F.A. Hayek’s The Road to Serfdom
The Underpinnings of Conservative Economic Policy as We Know It.
Why is this important?
Whether or not you support conservative economic policies (I do not), in the current world of political polarization and economic instability, parallel circumstances in the mid-20th century become increasingly relevant. In particular, the dynamic fall and rise of capitalism as a result of the Great Depression and later distrust in government may prove incredibly applicable to our times. This article explores the origins of a conservative economic policy promoted by Hayek in the aftermath of World War II (when socialism was increasingly popular) that I hope will prove interesting and enlightening for folks encountering similar dialogues today.
The interwar fall of capitalism
The Great Depression severely damaged the reputation of capitalism, leading to the popularization of more government intervention in the economy in the ensuing years. During the interwar period and going into World War II, many Americans believed the Great Depression to have been the consequence of unregulated capitalism. The New Deal, enacted by President Franklin D. Roosevelt, was a series of programs by the federal government that represented the first major interventions in the US economy in response to the devastating effects of the Depression.[1] Keynesian economic theory, which maintained that more government intervention was key to economic abundance, emerged from World War II as the dominant economic thought in the US, and Western countries trended toward larger government.[2] This strain of economic thought would be upheld in practice until the conservative revival of the 80s.[4] Economic conservatives feared that the New Deal, popularized by Keynesianism, and the wartime economy, which both required a large role for government, would persist into the postwar era. In response to these developments and rising out of the economic strain of thought we now call conservatism, Austrian-British economist Friedrich A. Hayek articulated a perspective contrary to that of Keynes.
The emergence of neoliberalism
The first movement of a new conservative economic policy, known as neoliberalism, emerged in the conservative intellectual discourse during the interwar period and came to public recognition through the publication of F. A. Hayek’s book, The Road to Serfdom, in 1944, adapted classical neoliberalism for the new world.[5] F. A. Hayek’s book The Road to Serfdom warned of the dangers of too much government leading to a totalitarian state and called for a modified laissez-faire economic policy with limited government intervention (not to be confused with the laissez-faire economic system itself, which advocates for no government intervention in the economy at all) thus giving birth to neoliberalism.[6] Although Hayek’s ideas were not put to practical use until much later in the century, earning him the Nobel Prize in economics in 1974, the book itself became an immediate bestseller in the US, where it met with diverse feedback. Keynes said in a letter to Hayek that he was, for the most part, in agreement with the book, but that he did not believe Hayek’s philosophy could be effectively applied in practice.[7] George Orwell, an outspoken supporter of democratic socialism, agreed with Hayek’s negative program but refuted his positive program, cautioning that competition would also lead to monopoly, the opposite of freedom.[8] The book received an enthusiastic response from conservatives and those who were opposed to the active government.[9] The Road to Serfdom, which undergirded conservative economic policy trends in the late twentieth century, refuted the common acceptance of a progression towards big government and advocated in its place a renovated classical liberalism (later known as neoliberalism). In creating neoliberalism, Hayek adapted classical liberalism by focusing on the means rather than just the ends of preserving individual freedom.
Modern Analyses of Hayek as a Forerunner for Modern Conservative Economics
In her article “Remaking Laissez-Faire,” Jamie Peck argues that Hayek’s book The Road to Serfdom was instrumental in getting conservative economic policy off the ground, although his ideas went unrealized for decades. Peck asserts that The Road to Serfdom advances “neoliberalism’s explicit attempt to remake laissez-faire for twentieth-century conditions remains one of its definitive features.”[11] Peck discusses the reception of the book, claiming that although it received an enthusiastic response in the US in the year of its publication, the ideas it contained were not fully realized until much later in the century as the fruition of the efforts of a group of intellectuals called the Mont Pelèrin Society (founded by F. A. Hayek and Milton Friedman). The 1970s recession, according to Peck, was an economic decline that affected much of the Western world and put an end to the post-World War II economic boom, producing an environment in which “neoliberal nostrums” were finally absorbed.[12] It was out of this economic climate that Thatcher and Reagan would both rise to power on the basis of economic advice formulated by Mont Pelerinians.[13] To put it another way, Hayek wrote his book to face the rising threat, as he saw it, of the persistence of the wartime economy and Keynesian economics, but his ideas were not practically put to use until another crisis, the 1970s recession.
