Hayek’s "The Road to Serfdom" - Lawrence H. White

Lawrence H white is a professor of economics at George Mason University and a distinguished senior fellow at the FA Hyack program for Advanced Study in philosophy politics and economics at the Mercatus Center he received his a B from Harvard and his MA and PhD from the University of California Los Angeles he is a contributing editor to the foundation for economic education z' magazine the freeman and he lectures at the Foundation's annual seminar in advanced austrian economics in 2008 he received the distinguished scholar award of the association for private enterprise education his research has appeared in the American Economic Review the Journal of money credit and banking and other leading economics journals dr. white is the author of numerous books including the theory of monetary institutions renewing the search for a monetary Constitution and the clash of economic ideas ladies and gentlemen dr. Lawrence white [Applause] well thank you all for being here it's an honor to speak as part of this program so most of my research has been in monetary economics but I did write a book called the clash of economic ideas which has a chapter on the road to serfdom so I guess that's how I qualified for this series Hayek's road to serfdom was such a success that it actually spawned a comic book version which is where the first slide comes from and there is a downside to having a comic version of your book made which is some of your opponents may only read the comic book version and get a very simplified version of the argument but it's actually a very subtle argument and a sophisticated argument and an important enough argument that it made national reviews list of 100 best non-fiction books of the century in at number four between Orwell and or well beat out Hayek's own constitution of Liberty which was famously the book that Margaret Thatcher slammed on the table and explained to her ministers this is what we believe I guess she said it more loudly than that but and above the Milton Friedman's capitalism and freedom but these three books Road to Serfdom constitution of Liberty and capitalism and freedom are not really economics books they're by economists but they're books in public policy or political philosophy and that's what distinguishes Road to Serfdom within the greater scope of Hayek's career it kind of marked Marx a point at which he turned from doing pure economics to thinking about broader issues and constitution of Liberty was one of the later results of that so road to serfdom published in 1944 constitutional Liberty in 1960 up to 1941 Hayek was pretty much a technical economist and he famously if you've seen the rap video you know it's famous debated with John Maynard Keynes about business cycle theory and that was an argument conducted at a very high level not meant for public consumption but for professional economists and along with Ludwig von Mises participate as you heard this afternoon participated in the socialist calculation debate where again they were talking to other economists and trying to convince them that they had a rather impoverished view of the market if they thought it could be replaced by some central bureau with a computer but both of these were economics debates not so much about the theory not so much about the practical application of the public policy but in the road to serfdom in the middle of World War two Hayek decided it was important to say something about the bigger issues facing society and wrote about the political power dynamics it's the way I put it of central planning so not just the pure economic theory of it which he had previously talked about but what happens when you actually try to apply central planning to an economy what happens in the political arena what does it imply about the kind of power the government has to concentrate and how it will end up using that power and so here he's not talking to justice fellow economists but he's talking to educated layman and policy makers and the general public it was originally written just for a British audience but it was quickly published in an American edition I'll come back to the book but let me set the stage historically of the the time in which Hayek was writing because central planning ideas socialist ideas fascist ideas socialism's of different kinds were very popular through the 1930s into the 1940s in the United States we have Franklin Roosevelt at his inaugural in 1933 and this is about the most remarkable there are many remarkable statements in the middle of this inaugural but he's describing the Great Depression and he says plenty is at our doorstep but a generous use of it languishes in the very sight of the supply so the idea was there was lots of goods being produced but somehow the market stumbled in delivering them and that's how we got the Great Depression where did he get that idea he got it from one of his brain trusters named Rexford Tugwell Rexford Tugwell is a name that I'm Rand might have invented but it was his actual name and the ideas in Roosevelt's speech came from primarily from Tugwell and some of his other colleagues at Columbia University who made up FDR's brain trust and in a article in an economics journal a year earlier Tugwell had spelled out his version of what happened in the crash the vast expansion of production during the 1920s had sort of overwhelmed markets swamped mechanisms of an artificially limited Commerce ended in a period of violent reconstruction and then he poses the question what should we do about this shall we be unready again for the flood of still cheaper goods so what he's suggesting is the market can't handle it oh no the market can't handle technological improvements that make goods cheaper government has to do it and how is government's supposed to manage the flood of cheap goods well Tugwell had two sources of inspiration for practical models of where he thought this was being done one was a Soviet Union in the 1920s he visited the Soviet Union and came back and wrote glowing reports about how scientifically things were managed there and the other was Mussolini's Italy so in his diary in 1934 he goes to Rome he's a member of Roosevelt's administration he's an undersecretary in the Department of Agriculture he goes to Italy to talk to Mussolini and this is an actual picture of the Mussolini's lobby where Tugwell