its results are not to be very similar to those of full-fledged socialism.

What I have argued in this book, and what the British experience convinces me even more to be true, is that the unforeseen but inevitable consequences of socialist planning create a state of affairs in which, if the policy is to be pursued, totalitarian forces will get the upper hand. I explicitly stress that “socialism can be put into practice only by methods of which most socialists disapprove” and even add that in this “the old socialist parties were inhibited by their democratic ideals” and that “they did not possess the ruthlessness required for the performance of their chosen task.”

 I am afraid the impression one gained under the Labour government was that these inhibitions were if anything weaker among the British socialists than they had been among their German fellow-socialists twenty-five years earlier. Certainly the German Social Democrats, in the comparable period of the 1920s, under equally or more difficult economic conditions, never approached as closely to totalitarian planning as the British Labour government has done.

(3)  From the Preface to his 1976 Edition

Hayek remained adamant, despite the passage of time with no signs of creeping totalitarianism in the western nations.  Or even many of the “very unpleasant consequences” of which he warned.  However, he tweaks the meaning of his definitions.

… The reader will probably ask whether this means that I am still prepared to defend all the main conclusions of this book, and the answer to this is on the whole affirmative. The most important qualification I must add is that during the interval of time terminology has changed and for this reason what I say in the book may be misunderstood. At the time I wrote, socialism meant unambiguously the nationalization of the means of production and the central economic planning which this made possible and necessary.

In this sense Sweden, for instance, is today very much less socialistically organized than Great Britain or Austria, though Sweden is commonly regarded as much more socialistic. This is due to the fact that socialism has come to mean chiefly the extensive redistribution of incomes through taxation and the institutions of the welfare state. In the latter kind of socialism the effects I discuss in this book are brought about more slowly, indirectly, and imperfectly. I believe that the ultimate outcome tends to be very much the same, although the process by which it is brought about is not quite the same as that described in this book.

It has frequently been alleged that I have contended that any movement in the direction of socialism is bound to lead to totalitarianism. Even though this danger exists, this is not what the book says. What it contains is a warning that unless we mend the principles of our policy, some very unpleasant consequences will follow which most of those who advocate these policies do not want.

(4)  Rebuttals to Hayek

Columbia University Professor Jeffrey D. Sachs has written some incisive rebuttals to Hayek.

  1. The Social Welfare State, beyond Ideology“, Scientific American, November 2006 — “Are higher taxes and strong social ‘safety nets’ antagonistic to a prosperous market economy? The evidence is now in.”  A summary for a general audience of the following paper.
  2. Revisiting the Nordic Model: Evidence on Recent Macroeconomic Performance“, 15 October 2006

Excerpt from this paper:

The Hayek-Friedman hypothesis has been disproved by experience. All of the Nordic countries remain vibrant democracies, and all score very well on every widely known indicator of governance. As shown in Table 6, the countries tend to be less corrupt on average (as scored by the Transparency International corruption perceptions index) than the other countries. The English-speaking countries rank second, and the European continental countries rank third.

The Nordic countries similarly score better than the other groups on various measures of public institutions in the World Economic Forum’s Global Competitiveness Report. On average, the Nordic countries tend to have the best governance scores or ranks, followed by the English-speaking countries, and then the continental countries, though the differences in means are not significant. There is no evidence that higher levels of taxation as a share of GDP or higher social outlays as a share of GDP are conducive to higher corruption or weaker property rights. 

(5)  Posts about economics, in theory and practice

  1. The greatness of John Maynard Keynes, our only guide in this crisis, 4 December 2008
  2. About the state of economic science, and advice from a famous economist, 8 December 2008
  3. “A depression is for capitalism like a good, cold douche.”, 17 December 2008
  4. Words of wisdom about the global recession, from the greatest economist of our era, 29 December 2008
  5. A very important article by an expert, discussing the necessary next step to solve the financial crisis, 17 February 2009
  6. Economic theory as a guiding light for government action in this crisis, 10 March 2009
  7. A look at Faux Economics, increasingly popular but bizarrely wrong, 15 June 2010
  8. Keynes comments on our new-found love of austerity, 21 June 2010
  9. Why have mainstream economists lost the argument about the need for more economic stimulus?, 27 June 2010
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2 Comments leave one →
  1. Prof Delong: There are four Hayeks permalink
    24 December 2011 2:01 am

    Daniel Kuehn: Maynard & Fred & Gus & Ralph on the History of Macroeconomics“, Brad Delong (Prof Economics, Berkeley, 15 December 2011 — Excerpt:

    On Hayek — in my view, there are four Hayeks, one good, and three of varying degrees of badness:

    1. The good Hayek of the price system as a discovery and information transmission mechanism, of the importance of entrepreneurship, and of private property and the rechstaat as guarantees of individual liberty.

    2. The bad Hayek who prefers Augusto Pinochet to Helmut Schmidt.

    3. The worse Hayek who had his head completely up his posterior on economic policy during the Great Depression.

    4. The worst-of-all Hayek. The one who when Keynes praises the Road to Serfdom and pronounces himself in “not just agreement, but deeply moved agreement with it” responds “no you are not!”

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  2. Warsh: Ruizismus among the Austrians permalink
    24 December 2011 3:11 am

    Ruizismus among the Austrians“, David Warsh, Economics Principals (an independent weekly), 4 December 2011 — Opening:

    Everyone in Boston of a certain age knows the story of Rosie Ruiz, the marathoner who crossed the Boston finish line in 1980 at 2:31.56, flabby thighs and all, having barely broken a sweat. Despite mounting skepticism, she basked in the glory of having run the third-fastest female marathon in history – for a few days, that is, until a couple of students remembered seeing her jump out of the crowd half a mile from the finish.

    Something of the sort has been going on recently with the shade of Friedrich von Hayek. The Austrian economist, who died in 1992 just short of what would have been his ninety-third birthday, never made false claims for himself – far from it: he knew all too well the loneliness of the long distance runner. And scrupulous work as editor by the late W.W. Bartley, interpreter Bruce Caldwell, and biographer Alan Ebenstein, have made it possible to see the man clear.

    But the claims conservatives are making about the role he played as an economist are beginning to smack of Ruizismus. That is, they have jumped a caricature out of the bushes late in the day and claim that their guy ran a great race.

    By now the story of the short-lived contest between Hayek and John Maynard Keynes in the early 1930s is fairly well known, thanks to highly readable books like …

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