“People are fully alive to the superstition in priests,” Lord Salisbury once remarked. “In time they will find out that professors may be just as bad.” Salisbury was a Conservative prime minister of Britain in the late nineteenth century, and his scepticism was to be sorely missed during the twentieth century, when religious superstition in the West gave way to the academic and political kind. And it is with a notable example of such folly that Alan Ebenstein introduces his new biography of F. A. Hayek, the economist and social philosopher who won the Nobel Prize in 1974. The Soviet Union, wrote Paul Samuelson of Harvard, also a Nobel Prize winner, “is proof that contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive.” “Proof” is not a word economists should use lightly, but the sentence still features in his textbook in 1989, during a decade in which the Soviet system was collapsing, and no less than 364 academic economists in Britain joined together in a letter to The Times to tell Margaret Thatcher, wrongly as it turned out, that her economic policies could not work. The moral to be learned from this example is that if you see a herd of academics advancing on you with proof of something, run for your lives. And preferably, don’t argue. The casuistry won’t be worth the candle.
A talent for undermining common academic superstitions certainly marked Hayek, who spent his life in universities but became an international celebrity. He is that unusual thing: a sceptic who became a prophet. In a world full of people convinced that handing control of many departments of human life over to experts would make a better society, Hayek revived and developed the sceptical side of eighteenth-century social theory. Drawing upon Austrian economic theory, he was able to demonstrate a rare general truth about public policy: running economies by central command is the high road to impoverishment. This sceptical truth made him the prophet of a liberal social order. But his essence was combat, and the best place to begin understanding him is with the illusion he spent his life combating.
The illusion consisted in the belief that after millennia of blundering, mankind had at last progressed to the point when it could take its destiny into its own hands. The problem in the past had been the lack of knowledge and of a unified will to use it. Such a belief assumed that “mankind” could become a single agent, a will that could adequately act for the benefit of us all. In the mild form of evolutionary socialism, democratically elected governments might set themselves up as the agents of this coming perfection, but the idea often acquired sharp teeth and abrasive claws. Revolutionary vanguards of various kinds could declare that they stood for mankind, seize power in unstable states, and embark upon murderous projects of social engineering. Lenin was the first successful exponent of this politico-religious enthusiasm, but salvation could also take racial or nationalist forms, as with Hitler and Mussolini.
In an important sense, these figures were all socialists (Mussolini, for example, learned his politics as a socialist agitator), and only the theories generated by the tactical situation of German communists facing a more successful collectivist competitor in the 1930s have locked us into thinking there is an essential difference between “left” and “right” totalitarianisms. Hayek certainly thought they were all birds of a feather, and I have no doubt he was right. But his main focus was on the economic essence of this phenomenon: central economic planning. His career as a prophet was to emerge from his early concerns as a professional economist.
The illusion is, then, that the blundering indirections of history out of which science, industry, and the wonders of modern civilization had come were about to be superseded by a new era of progressive justice guided by those who had the correct understanding of history. I am inclined to call this view “the Bolshevik illusion” in testimony to its triumph in 1917. The fact that the Bolsheviks subjected the Soviet peoples to an incompetent modernizing program that left them, three generations on, hopelessly behind the free societies of the West makes it pretty clear that whatever may be the truths of human progress (if there are any), these truths are certainly not to be found in grand abstract systems such as Marxism. Despotic elites have been remarkably consistent in their record of failure, irrespective of culture or level of economic development. But Hayek believed, and again rightly, that the roots of this illusion lay so deep in Western civilization that the defeat of its grosser and dimmer versions (usually in societies remote from Western politics) did not at all mean that illusion had given way to reality. Hayek himself described socialism in his last book as “the fatal conceit.” It’s a nice image, but it exhibits a weakness: he had to run together the account of an idea with a view of the motives for taking it up—as when, to take an example that will concern us later, he identified conservatism with the psychological characteristic of timidity. In fact, of course, there is no necessary connection between any idea and the psychology of its believers.
Where did this remarkable illusion come from? It derived most immediately from a reading (and in my view a misreading) of Hegel, but Hayek himself traced it back to Descartes, a piece of intellectual genealogy which links Hayek to Michael Oakeshott, with whose philosophy the Hayekian corpus forms an interesting contrast. Writing in Part II of the Discourse on Method (1637), Descartes had observed that “there is seldom so much perfection in works composed of many separate parts upon which different hands had been employed, as in those completed by a single master.” We all know, of course, that a camel is a horse designed by a committee, but Descartes’s examples show that he was thinking in less general terms of buildings and cities, and he goes on to admire large towns “which a professional architect has freely planned on an open plain.” What is to be admired is “human will guided by reason.”
In Descartes, these more or less harmless remarks do indeed breathe the spirit of rationalism, but imported into a later context, and under the almost insane scrutiny of contemporary hermeneutics, they become very sinister indeed: almost a licence for benevolent dictatorship. For what else is revolutionary socialism but the flattening of society into a level plain and the construction, by the mind of a single political will, of a perfect city? The dream goes back to Plato, and Hayek believed that it lived on in the lust for power exhibited by a regulating state.
The dream of centrally directing a society first surfaced unmistakably in the benevolent despots of the eighteenth century, and the materials for exercising such power—bureaucracies, police forces, identity cards, a literate population, effective taxation, regulatory authority, and even perhaps democratic assemblies—have expanded continuously since that time. And opposition to that dream has also been pretty lively over the same period. Hayek thought that an early pioneer was Bernard de Mandeville, whose Fable of the Bees was (in two rollicking volumes) both a send-up of Christian ideas of virtue and the beginning of the idea of evolution. T. S. Eliot in Murder in the Cathedral formulated one idea of moral perfection in the couplet
The last temptation is the worst treason
To do the right thing for the wrong reason.