was waiting and he writes in his diary the night before he goes to meet Mussolini that Mussolini's regime is doing many of the things which seemed to me necessary and he doesn't mean wearing brown shirts and rounding people up he means planning the economy from the center the cleanest neatest most efficiently operating piece of social machinery I've ever seen it makes me envious it was possible for members of the American left to say that about Mussolini and they did say it up until the time Mussolini invaded Abyssinia and after that it became not so not something you should admit that you ever admired Mussolini but that was one of the ideas that was inspiring Tugwell so tuck moment when he became a member of the Roosevelt administration he was important in writing the legislation the first New Deal legislation that came out but here's the theory that's inspiring it goods will flood into markets and overwhelm them if we don't plan to make sure we're not overwhelmed with cheap goods so how do you do that well like Mussolini did you set up Corp industrial cartels you set up partnerships between the government big business and labor unions with government the senior partner of course you get them around a table and you decide how many units should be produced because you don't want too many that would flood the market and you decide then what shares of the of the output go to each firm how many workers should be employed by each firm what wages should be paid so then you have a fight over how high the wages are the technical name for that was corporatism but it was the economic side of Italian fascism and this is an inspiration to the New Deal and Tugwell doing a lot of the writing of the legislation we get the National Industrial Recovery Act which creates the NRA the National Recovery administration and what the NRA does is group firms and labor unions and government into industrial cartels and it writes codes for different industries so here's the sticker from the construct industry and what does the code do it says how many units are going to be produced who's going to produce them what how many workers you're going to need what wages you're gonna pay and so on the Agricultural Adjustment Act or Triple A does the same thing for agriculture so here's here's one of their posters too much cotton problem now for the point of view of consumers of course this is crazy too much cotton is not a problem that makes cheap cotton that's great for consumers reduce crop now to prevent trouble later and if you just step back you can see the whole theory is crazy you can increase profits in one industry like agriculture by cutting back output and getting monopoly prices then you can get a bigger share of the pie from the rest of the economy but if every industry is cutting back output there's gonna be less pie there can't possibly be prosperity each industry is cutting back output they're not going to invest they're not going to hire more workers they're gonna hire fewer workers and fewer machines and it cannot possibly grow the economy as the expression has it these days and after a couple years of the National Recovery administration it became clear that it was not helping the economy recover it was the national anti Recovery administration and when the Supreme Court finally struck it down the Roosevelt administration said let's try something else and so we were very fortunate in the u.s. to have this division of powers where the Supreme Court stepped in and said this is an unconstitutional delegation of power I'm not sure they do that anymore but at least 1935 they did well let's go to Europe now and see what's happening in Europe and the story I'd like to tell is of The Economist vil hem rep qey who was teaching at the University of Marburg in 1933 I just saw a film yesterday about Hannah Arendt the political philosopher and in this film the story is told about a philosopher named Edmund Husserl who also taught at the same University and in the same year huh Cyril was kicked out of his job in the philosophy department for being a Jew repkin was not a Jew he was a Roman Catholic rep he lost his job at the University of Marburg because he was giving speeches denouncing the economic ideas of the Nazis saying they were crazy and so after he even after he lost his job he was still living in Marburg and still giving speeches until one day he's visited this is the picture by two SS officers who explained to him that he really should not be criticizing the economic policies of the new government right Hitler came to power in 32 but rather he should be defending and promoting the economic policies and repu rights in his memoirs that I got so angry with these guys he describes one of them very charmingly as a thorough bruiser type that was the translation anyway he gets so angry with these two SS agents that he says I angrily denounced them I told him to get out I pushed them out the door and lock the door behind them and then I paused and thought to myself yeah I really need to leave the country now don't I and he did he moved to Istanbul that was the best job he could get and from Istanbul he tried to puzzle out what had happened to the German economy I tried to understand the the fascist philosophy and he used the term fascism not just to apply to Italy but also to apply to the policy that the Nazis were carrying out in Germany and this is the way he describes it he says there really isn't any intellectual framework for this they're just making it up as they go along in fact they have a minimum of intellectual freight and they're proud of it so what do they want they're anti capitalists and this becomes an important point in the road to serfdom as I'll mention in a minute but they want to maintain the appearances of the economy as it used to be so nothing revolutionary so what you get is piecemeal interventions into the economy but with a kind of collectivist phraseology it is the Nazi of course it's short for National Socialists and they really are socialists of a vague sort and there are not Marxists but they're national who are international socialist but they're National Socialists so and they have this military aspect he says it's a military anti capitalism that corresponds to a liberalism of course in his day liberalism meant free markets rights of the people free trade so this is what he writes from Istanbul trying to figure