The Hayek Perplex

I had never heard of Friedrich Hayek until somebody on Facebook dragged his name into one of those off-the-cuff discussions of political ills that seem to be a popular online pastime. By googling him, I learned that he was a Nobel-prize-winning economist, that he was admired by England’s arch-conservative prime minister Margaret Thatcher, and that he was not fond of socialism. I am fond of socialism, at least by my own definition of that term, but I also try to remain open to learning new things. So I decided to read some Hayek. Either he would change my thinking for the better, or I would gain the pleasant feeling that I’m smarter than a Nobel-prize-winning economist. Either way, I could hardly lose. What follows are some notes I took while reading Hayek. I expect to have more notes next week, so don’t touch that dial!

Hayek’s first important book, The Road to Serfdom, was published in 1944. At the time, England and the United States were striving desperately to defeat Nazi Germany, and Hayek loses no time in equating the evils of socialism (as he imagines them — the beginning of the book is vague on that point) with the evils of the Nazi Party. Today it’s almost embarrassingly trite to equate people or ideas that you dislike with Hitler and the Nazis, but in 1944 it would have been a fresh approach, and a more urgently appealing analogy as well, whatever its (doubtful) merits.

He goes on in this vein for a number of pages, never pausing to define his terms. On page 16, however, he trots out a provocative assertion: that the scientific progress so much in evidence in Europe in the nineteenth century was caused by the rapid growth of European commerce in the seventeenth and eighteenth centuries. He provides no evidence in support of this claim, and offers no details. It’s possible that he’s right, but it’s also possible that he’s indulging in a fallacious argument that logicians call post hoc ergo propter hoc, the idea that because event B happens to follow event A in time, event A must necessarily have caused event B.

He asserts, again without evidence, that individualism sprang “from elements provided by Christianity and the philosophy of classical antiquity … and has since grown and spread into what we know as Western civilization.” He defines individualism as “the respect for the individual man qua man, that is, the recognition of his own views and tastes as supreme in his own sphere, however narrowly that may be circumscribed.” Individualism is a very nice thing, and I have no quarrel with it. To be honest, however, it’s a little difficult for me to see the flowering of individualism as owing much to Christianity, a creed and dogma that repeatedly and vociferously asserts that the individual must at every turn be subjugated, if necessary by brute force, to the will of “God” as it happens to be defined by the elders of the Church. And from what I’ve read, Plato (a leading light among the philosophers of classical antiquity) quite favored totalitarianism. Plato was no fan of individualism. On the subject of individualism, then, Hayek is more than a little shaky.

But where Hayek really gets rolling (and again, we’re still in Chapter 1) is in his bold assertion “that by the beginning of the twentieth century the workingman in the Western wold had reached a degree of material comfort, security, and personal independence which a hundred years before had seemed scarcely possible.” It is hardly credible that anyone who knew, first-hand, the conditions under which millions of men labored in factories in 1900 could have written this sentence. To the extent that factory work was even tolerable in 1900, it was due to the rise of the organized labor movement in the 1880s and 1890s, which checked some of the worst abuses perpetrated by factory owners and operators. The philosophy that was so loudly trumpeted by the factory owners during that period was precisely an unstinting praise of individualism, while the labor leaders were mostly socialists. Without the hard and dangerous work done by these socialists, the lot of the factory worker in 1900 would have been far worse. Hayek seems not to understand this.

The basic thrust of his argument seems to be along these lines: that because liberalism (by which he means, the processes of unfettered commerce undertaken by individuals who have liberty) had, by the twentieth century, produced enormous economic gains, people became impatient and wanted more. Not content to wait for the rising tide to lift all boats (a modern phrase that seems to owe a lot to Hayek’s point of view), people demanded that the government undertake economic programs that would bring prosperity more quickly. In Hayek’s view, such programs were already having (in the 1940s) and were bound to have exactly the opposite effect. Or perhaps some other undesirable effect — in the part of the book I plowed through tonight, he isn’t specific about what ills he expects inevitably to follow the adoption of government planning.

Though Hayek was Austrian, he wrote in English for a British and American audience, and he seems to have been a devout Anglophile. On page 21 we find this: “For over two hundred years English ideas had been spreading eastward. The rule of freedom which had been achieved in England seemed destined to spread throughout the world.” One is bound to wonder how the natives of the Indian subcontinent, who had been subjected to British colonial rule, might have felt about this. One is also bound to wonder what Hayek may have meant by the “rule of freedom.” The word “rule” has several meanings. A despot rules over the population of his country; could Hayek have meant that freedom ruled in that sense? Did he mean that there was some sort of rule, an abstract principle, which somehow produced freedom or was produced by freedom? If so, what might it be? Or was this simply sloppy writing? Should we strike “rule of” from that sentence?