David J. Peterson’s article “Economics and Morality: Friedrich von Hayek and the Common Good,” opines the importance of F. A. Hayek was a twentieth-century trailblazer for later major conservative economic movements. In the decades following the publication of his The Road to Serfdom in 1944, F. A. Hayek became even more popular among conservatives, where the free market principles he articulated throughout his writings “helped launch a revolution in economics.”[14] By the late 20th century, F. A. Hayek’s economic theories had become the orthodoxy of economics among conservative intellectuals, upon which Margaret Thatcher and Ronald Reagan built their economic policies. According to Peterson, Hayek “spurred the economic reforms instituted by … Thatcher,” and that “Reagan saluted Hayek as ‘one of two or three persons’ who had most influenced his own views.”[15] Hayek provided guidance and inspiration for other prominent intellectuals as well, including his colleague at the University of Chicago, economist Milton Friedman, who went on to win a Nobel Prize in 1976.[16] Peterson’s article shows that Hayek’s ideas were the foundations upon which economics among conservatives were molded anew and, during the decades following, articulated by intellectuals and leaders.
Hayek on the alleged perils of socialism in The Road to Serfdom
In the early chapters of The Road to Serfdom, F. A. Hayek reasoned that even though “classical liberalism” provided the soundest basis for formulating economic policy, Western countries had continued to move away from these traditional values at their own risk. He argued that competition and other practices involving a limited role for government (consistent with classical liberalism) — are the best way of organizing individual efforts.
For at least twenty-five years before the specter of totalitarianism became a real threat, we had progressively been moving away from the basic ideas on which Western civilization has been built [classical liberalism]…. Although we had been warned by some of the greatest political thinkers of the nineteenth century, by Tocqueville and Lord Acton, that socialism means slavery, we have steadily moved in the direction of socialism.[18]
Hayek thus declared that Western society was moving steadily toward socialism, which he defined as inevitably resulting in totalitarianism. Hayek’s evidence for the fact that Western countries were going down the road to slavery is seen in his claim that prominent features in Germany twenty or thirty years previously — such as increasing reverence toward the state and power, toward “bigness for bigness’ sake,” and enthusiasm for planning — were then evident in Western countries.[19] Implicit in this claim lies the underlying argument that the Western countries were on the path to something akin to Nazism.
Hayek on the alleged perils of government intervention in The Road to Serfdom
Hayek argued that the amount of government intervention in the economy inversely correlated to the amount of individual freedom. He defined socialism as the eradication of private enterprise/ownership of means of production and the entrepreneur in favor of a planned economy by a central planning body. Hayek argued that an authority directing all economic activities would accordingly control the means by which the ends of individuals’ economic activities were met, and therefore also regulate whose ends would get satisfied and whose would not.[20] In other words, central planning would place too much power in the hands of the government in deciding which needs were important and which were not.[21] Consequently, Hayek stated that “economic planning would not affect merely those of the marginal needs that we have in mind when we speak contemptuously about the merely economic. It would, in effect, mean that we as individuals should no longer be allowed to decide what we regard as marginal.”[22] In this statement, Hayek says that economic and personal freedom are interconnected: if one is affected, then the others are as well. Therefore, if the state were to limit individual freedom economically, it would also restrict individual freedom in other areas.
