The Pathos of Politics (66) Friedrich Hayek


The growth of interventionist government and the welfare state was not without disdain from reactionary and conservative corners. Its evolution was fought against by those who kindled faith in capitalism, despite severe deficiencies which had become obvious to all but those religiously blinded. Frederick Hayek was one of them. (The odd couple of Gunnar Myrdal and Frederick Hayek shared the 1974 Nobel Prize in Economics.)

Friedrich Hayek

Economic control is not merely control of a sector of human life which can be separated from the rest, it is the control of the means for all our ends. ~ Friedrich Hayek

Austrian-born English economist Friedrich Hayek (1899–1992) led a charmed life: a comfortable childhood in Vienna, maturing into an academic economist invited to England, where he made his home. His ivory-tower existence allowed abstract ideas to trump the harsh economic realities of industrialism which Hayek studiously ignored when they conflicted with his faith.

“Freedom” and “liberty” are now words so worn with use and abuse that one must hesitate to employ them to express the ideals for which they stood. ~ Friedrich Hayek

Hayek considered socialism to be slavery imposed by autocracy.

A claim for equality of material position can be met only by a government with totalitarian powers. Although we had been warned that socialism means slavery, we have steadily moved in the direction of socialism. ~ Friedrich Hayek

Hayek attacked governmental social services as socialistic, and therefore tyrannical.

The reason why many of the new welfare activities of government are a threat to freedom is that, though they are presented as mere service activities, they really constitute an exercise of the coercive powers of government and rest on its claiming exclusive rights in certain fields. ~ Friedrich Hayek

Hayek’s perspective was social Darwinism, in that societal order naturally evolved; a process that Hayek believed was beyond conscious planning (but not beyond tinkering with).

Though freedom is not a state of nature but an artifact of civilization, it did not arise from design. The institutions of freedom, like everything freedom has created, were not established because people foresaw the benefits they would bring. But, once its advantages were recognized, men began to perfect and extend the reign of freedom. ~ Friedrich Hayek

Like Spencer, Hayek saw competition as a necessary societal threshing. Hayek was against social engineering, which is what he viewed socialism to be.

By following the spontaneously generated moral traditions underlying the competitive market order (traditions which do not satisfy the canons or norms of rationality embraced by most socialists), we generate and garner greater knowledge and wealth than could ever be obtained or utilized in a centrally-directed economy whose adherents claim to proceed strictly in accordance with ‘reason’. Thus, socialist aims and programmes are factually impossible to achieve or execute; and they also happen, into the bargain as it were, to be logically impossible. ~ Friedrich Hayek

Typical of capitalist economists who ignored economic history, Hayek worshipped the fountain of growth which he imagined flowed from ‘free’ enterprise.

Wherever the barriers to the free exercise of human ingenuity were removed man became rapidly able to satisfy ever-widening ranges of desire. And while the rising standard soon led to the discovery of very dark spots in society, spots which men were no longer willing to tolerate, there was probably no class that did not substantially benefit from the general advance. We cannot do justice to this astonishing growth if we measure it by our present standards. ~ Friedrich Hayek

Hayek was not against progressive taxation so much as to see through its ruse: that the masses pay more taxes than they would be willing to otherwise.

The illusion that by means of progressive taxation the burden can be shifted substantially onto the shoulders of the wealthy has been the chief reason why taxation has increased as fast as it has done and that, under the influence of this illusion, the masses have come to accept a much heavier load than they would have done otherwise. ~ Friedrich Hayek

Hayek was a monetarist economist who thought government’s appropriate role in supporting capitalism was to stabilize the value of the currency, despite misgivings that government was actually up to the job. The evil to avoid was debauching the currency through inflation.

With government in control of monetary policy, the chief threat in this field has become inflation. Governments everywhere and at all times have been the chief cause of the depreciation of the currency. ~ Friedrich Hayek

Hayek attacked the welfare state as a promoter of inflation. Never mind that this bugaboo might come in the course of helping working people and the elderly. For Hayek, compassion was no excuse for monetary debauchery.

One of the chief features of the welfare state which we have considered tends to encourage inflation. We have seen how wage pressures from the labor unions, combined with the current full-employment policies, work in this manner and how the heavy financial burden which governments are assuming through old age pensions are likely to lead them to repeated attempts to lighten them by reducing the value of money. ~ Friedrich Hayek

To remedy this inclination, Hayek advocated eliminating government discretion in determining monetary policy.

On balance, some mechanical rule which aims at what is desirable in the long run and ties the hands of authority in its short-term decisions is likely to produce a better monetary policy than principles which give to the authorities more power and discretion and thereby make them more subject to both political pressure and their own inclination to overestimate the urgency of the circumstances of the moment. ~ Friedrich Hayek

Hayek gave no algorithm for his hypothetical “mechanical rule,” nor did he address the internal inconsistency of acknowledging the need for government to insulate the currency from market-spawned financial panics yet curtail the government’s ability to do so. Subsequent research into setting interest rates showed that following “some mechanical rule” as Hayek suggested would not be well advised. The conservative magazine The Economist observed:

If the public – or financial markets – cannot predict interest rates, it is because setting them is difficult. There is no overcoming that. Until the day the economy is fully understood, human judgment has a crucial role to play. Algorithms are replacing many jobs, but they should not supplant central bankers.