In any event, it would probably have surprised the instigators of the French Revolution of 1789 to learn that they were partaking of English ideas that were spreading eastward. They would far more likely have said that they were inspired by the American Revolution, which overthrew British rule where it had spread westward.

For all his convoluted Germanic sentence constructions, it’s a bit difficult to take Hayek seriously as a writer. Consider this sentence: “Most English and American socialists are still [in 1944] unaware that the majority of the problems they begin to discover were thoroughly discussed by German socialists long ago.” Hayek is asserting that socialism first flowered and reached its most advanced state in Germany. Granted, Karl Marx was German, but it seems at least possible that Hayek is putting forward this thesis because he’s using fear of Hitler to promote his ideas. What he doesn’t do is tell us what problems the English and American socialists are discovering — and no matter which side of the debate you’re on, that’s crucial information. The problem that the police and private security forces will beat you up? American socialists had certainly discovered that problem in the 1880s. By 1940, Roosevelt’s New Deal policies were firmly in place, and by some measures those policies were socialist. So what problems was the Roosevelt administration discovering in 1940 that German socialists had discussed long before? I really have no idea. I’m pretty sure Hayek had something in mind when he wrote that, but whatever it may have been, it has turned to dust.

Here is a curious laundry list of virtues of Western civilization, which Hayek puts forth: “liberalism and democracy, capitalism and individualism, free trade and any form of internationalism or love of peace.” The idea that capitalists might be eager to make millions selling weapons of war seems not to have occurred to him. The idea that unrestrained corporate capitalism might, in later years, lead to a loss of individual liberty (your personal data being sold by one corporation to another, for example, or the common practice of forcing consumers to sign legally binding contracts that are sharply tilted in favor of corporate interests) would not have occurred to him either. In fact, the great wealth of England and the Netherlands, which he so cherishes, sprang not from any great tradition of freedom but from brutal colonial exploitation of people throughout Africa, Asia, and the Americas. But this fact gives Hayek not a moment’s pause.

He ends Chapter 2 of The Road to Serfdom with this assertion: “That democratic socialism, the great utopia of the last few generations, is not only unachievable, but that to strive for it produces something so utterly different that few of those who now wish it would be prepared to accept the consequences, many will not believe….” Just for kicks, after reading this I went and had a look at the official website for Sweden. Sweden has universal, single-payer health care. Old people are cared for in their homes, again at public expense. College tuition is free. Sure sounds like socialism, doesn’t it? And it should, since the dominant political party in Sweden are the Social Democrats. Better nobody should tell Friedrich Hayek about this.

In Chapter 3, Hayek insists (without using the term) that he is not opposed to anti-trust laws. He favors market competition. But in the same paragraph, he says this: “…it is essential that the entry into the different trades should be open to all on equal terms and that the law should not tolerate any attempts by individuals or groups to restrict this entry by open or concealed force.” Unless I’m misunderstanding him, this would seem to indicate that he supports “right to work” laws that prohibit unions from organizing a factory work force. This is a cruel and primitive nineteenth-century view, because individual workers have very little bargaining power compared to employers. Unions level the playing field by increasing workers’ power. That’s why rich people don’t like unions — because the unions can compete more effectively with them than individual workers could.

In articulating the importance of competition, he goes on to say, “Nor is the preservation of competition incompatible with an extensive system of social services — so long as the organization of these services is not designed in such a way as to make competition ineffective over wide fields.” Looking at the current debate over a single-payer government-run health plan, like the one in Sweden, through this lens, it would seem that Hayek would oppose the single-payer option because it would prevent competition in the health care field. This is an essential contradiction in his position, I think: It’s hard for me to see how “an extensive system of social services” could fail to undercut the competition that would otherwise occur among the private providers of those same services. The Obama administration’s attempt to have its cake and eat it too in the health care field, by forcing people to take out private insurance coverage, strikes me as the worst of both worlds.