out what are the ideas that these people have a German another German economist who managed to stay in Germany during the war Walter akin writes a piece after the war explaining how despite the lack of this central planning ideology to begin with Nazi Germany became a thoroughly centrally planned economy he says well they started out with make work programs to pay for them the government printed a lot of money prices started to rise but everybody remembered the German hyperinflation so can't let prices rise how do you stop that could stop the printing presses no but then we can't pay for our programs let's put on price controls all right this is as other people have said this is like the theory that you can keep the water from boiling you by breaking the thermometer so we impose a general price freeze but then the price system stops working to allocate goods there are shortages of everything that is underpriced so what do you do you impose rationing firms don't want to produce as much if they can't cover their costs so you give them orders you allocate raw materials to different firms so this is the process that we can describes by which step-by-step because people are trying to get around the early restrictions then they're not providing enough resources to the industries that are designated everything ends up getting controlled and of course when the nazis decide to rearm they've got the machinery in place they can just direct that the electricity the steel the rubber goes into the military factories so they even began to distribute labour supplies which is a polite way of saying they told people where they had to work so there's direct allocation of labour and of course consumer goods so they stopped the production of consumer goods in order to dedicate more output to well war material so a central planning system arises in this kind of peace wheel piecemeal sorry unplanned fashion but they never stop and say we're getting poorer why don't we go well once they did actually the first economic minister under Hitler was Helmut shocked and shocked said to Hitler this is not working it's making our economy shrink he got fired they put in place Goering who would Institute five-year plans that's he called them five-year plans okay let's switch to the United Kingdom well similar ideas in the United Kingdom but here it's a definite in part Soviet inspired idea of central economic planning and it comes from a group called the Fabian Society now the Fabian Society had been around since the 1890s and its most famous spokesmen were Beatrice and Sidney Webb and the playwright George Bernard Shaw Shaw's course a lot more famous for the plays he wrote but if you actually count the number of words he wrote as a pamphleteer for the Fabian Society at outnumbers a number of words in his plays he's a lot taller than the Webb's - I should mention that so from the 1890s they're publishing lots and lots of pamphlets the picture of the book I have here is sort of the first big collection of Fabian essays that was a best-seller made a splash but that's back around 1900 in the early 20th century so the kind of things they're proposing are minimum wages maximum work hours nationalization of railroads nationalization of the coal industry nationalization of the healthcare industry and a lot of these policies get adopted eventually but the word fabian comes from the roman general Fabius Maximus Quintus Fabius Maximus whose strategy was delay delay delay well they're not trying to delay but they're trying to they'll take whatever they can get in the legislature they don't think a revolution is necessary to bring about socialism just get what you can opportunistically and grow and grow and grow the role of the government in the economy Sydnee of Beatrice Webb go to the Soviet Union I should also mention they're very important in the labor party of the three major British parties at that time Sidney Webb in fact at one point is general secretary of the party and right the party's Constitution the webscoe to the Soviet Union in the 1930s and of course they're shown around by the Soviet government and shown all the wonderful things that are going on they see all the Potemkin villages and they come back and write a book about all the wonderful things that are going on in the Soviet Union and they call it in the first edition its Soviet Communism a new civilization question mark in the second edition 1937 they dropped the question mark they are convinced that this is a new civilization and john maynard keynes who's not in the labour party even he's in the liberal party it's the remnants of the classical liberal thinking in Great Britain and Keynes still believes in free trade but not much else from the liberal agenda and he reviews the web's book on the BBC radio and this is what he says the result is impressive they're making a whole new set of institutions work smoothly and successfully it's an enthralling work and then he goes on to say I wish we could adopt this willingness to experiment in the UK while of course retaining our old-fashioned conservatism oh he hadn't quite decided but so Keynes is on board and he's supposed to represent the he considers himself a member of the classical liberal party there's of course a third party which are the Conservatives but the Conservatives have gotten rather wet as Thatcher used to say or as Harold Macmillan's nanny put it after she read the book mr. Harold is a dangerous pink so Harold Macmillan the Conservative Party MP at this point but later the Prime Minister so he's considered an up-and-comer at this time writes a book called the middle way so he's not defending conserving the traditional institutions he's saying well we have to be somewhere halfway between that and what the Communists are proposing so let's just nationalize a few industries and let's just disable markets in a few places let's create some industrial cartels the way they did in the United States and so on and that's the middle way so the center of economic policy thinking is very favorable to central planning when the Labour Party takes power after the war during the war of course there's de facto pragmatic get the job done central planning of the war industries at least in both Great Britain and in the United States in the United States it's run by the war production board there's a similar board called the Ministry of production