Economy

Rereading Hayek

Guest post by Andrew Murphy

Perhaps few names have been as polarizing intellectually in the last couple of decades than Friedrich Von Hayek (1899-1992). To the Right, he was the celebrated hero who had communism’s number and was a prophet before his time. To the Left, his name was like garlic to vampires; mention the name and you were perceived as a 19th century dinosaur. But has anybody really read and taken what Hayek wrote in his celebrated famous book The Road to Serfdom (PDF) seriously?

Hayek was actually a very complex thinker. He was both an economist and a political thinker. Winner of the 1974 Noble Prize in economics, he was considered one of the major influences on Margret Thatcher’s political beliefs. However as one re-reads The Road to Serfdom today, it becomes quite clear Hayek has been misunderstood even by his most devout followers.

Just recently Texas Governor Rick Perry invoked Hayek’s name, arguing that Obama is taking America down the road to serfdom.

“Read that book. Read this book,” he says, gesturing toward the nearby table. I see something from Weight Watchers and a Harry Potter paperback—but the governor is referring to the “The Road to Serfdom” by Frederick Hayek”

Several years ago, economist Jeffrey Sachs wrote in Scientific American that the success of the Nordic countries like Sweden, Norway and Denmark proves that Hayek was wrong. Providing a strong safety net does not lead to the slippery slope of totalitarianism.

But was that Hayek’s argument in his classic book? Actually no, Hayek was no laissez faire believer in capitalism nor an advocate of the “night watchmen” state of the classical liberals of his time such as his mentor Ludwig von Mises.

Peppered throughout The Road to Serfdom are concessions, avocations and support for social reforms that should make any libertarian cringe and reactionaries like Governor Rick Perry recoil in horror.

On page 120-121 of Road, Hayek writes (all my quotes from my copy of the University of Chicago Press 1944 edition):

Nor is there any reason why the state should not assist the individuals in providing for those common hazards of life which, because of their uncertainty, few individuals can make adequate provisions. Where, as in the case of sickness and accident, neither the desire to avoid such calamities nor the effects to overcome their consequences are as a rule weakened by the provision of assistance-where, in short, we deal with genuinely insurable risks- the case for the state’s helping to organize comprehensive system of social insurance is strong.

And just in case people may not have got the gist of what he was suggesting, Hayek reiterated his point several years later in his 1948 book, Individualism and Economic Order:

In a modern community there are a considerable number of services which are needed, such as sanitary and health measure, and which could not possibly be provided by the market for the obvious reason that no price can be charged to the beneficiaries or, rather, that it is not possible to confine the benefits to those who are willing or able to pay for them.

Based on understanding these comments, it is clear Hayek was a social liberal. While Hayek certainly was not a fan of the British National Health Service and actually singled out the NHS in his book The Constitution of Liberty as a way for the state not to organize a health system, Hayek did not disapprove of a state role in health care. Perhaps if he had lived long enough he would have supported the idea Milton Friedman advocated in 2001 which was to offer everybody government catastrophic insurance:

A more radical reform would, first, end both Medicare and Medicaid, at least for new entrants, and replace them by providing every family in the United States with catastrophic insurance – i.e., a major medical policy with a high deductible. Second, it would end tax exemption of employer-provided medical care. And third, it would remove the restrictive regulations that are now imposed on medical insurance – hard to justify with universal catastrophic insurance.

Hayek also saw nothing nefarious about minimum wage laws, anti-trust laws, a minimum income for all and government involvement in building electricity grids and providing services. He warned against his followers have a “ dogmatic laissez-faire attitude”.

In an interview in 1945 with two left-of-centre economist at the University of Chicago, Hayek elaborated on his political philosophy, reprinted in the book Hayek on Hayek.

On the Minimum wage:

A general, flat minimum wage law for all industry is permissible, but I do not think that it is a particular wise method of achieving the end.

On the Tennessee Valley Authority system (TVA):

There is a great deal of the TVA to which no economist in repute, and certainly not the laissez-faire people will object. Flood control and building of dams are reconigized functions of government.

This of course would put Hayek to the left of Ronald Reagan and Barry Goldwater in the USA. Reagan denounced TVA as big government writ large and Goldwater campaigned against it when running for President in 1964

On a minimum income for all:

I have always said that I am in favor of a minimum income for every person in the country.

Professor Hayek, meet Philippe Van Parijs.

While Hayek was a pioneer in the Austrian economic school of thought, which believed that central banking was the root core of recessions for artificially setting interest rates above what the market dictated, he was willing to at least realize the government should not just sit on its hands and do nothing when the economy goes sour:

There is the supremely important problem of combating general fluctuations of economic activity and the recurrent waves of large-scale unemployment which accompany them.

Perhaps that is one reason why John Maynard Keynes thought Hayek’s book was excellent:

In my opinion it is a grand book…. Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.

Much to the chagrin of many, the root core of Hayek’s argument in the book was not an attack on social insurance or government intervention per se, it was a polemic against collectivism and the dangers of it.

And as many European countries have demonstrated, a strong welfare state does not lead to serfdom. In that regard, Sachs is correct.

George Orwell understood Hayek’s main point:

In… Professor Hayek’s thesis there is a great deal of truth. It cannot be said too often – at any rate, it is not being said nearly often enough – that collectivism is not inherently democratic, but, on the contrary, gives to a tyrannical minority such powers as the Spanish Inquisitors never dreamed of.

Sixty-four years after his book was first published, perhaps it is time for progressives to read Hayek and for many of his adoring followers to start actually reading what he wrote, rather then projecting on to him what they wish he stood for.

Hayek’s legacy is proof positive of that old saying, never judge a master by his disciples.

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