Hayek is very open to the use of government regulation in situations where the mechanisms of free market competition fail to work: “Nor can certain harmful effects of deforestation, of some methods of farming, or of the smoke and noise of factories be confined to the owner of the property in question or to those who are willing to submit to the damage for an agreed compensation. In such instances we must find some substitute for the regulation by the price mechanism.” This is frank and admirable. Where it falls short is in its failure to recognize that the owner of the factory whose smoke is making people sick will almost inevitably have enough economic clout to distort the government process so as to avoid the kind of regulation that would be necessary, and that Hayek favors. All too often, capital is above the law. To quote an old joke, “What do you mean ‘we’, Friedrich?” Who is this “we” who must find some substitute? And how shall we do it?

His opposition to socialism is simply this: that he conceives of socialism as a movement to eliminate market competition. Though I’ve never studied the Russian Revolution, I’m pretty sure the Russian communists had exactly that end in view. And of course they made a mess of it. Hayek would say they were bound to make a mess of it, and he may be right. His error, or at least the error of his followers, lies in assuming that other sorts of economic planning amount to the same thing, or will have the same result. The reason they assume this is because they want to be free to make as much money as they possibly can, without restriction.

In any event, market competition is not something we should put on a pedestal and worship for its own sake. We must, instead, ask, what benefits do we cherish? What good results do we wish to promote in society? What exactly are we hoping to achieve? Only when we have defined those results can we ask, do the operations of the free market promote those results? Or would some other type of economic organization work better? This is a complex question, because some of the good results we might desire may conflict with others! And also because we may not be able to predict what will happen when we choose some form of economic organization — even assuming we’re allowed to choose one, which we aren’t.

Without prejudice against the beneficial results of competition, which are considerable, we should take pains to point out the evils of competition. From the manufacturer’s point of view the consumer is a resource to be manipulated. Deceptive advertising prevents the consumer from choosing wisely, thus distorting the competition. Shoddy workmanship lets the manufacturer lower costs, again distorting the process of competition. The manufacturer who lowers wages (or exports jobs to areas where wages are lower) gains an advantage in competition, at the expense of the individual worker. Competition, then, leads to lies and debasement of human values, and it leads to exploitation and cruelty. These shortcomings can’t be eliminated. They’re built into the free market system.

It’s sometimes mystifying how Hayek traces his chains of cause and effect. Consider this, from Chapter 3: “…the universal struggle against competition promises to produce in the first instance … a sort of syndicalist or ‘corporative’ organization of industry, in which competition is more or less suppressed but planning is left in the hands of the independent monopolies of the separate industries. This is the inevitable first result of a situation in which the people are united in their hostility to competition….” It strikes me as odd, to begin with, that ordinary people like you and me would ever be “united in [our] hostility to competition.” Most of the people I know like bargains, and we like having choices in the marketplace. It’s even more odd to assert that this inchoate hostility to competition (which he seems in any event to have fabricated) would or could lead to industrial monopolies. How exactly would that happen? Hayek does not tell us.

He dismisses out of hand the idea that the “cause of the growth of monopoly is the superiority of the larger firm over the small, owing to the greater efficiency of modern methods of mass production.” Local mom-and-pop grocery store owners who have been forced out of business by supermarket chains — it’s all in your imagination, folks. The fact that those chains are owned by huge corporations had, according to Hayek, nothing to do with it. Remember the locally owned bookstore? I sure do. Good luck finding one today. Ditto for the small farmer. The fact that your farm has been taken over by Monsanto is, hey, it’s just the free market in action. And then Hayek bails out. He says, “We cannot here investigate this question in detail….” He does, however, favorably quote a report by something called the Temporary National Economic Committee, in which they state, “The superior efficiency of large establishments has not been demonstrated…. It should be noted, moreover, that monopoly is frequently the product of factors other than the lower costs of greater size. It is attained through collusive agreement and promoted by public policies. When these … policies are reversed, competitive conditions can be restored.” And reversing policies is sooooo easy, isn’t it? The idea that a large corporation might have a greater ability to bribe your elected representatives so as to insure public policies favorable to corporate interests, or that market dominance once obtained through whatever means will tend to perpetuate itself, thus short-circuiting competition, seems not to have occurred to the Temporary National Economic Committee.

Granted, the damage that large corporations do to market competition is more obvious today than it would have been 70 years ago. But Hayek was not simply analyzing past economic trends; he was explicitly engaged in predicting what would happen in the future. So we can’t quite let him off the hook for his failure to understand the direction that trends were moving — the more so in that he was aware of this type of potential for market distortion, and then dismissed it.

I have three of his books here, thanks to the Link+ interlibrary loan system. (Free public libraries paid for by taxpayers … another socialist plot, I’m afraid.) I plan to keep reading, at least until my gorge rises. Stay tuned for more.

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