and then later the Ministry of War production in Great Britain and in both economies consumer goods output is restricted in order to turn factories over to war production and in order to share what the Labour Party called it was fair shares in order to allow consumers equal shares of the very restricted output of consumer goods rationing is implanted rather than let prices rise to clear the markets because of high prices there would be profiteering well you could prevent the profits by allowing firms to compete to provide the high-priced consumer goods and that would bring the prices down but we can't do that because we're directing them to produce war materials so rationing in both economies and when the Labour Party sees this they say this is great this is what we've been arguing for all along now all we have to do is convince the public the voters to retain this system when we come out of the war right so now we're getting close to the date at which Hayek publishes the road to serfdom and in 1942 the Labour Party issues a pamphlet saying this very explicitly we have to replace competition with a planned society we have to keep the wartime controls so keep price controls on consumer goods keep price controls on major industrial products keep price controls on coal on steel on electricity and then of course markets don't allocate those things so we the government will have to decide what the priorities are and you know who can be against planning any rational person believes in planning so we're going to have one big plan and as Hayek later pointed out and Road to Serfdom that the question is not who's in favor of planning and who's against it the question is who plans for whom do people get to plan for themselves or is there one plan that everybody has to go along with but so this is the climate of opinion that Hayek is facing the road to serfdom emerges out of Hayek's attempts to explain to his fellow academics and journalists and other intellectuals what's going on here what is the nature of this planning that people are talking about so the first sort of inkling of it comes in a in 1933 Hayek taught at the London School of Economics the London School of Economics was actually founded by the Fabian Society by Sidney and Beatrice Webb and their donors and the idea was to promote their ideas but they believed in free discourse so they they didn't control the hiring and the LSE hired Hayek and Lionel Robbins and some other classical liberals but the Economics Department was run by a Fabian named beverage William Beveridge and beverage had given a speech talking about how what's happened in Germany is an attempt to defend the last vestiges of free market capitalism the Nazis are defenders of free market capitalism and Hayek says known Hayek writes him a memo to explain to him just how wrong he is says no look it's socialism national socialism it's a genuine socialist movement and he says look at people have been pushing anti market policies in Germany for a long time going back to the bismarck era going back to the that was mentioned this afternoon the German historical school of economists who were all they were something there at the time they were called the Socialists of the chair they were tenured professors who were rooting for the policy of Bismarck which was not a Marxian socialism but a kind of conservative socialism where there's a bigger safety net government involvement in basic industries that sort of thing and Hayek says ok they're not Marxists so they may let small shopkeepers keep their small shops or the way he puts it is it's a not a proletarian socialism it's a middle class socialism but that doesn't change that the fact that the government is going to demand control over all the commanding heights of the economy over the banking system to decide who gets investment funds over the allocation of raw materials even over the allocation of labor has happened so this this memo to beverage evolves into chapter 12 of the road to serfdom and there's another impetus that Hayek is working from and that is he explains this in a letter to walter Lippmann walter Lippmann had written sort of the first books in a important book in a long time challenging the whole centralization and central planning socialization ideas that were so popular in his book the good Society so Hayek writes - Lippmann and says I wish I could make my progressive friends the term progressive goes back to the 19th century it's not it's been rediscovered by those who no longer want to call themselves liberals but the term itself goes back a long way I wish I could make them understand that democracy is possible only under capitalism so Hayek's trying to defend the political institutions that give ordinary citizens of vote over important things and that's important to recognize because some of his critics accused him of having anti-democratic and the collective a collectivist experiments lead inevitably to fascism of one sort or the other so the Soviet Union and Nazi Germany and fascist Italy and Japan were all doing similar sorts of things similar sorts of central planning systems one way or another they all have this in common so in the book Hayek seems to spend more time attacking the example of Germany than he does the Soviet Union but partly that was because in 1944 the Soviet Union was an ally of Great Britain in the United States in the war against Germany but clearly he had both types in mind both types of central planning so from this memo he writes up a short pamphlet called freedom in the economic system he expands it a little bit and sorry it was a magazine article first they expands it into a pamphlet adds a little bit but then sits down to write the road to serfdom and he's thinking big picture here right his he says his concern is that we're abandoning the tradition the individualist tradition right so individuals make decisions for themselves coordinated through markets all the stuff that he had written about in the socialist calculation debate about how markets work which has created Western civilization so this is not a small technical track a New York Times reviewer reads it and says this is a sad and angry little book well that's two thirds right it is sad because of what's going on around him as I was just describing and it is angry he's angry that people don't seem to realize that they're promoting a system that's going