Hayek’s Adaption of Classical Liberalism
While the classical liberal values that Hayek so strongly endorsed tended to emphasize the ends of upholding individual freedom, Hayek trended towards a greater emphasis on the means, sanctioning diverse roles for the state in the maintenance of competition and free enterprise, in direct contrast to the laissez-faire approach. In the third chapter of his book, Hayek stated that it was important “not to confuse opposition against this kind of planning [central direction of the economy] with a dogmatic laissez-faire attitude.”[23] Rather, he argued that the classical liberal argument was based on the confidence that “where effective competition can be created, it is a better way of guiding individual efforts than any other.”[24] He went on to say that the liberal argument even emphasizes that a painstakingly thought-out legal framework is necessary, and “that neither the existing nor the past legal rules are free from grave defects.”[25] He concluded that the only thing the liberal argument did contest was allowing competition to be interfered with by overly invasive policies such as economic planning and collectivism. Hayek also did not rule out — and even supported — certain types of economic security such as: insurance against “genuinely insurable risks,” accidents, illness, and “acts of God.”[26] and “security against severe physical privation, the certainty of a given minimum of sustenance for all” in the level of wealth society had reached.[27] The fact that Hayek refutes neither many types of government intervention nor security that seems very close to welfare signifies that his proposed policies were a progressive adaptation of an otherwise conservative economic policy that was aimed at preserving individual freedom and promoting economic prosperity.
Conclusion
F.A. Hayek’s The Road to Serfdom introduced fresh discourse on economic policy, re-illuminating the importance of the classical liberal values of upholding individual freedom but re-interpreting and expanding concepts about necessary, appropriate yet limited roles of government in that process, such as protecting competition, while warning against the eventual consequences of economic planning and big government. Coming out of the Great Depression and the Second World War, the United States was moving steadily towards what Hayek termed socialism for several decades following the publication of his book The Road to Serfdom. The book gave voice and publicity to the ideas of Hayek and his fellow European intellectuals and economists who, while averse to over-active government, espoused a moderate conservative economic policy that could rise to combat big government. The “power of ideas” Bruce Caldwell emphasized in The Road to Serfdom’s introduction was perhaps the book’s greatest success, as it built a foundation of ideas leading to a form of consensus amongst conservative intellectuals and economics and ultimately to the free-market reforms instituted by Reagan and Thatcher in the 1970s.[28] The Road to Serfdom’s worth then truly lay in the ideas it articulated, which had a substantial impact on twentieth-century conservative political and economic discourse, ultimately setting the wheels in motion for later economic movements and forming the theoretical underpinnings of modern conservative economic policy.
Bibliography:
Primary Sources
Friedman, Milton. “Capitalism and Freedom (1962).” In Voices of Freedom: A Documentary History, edited by Eric Foner, 256–59. 4th ed. Vol. 2. New York, NY: NY: W.W Norton & Co., 2012.
Hayek, Friedrich A. The Road to Serfdom. Edited by Bruce Caldwell. Vol. 2. The Collected Works of F. A. Hayek. Chicago, IL: University of Chicago Press, 1944.
Orwell, George. “Grounds for Dismay.” The Observer, April 9, 1944, 3.
O’Sullivan, John, and Friedrich Hayek, narr. F. A. Hayek Interviewed by John O’Sullivan. Produced by Michael Peacock and Eben Wilson. Directed by Cecil Petty. Films For the Humanities, 1985. Accessed 11 4, 2016. http://hayekcenter.org/?page_id=52.
“The Sharon Statement (1960).” In Voices of Freedom: A Documentary History, edited by Eric Foner, 272–74. 4th ed. Vol. 2. New York, NY: W.W Norton & Co., 2012.
Secondary Sources
Chafe, William H. The Unfinished Journey: America Since World War II. 7th ed. New York, NY: Oxford University Press, 2011.
Ebenstein, Alan O. Friedrich Hayek: A Biography. New York, NY: Palgrave, 2001.
Florence, Sutcliffe-Braithwaite. “Neo-Liberalism and Morality in the Making of Thatcherite Social Policy.” The Historical Journal 55, no. 2 (June 2012): 497–520. Accessed February 16, 2017. http://search.proquest.com/docview/1012688676?accountid=2996.
Foner, Eric. Give Me Liberty!: An American History. Brief 3rd ed. Vol. 2. New York, NY: W.W. Norton & Co., 2012.