to produce horrible results the opposite of what well-meaning people intend so they need to understand that what they're calling for is not going to give them the results they wish for it's going to give them results that follow from the logic of the system they're creating not from wishful thinking but it's not a little book it's a great book as the national review later recognized and as readers recognized so as I said it was first published for a British audience but it caused some controversy there so some of Hayek's friends went especially at the University of Chicago went shopping for a American publisher and they got the University of Chicago Press to bring it out commercial houses were not interested all right the big New York publishing houses were not interested in the first year the University of Chicago Press editions sold 40,000 copies which is I can tell you it's unheard of for an academic book or a book by an academic press which is what the University of Chicago Press is The Book of the Month Club snapped it up put out a condensed version sold 600,000 copies but the thing that really put Hayek in the public eye was the Reader's Digest some of you of my age and older will remember the Reader's Digest my parents got it every month and incredibly it in 1945 The Reader's Digest had 7 million subscribers 7 million subscribers I don't think there's any magazine today that has a hundred thousand subscribers but seven million paper copies and of course they were in every dentist office and every doctor's office Hayek's Road to Serfdom is condensed and made the lead article in the April 45 issue and reprints are available a million reprints are ordered so we're talking big numbers here and the University of Chicago Press over the years keeps selling copies here's the picture of the latest edition with a picture of a young looking Hayek and the latest edition is great because it has the memo to beverage it has the earlier pamphlets and it has a lot of sort of scholarly footnotes that say here's how Hayek is implicitly attacking here if he doesn't name him so The Reader's Digest a Edition appears while Hayek is on a boat crossing the Atlantic to come give some lectures in the US about the book and the lectures have been scheduled for you know universities where he might get 50 people in the audience and he arrives in New York and he discovers that he's become a celebrity from the sensation that The Reader's Digest has caused and he talked about this in an interview once saying imagine my surprise when they told me we were going to go to an auditorium with 3,000 people and there's a bank of microphones in front of me and a sea of expectant faces so he goes across the country giving lectures to huge crowds and he had never thought of it as a book that would have any appeal to Americans because it was mostly inspired by what was happening in Britain but it in the United States there had been the the New Deal and the intellectual opponents of the New Deal had felt kind of defeated and of course Roosevelt was reelected three more times 1944 Roosevelt had died but it was the middle of what was his fourth term in office so this was a rallying point for people who wanted to restore a freer market so here's the table of contents of the book I won't try to describe what's in each chapter and I've got taken some pictures from the cartoon version so somebody is announcing a plan in the first one and in the second picture the different planners are fighting about what the plan ought to be because you have to have priorities when you have a plan and different representatives of business and labor and the government will have different interests and so you have a fight putting a whip in one guy's hand it was a little bit over the top maybe but you can see the violence inherent in the system to quote Monty Python the chapters I would particularly want to highlight our chapter on planning in the rule of law because the rule of law was a concept that had really become kind of moribund I'm happy to see that it's been rediscovered even on the left since election day right the idea of having limits on what the executive can do without any authority other than his own say-so has been rediscovered that's great the question the chapter on who whom is the idea I mentioned earlier that it's not a question of plan or no plan it's a question of a million plans each person with his own plan or her own plan coordinated through a price system that gives people signals about what other people want to buy but doesn't tell anybody what they have to do with their property versus a system in which somebody plans for everybody else and then private use of property is definitely restricted whether or not property titles are canceled so in the Soviet Union private property is just abolished except in you know your the clothes on your back whereas in Nazi Germany people are still nominally the owners of their factories but they're getting a memo from the government saying this is how much you produce this is how many people you hire and so on all the important decisions are taken out of their hands the chapter of why the worse to get on top so I'll come back to that one but the idea is that despite the me the wishes of well-meaning people when you concentrate power like this the people who are going to take the reins of power are not going to be the most scrupulous people as one reviewer put it Hayek's argument amounts to saying that if you set up a slave plantation the most tender hearted person is not going to get the job of doing the whipping alright it's not how the system is going to select for somebody who's unscrupulous and ruthless is going to rise to the top in this kind of system where one will dominates all other wills so that's the here that here's the cartoon version somebody says all these different plans that are being tried at the same time if they haven't been coordinated yet leads to chaos so there's a call for having a coherent plan but a coherent plan means having somebody who decides what that which plan that is and so the people fighting turned to a great leader who will implement the plan so this is a sort of generic description of Mussolini Hitler Stalin and Liberty suffers because when you get to the point where people are told where they have to work because if you choose your own job how is that going to be consistent