Galeotti, Anna Elisabetta. “Individualism, Social Rules, Tradition: The Case of Friedrich A. Hayek.” Political Theory 15, no. 2 (May 1987): 163–181. Accessed February 16, 2017. http://www.jstor.org/stable/191673.
Gray, John. “The Road to Serfdom: Forty Years On.” Lecture. In The Road to Serfdom: Forty Years On, edited by Ellen Frankel Paul and John Ahrens. Lectures in Social Philosophy and Policy. Bowling Green, OH: Social Philosophy and Policy Center, 1985.
Jackson, Ben. “At the Origins of Neo-Liberalism: The Free Economy and the Strong State, 1930–1947.” The Historical Journal 53, no. 1 (March 2010): 129–151. Accessed December 9, 2016. http://search.proquest.com/docview/194939614?accountid=2996.
Peck, Jamie. “Remaking Laissez-faire.” Progress in Human Geography 32, no. 1 (February 2008): 3–43. Accessed February 16, 2017. doi:10.1177/0309132507084816.
Peterson, David J. “Economics and Morality: Friedrich von Hayek and the Common Good.” Humanitas 27, no. 1/2 (2014): 82–121. Accessed February 16, 2017. http://search.proquest.com/docview/1824179586?accountid=2996.
Zinn, Howard. A People’s History of the United States. New York, NY: Harper
Perennial, 2015.
Notes:
[1] Howard Zinn, A People’s History of the United States, (New York, NY: Harper
Perennial, 2015) 392–404.
[2] David J. Peterson, “Economics and Morality: Friedrich von Hayek and the Common
Good,” Humanitas 27, no. 1/2 (2014): 83.
[3] William H. Chafe, The Unfinished Journey: America Since World War II, 7th ed. (New York, NY: Oxford University Press, 2011), 98–99
[4] Ibid.
[5] Ben Jackson, “At the Origins of Neo-Liberalism: The Free Economy and the Strong
State, 1930–1947,” The Historical Journal 53, no. 1 (March 2010): 133, accessed December 9, 2016, http://dx.doi.org/10.1017/S0018246X09990392
[6] Jamie Peck, “Remaking Laissez-faire,” Progress in Human Geography 32, no. 1 (February 2008): 5, accessed February 16, 2017, doi:10.1177/0309132507084816.
[7] Letter from Keynes to Hayek in Friedrich A. Hayek, The Road to Serfdom, ed. Bruce Caldwell, Vol. 2, The
Collected Works of F. A. Hayek, (Chicago, IL: University of Chicago Press, 1944), 24. Keynes did not believe Hayek’s policies were applicable on a practical scale due to the fact that Hayek did not provide any guidance as to where the line should be drawn between too much and too little government, merely that it was something that should be striven toward.
[8] George Orwell, “Grounds for Dismay,” The Observer, April 9, 1944, 3.
[9] Eric Foner, Give Me Liberty!: an American History, Brief 3rd Ed., Vol. 2 (New York, NY: W.W. Norton & Co., 2012), 689.
[10] Jamie Peck, “Remaking Laissez-faire,” Progress in Human Geography 32, no. 1 (February 2008): 5, accessed February 16, 2017, doi:10.1177/0309132507084816.
[11] Ibid., 4.
[12] Ibid., 28.
[13] Ibid.
[14] David J. Peterson, “Economics and Morality: Friedrich von Hayek and the Common
Good,” Humanitas 27, no. 1/2 (2014): 83, accessed February 16, 2017, http://search.proquest.com/docview/1824179586?accountid=2996.
[15] Ibid.
[16] Ibid.
[17] Friedrich A. Hayek, The Road to Serfdom, ed. Bruce Caldwell, Vol. 2, The
Collected Works of F. A. Hayek, (Chicago, IL: University of Chicago Press, 1944), 71.
[18] Ibid., 67.
[19] Ibid., 194.
[20] Ibid., 126.
[21] Ibid., 127.
[22] Ibid., 126.
[23] Ibid., 85.
[24] Ibid., 86.
[25] Ibid.
[26] Ibid., 148.
[27] Ibid., 147.
[28] Ibid., 32.