with having the right number of workers in each Factory that's been made part of the plan so this poor guys saying I'm not a carpenter I'm a plumber right in a market economy you can go be a plumber even if being a carpenter pays better then the market is kind of telling you we've got more plumbers than we need relative to carpenters but you can still do it but somebody who's got the highest cost of being a plumber you might put it this way somebody who's got the best alternatives is going to leave plumbing when the wages get too low and it'll sort itself out but in a planning system it doesn't work that way it can get down to the point where you're told what job to take now they're an interesting sidelight one of the reviewers of the road to serfdom was Hayek's colleague from the LSE a fabian socialist named Evan Durban and Durban says well but we in the Labour Party understand that Liberty is a great thing and we will never get to the point where we allocate labor and because they were a Labour Party right they couldn't really say to workers we're gonna tell you where to work their membership their rank and file wouldn't go for that so he promised in his review that we in the Labour Party in 44 they were out of power but they were just about to come back in we will never tell workers where they have to work and when they came to power they didn't there's an internal battle within the Labour Party over just how far the plans are going to go but the moderates went out over a group of economists who called themselves only a little bit tongue-in-cheek the gossip lanters the gospel Anne was the Soviet system of planning and these people were calling themselves in London Goss planners as though it were you know funny anyway so maybe Hayek's book had some influence on Evan Durban and thereby on labor policy or maybe it was just that the workers who voted for them wouldn't want to be told where to work and then the last cartoon is showing a picture of how propaganda becomes important tool to motivate people when their the price system is long longer motivating people so in the socialist calculation debate there are a lot of words on this let me summarise them in the socialist calculation debate Hayek had argued on economic terms why central planning isn't going to work in the sense of delivering prosperity it's not going to coordinate activities as well as a market does and it's not going to encourage the kind of discovery of better ways to do things and that's what drives the market process as I imagine professor Kirchner said it's the entrepreneur who drives the market process discovering lower-cost ways to produce things in a centrally planned system there's no room for new plans we're trying to get a given set of plans to become coherent we can't introduce new products that just messes everything up we can't introduce new methods of production that take less input we've already allocated the input can't do that so you don't get any technical progress under this kind of system anyway it's not going to deliver the prosperity in the Road to Serfdom he's making a different point but related which is because the plan is not going to work the planners have a choice which is to give up the plan or to double their efforts at making the plan work so if you can't get the mix of consumer goods right stop doing so many consumer goods and then people have to choose from among the few things that are available to them and Hayek is warning that this centralization of power is dangerous this is in a competitive system nobody has the power to tell you what to buy nobody has the power to tell you where to work different businesses compete for your custom as a customer they compete for your labor services as a worker and so if you don't like one boss you can find another boss but in a centrally planned system how is that going to work and Hayek sees it as a real tragedy so he's not questioning the motives of people who are advocating central planning he calls that people of goodwill in Germany voted in the Nazi Party because they thought they would deliver a prosperity and so they thought the socialist policies would work but the tragedy was they got results for civil liberties being crushed that they hadn't anticipated so they got the opposite of what they wanted and so it was a warning to Great Britain let's not go down that road you can't plan everything and still have individual liberty or the way Henry Hazlitt put it is it's a warning to stop look and listen to well-intentioned and sincere planners and Social Democrats and Hayek dedicates the book to socialists of all parties and he was sincere about that he wasn't mocking them some people on the Left read that dedication and think it's mockery but he's sincere he's trying to convince them the policies you are advocating are not going to deliver the results you want so stop reconsider I mentioned the chapter on the rule of law so the rule of law is simply the concept that the political system ought to be governed by preset legal rules that are known in advance rather than by the arbitrary discretion of people in authority who can make stuff up as they go along so kind of like the Federal Reserve does but I'm slipping into my other line of thought there should be a predetermined you know set of rules that everybody has to live by people can predict what the rules are they know what's legal what's not legal so they can plan their businesses they can plan their investments their personal lives they know what to do in order not to cross the line but if you have a system of central planning that's all out the window because the planners have to be able to adjust things however they like they can't announce everything in advance and actually stick to it because the plan is typically incoherent it has unintended consequences it doesn't deliver what it promises so they're going to make continual adjustments and tinkering and they can't be pre committed to any particular course of action so central planning is inconsistent with the rule of law in that sense now Hayek is not a libertarian at this stage in his career anyway so he is providing intellectual ammunition to the opponents of the New Deal the opponents of central planning but he says he himself says I'm not calling for a return to some mythical lazy fair he criticizes what he calls a wooden insistence on quote/unquote dogmatic laissez faire so he had his critics from the free market side who read the road to serfdom and said well this isn't nearly good enough for me although it's better than of course what the planners are saying but there's here's a list of the kind of government policies that are pretty far from lays a fair or definite steps away from it that Hayek says we can accommodate these without we can accommodate them within a framework of the rule of law and so there these are not going to lead you down the road to serfdom but it's a pretty extensive list so he's not against a safety net a social insurance system and I think the important distinction here is planning involves policies that neutralize or I should say disable the price system right put quantitative controls on things don't let people choose by facing market prices and deciding how they want to allocate things it disables the price system so that doesn't do it anymore and then goods have to be allocated by decree but none of these policies does that none of these disables the price system so he's kind of describing the market economies you now have in Scandinavia so large safety net high taxes but if you look at business policies they're actually pretty business friendly it's easier to establish a business they score pretty high on the economic freedom indexes actually very free trade economies but yeah high taxes in a big social safety net and Hayek has a kind of pragmatic reason for this which is if you make it too austere nobody's gonna vote for it Gary Johnson are you listening no I mean I wish people would vote for it but Hayek's view is if you tell people that no safety net they're not going to vote for it most men will bear the risks at freedom entails only if the risks are not prohibitively great so there has to be some reassurance to people that they won't be left destitute that's his view now some readers of the book especially on charitable readers of the book have accused Hayek of believing that once you take the first step away from lazy fare you inevitably end up with full-blown communism that's not what he says he himself advocate as I just showed some steps away from laissez-faire and he didn't think those would snowball it is a kind of slippery slope argument and it Rives parts of it derived from Mises argument about the logic of intervention ISM and Mises example was suppose you think that it would be nice to make milk more available to poor children it's a nice goal but then as a means for that you choose let's put a price control on milk so it'll be less expensive well it's not actually going to make milk more available to poor children it's going to cause a shortage of milk less milk is going to be produced at a mark at a price that too low to clear the market they're gonna be lines from milk you might have to ration milk there's gonna be less milk for everybody so if you see that and say oh there wasn't as much milk produced well that's because milk producers can't make a profit so what do we need to fix that so now we need to control the cost that the farmers have we need to put price controls on rural electricity price controls on what are the inputs hey cows I you're getting in it's a little technical for me but all the inputs into farming we need to control their prices oh but now we have shortages of those so we need to control all the inputs into the production of those and then it's snowballs so that's Mises argument about the logic of intervention ISM and Hayek pretty much picks that up the trouble with partial planning is that it forces us to further steps but here it's conditional if it's not inevitable if the remaining free forces are not to upset our plans so at any point the planners can say oh it's not turning out how we expected let's go back the way shock did but shock didn't keep his job so having taken the steps it's easier to go forward not admit your mistakes but try to double the efforts than it is to go back if you're a politician but if you once you get to comprehensive central planning then everything else sort of falls by the wayside free choice and as I said earlier the least scruple this kind of people rise to the top of the system so personal liberty is very much something that the rulers put to the side it's not their concern they're trying to get the plan to work famous economist named Paul Samuelson wrote the best-selling book in economics entitled economics in fact I was talking about it with my dinner partner giant Samuelson took up Hayek's thesis in his principles text which is kind of nice publicity except that Samuelson made a complete hash of it so this diagram is from his 1964 paper that preceded his actually putting it in the textbook but it's the same diagram basically so he interprets the Road to Serfdom as Great Britain went from a period of high political freedom and high economic freedom those are the two axes and is plunging towards serfdom which is low political freedom and low economic freedom but look where he's got fascism according to Samuelson fascism is a system of high economic freedom what does he think a fascist economic policy is he seems to think like Beverage did that it's some kind of lays a fair policy it's just completely wrong fascism belongs where the serfdom box is fascism is a kind of serfdom and then Samuelson provides some empirical evidence in the second diagram where he counts say Norway 1950 as a country with very low economic freedom because it's got high taxes and a large social safety net but that's not what Hayek's talking about he's talking about economic freedom in the way that impinges on the choices people are able to make with their own property rule of law price system and so on at one point he put on the second diagram he put Germany 1938 where he's got the fascism box on the left-hand diagram so completely fanciful reading of what Hayek's message was all right so according to Samuel Center the trend goes the other way there's a trade-off between economic and political freedom it's not that less of one means less of the other so that's the kind of abuse Hayek's thesis suffered at the hands of unsympathetic interpreters let me wrap up with this into interpretation do I want to call it this response to Hayek and this so this is from John Maynard Keynes who I quoted earlier saying great things about the web's book about the Soviet Union Keynes is on a boat in 1944 heading across the Atlantic he's going to Bretton Woods where he's going to help design the world's monetary system along with the American Treasury agent Harry Dexter white no relation so they're gonna plan and out of the Bretton Woods conference of course comes the International Monetary Fund in the World Bank so Keynes is on a meeting of top level economic planners to plan the world's monetary system and he writes a letter from the boat to Hayek saying it's a grand book I find myself in agreement with virtually the whole of it not only an agreement but with the wood in deeply moved agreement and this part of kaiza statement is often quoted as though Hayek spoke was so persuasive it even persuaded Keynes yeah you got to keep reading and you got to wait for the but but what we want is not no planning or even less planning we almost certainly want more but it's not going to be the danger that you Hayek think because we're going to staff the planning bureaus with good people with experts with Keynes's buddies from Cambridge right if people carrying it out or rightly orientated in their own minds and hearts to your moral position so as long as we have classical liberals doing the planning everything will turn out great it's almost as though canes skip the chapter on why the worst get on top okay I'd better stop there and take questions thanks very much [Applause] we now have time for a few questions please raise your hand at the microphone will be brought to you how do you think the chapter on people turning to quote great leaders and how the worst get on top applies to the modern political environment in the United States let me skip to my last slide whoops my last slide was Venezuela so in the United States this is a question about the election I would say neither party neither major party spoke to the concerns Hayek raised in the sense that neither party said we need to scale dramatically back on government's role in deciding the allocation of resources so Hilary was had no problem with Obamacare Trump had a little bit of a problem he was going to repeal it and replace it with something better but keep all the good parts so that seems to me like a kind of wishful thinking that you can have all the good parts without all the unintended consequences of subsidies and price controls and direct allocations so nobody's advocating central planning nobody advocates in the modern era doing away with the market so I think we've made some progress in that respect but they still talk about planning one industry at a time Healthcare is a pretty big industry without recognizing that the logic doesn't stop there it's hard to confine it to a single industry because people are going to find ways around the controls and then you need to block those and then you've got more spillover effects and so on but you are specifically about a great leader I don't know if I want to try to guess what exactly people who voted for Trump were voting for I think some were perhaps inspired by the idea that he's a guy who can get things done it wasn't promising central planning though but you know he did say these are problems that only I can fix so there were a lot of reasons people might have voted for Trump that might have been one of them the main one of course was he wasn't Hillary Clinton so we'd have to consult an exit poll and those are always reliable immense popularity of the Road to Serfdom among especially the public was there any kind of coordinated political or social response in terms of you know elections afterwards or anything that the public did in response to to reading his work so in Great Britain Winston Churchill in the 1970s 1945 elections after the war actually quoted from the Road to Serfdom and said the Labour Party wants planning and that means they're gonna have to have a Gestapo and that was regarded as a little bit rhetorically crude a little bit too harsh and his opponent Clement Attlee the next day issued a press release saying Winston Churchill is quoting the ideas of this Austrian professor Friedrich August von Hayek he used his middle name I guess to make him sound more foreign who is right now supplying ideas to the Conservative Party so at Lee was elected in a fairly large landslide actually so the the message didn't go over there if you look at the reviews in the sort of mainstream press it's almost as though there was an organized effort to attack and undermine the book but there was organized promotion of the book by Reader's Digest by General Motors made the condensed version available by the people who did the cartoon version by the foundation for economic education which was the one free-market think-tank around in those days so their efforts on both sides but the opponents side pretty much tended to caricature it like Paul Samuelson did although there have been exceptions one of the slides I get didn't get to has the sort of left-leaning economist I would say Indian economist Nobel laureate Amartya Sen on the 60th anniversary of the road to serfdom had a very nice appreciation of it and of course India went through its own period of a kind of tyranny under a democratically elected government that declared an emergency and shut down all the usual protections of civil liberty but they were in the middle of a system of five-year plans so the government had the resources the tools the levers to shut down their opponents but anyway sense says what Hayek warns us about is the psychology that accompanies a concentration of power because those who are wielding the power are gun who are aiming at certain goals giving them our top priority are gonna regard concerns about rule of law civil liberty those kind of niceties as just so much sand that's gonna gum up the works and they will tend to disregard it so we have to be on the watch for that [Applause]

Channel: Hillsdale College

Views: 136,645

Rating: 4.811903 out of 5

Keywords: hillsdale, hillsdale college, mises, wapshott, nicholas wapshott, ludwig von mises, von mises, economics, hayek, keynes, Friedrich Hayek, John Maynard Keynes, Austrian School of economics, Austrian School, CCA

Id: NStwnOh9AsU

Length: 62min 11sec (3731 seconds)

Published: Sat Jan 21 2017

Reddit Comments

[u/SteidRelic35]

Walmart is presently selling one gallon jugs of whole and 2 percent milk at .67, and is this by way of govt. subsidization or free market forces, or a combination thereof?