This might be a principle appropriate to a saint such as Thomas à Becket, but on Mandeville’s view a modern society only worked because people did the right thing for very bad reasons indeed. They were lazy, pleasure-loving, and deceitful consumers, and it was their vices (even the vices of the criminal classes) and not their virtues that kept rulers, lawyers, prostitutes, bureaucrats, milliners, policemen, soldiers, and the entire luxury trade from suffering the pains of unemployment. Mandeville, a Dutch doctor who had migrated to London, became a pretty disreputable (though highly influential) source of ideas, but a generation after his death Adam Smith was turning satire into a remarkable theory of economic interrelationships which “by an invisible hand” led to the prosperity of modern commercial states. It is common to recognize The Wealth of Nations as the beginning of the idea of modern societies as also economies, which is to say associations of individuals living by exchanging goods and services. Anyone who wants to see Smith’s basic idea of the division of labor at work need only sit through the endless credits for current movies. The modern world emerges as a state composed of people living in layered ranks giving way to an association of individuals busily seeking to better themselves. The dynamism of a modern society results from the changing decisions of very many individuals, each responding to his or her situation in terms of a self-interest operating within legal and moral rules. And self-interest must not, of course, be confused with greed or selfishness, which are universal faults of human beings and not the mere products of some arrangements over others.
But how can a set of competing individuals live harmoniously together? That they cannot is the inspiration of socialists, who point to inequality as a source of disharmony and to the continuous stream of crises which characterize modern states. The crisis is, in fact, the career grade of this mode of life. It satisfies our passion for novelty and excitement. The odd fact is that commercial societies are remarkably peaceable and orderly. Smith talks of an “invisible hand” harmonizing these various endeavors, but many other writers were struck by the same insight, which is also the idea from which Hayek emerges. Montesquieu explored it in terms of honor; Hegel incorporated “the cunning of reason” in his philosophy of history. Individuals and groups acting for their own limited and usually self-interested purposes broke the mold that had constricted earlier civilizations. They created new social possibilities which were no part of their original in- tention. This was what Europeans, and especially English-speaking Europeans, understood as freedom, and it was the necessary condition for the industrial revolution, as ingenious projectors, sitting on top of coal and other sources of energy, found ever cheaper ways of making ever more elaborate products. It is also this basic idea which has led to the emergence of history in its modern academic form.
This is the liberal political order, and F. A. Hayek has been supremely its twentieth-century prophet. Ebenstein presents his life in forty-one brisk and lucid chapters. Friedrich von Hayek (he was in time to drop the title) was born into a prosperous middle-class academic family in Vienna in 1901. He fought in the Austrian army in the First World War. In 1917 he was to be found on the wing of an observation plane, working as an artillery spotter on the Italian front. It was a dangerous business about which he later remarked that he simply had no fear in these situations. Back in defeated Vienna in 1918, he began to study economics and fell in with Ludwig von Mises and other members of the Austrian school of economics.
In 1923, he went to America for a year as a graduate student, but he had little money and made little impact. It was only in the later 1920s that his work on capital attracted wider attention. He was invited by Lionel Robbins to give seminars at the London School of Economics, and in 1931 he moved there permanently. During the 1930s he was one of the stars of the place, and became the laissez-faire counterpart in London of the other towering economist of the time, John Maynard Keynes, a charming and brilliant polymath who dominated the subject in Cambridge. The two men disagreed strongly about trade cycles, with Keynes arguing that the violent ups and downs of the trade cycle could be mitigated by government-demand management.
The issue between them is forbiddingly technical, but Keynes’s view has been popularized (by Robert Skidelsky) as “[w]henever you save five shillings you put a man out of work for a day.” Hayek, by contrast, wrote that “I never believed or came to believe that there is a simple function between aggregate [demand] and employment.” Keynes thought economies went into depression when demand fell, whereas Hayek thought that the cause was a mismatch between production and investment in capital goods. It followed that merely adding to demand might well impede the process of adjustment necessary to correct the overinvestment in the wrong kind of capital that was causing the crisis.
During the war, Hayek, although now a British citizen, was not employed in war work. LSE retreated to Peterhouse in Cambridge which Hayek found a congenial place to work in. But already he was evolving from economist to prophet, and early in 1944 he issued a popular and polemical work expressing his fears that Western liberal democracies were in danger of going down the road of central direction of the economy. Both practical necessity and the current ideas among the elite pointed in this direction. The Road to Serfdom was an immediate success, first in Britain and then in America. After the war, Hayek went on a lecture tour around the United States, and a condensed version of the work was published in Reader’s Digest.
The Road to Serfdom was a warning about the dire effects of the then most powerful version of the Bolshevik illusion. Here an economy was understood to be simply a productive machine which was subject to fits and starts and needed merely to be finely tuned and intelligently driven to produce what “we” judge to be a socially just distribution of modern prosperity. If, went the common view of the time, governments could mobilize the resources of society for an objective such as victory, then surely they could also “win the peace” by putting the injustices and crises of the past behind them. Hayek was clear that these people were sorcerer’s apprentices or charlatans, but he was up against the most powerful source of error in politics—misplaced analogy: peace was like war, and economies were machines to be managed better. Worse, the post-war economic situation seemed to confirm not Hayek but his critics.
The profound idea with which he contested these illusions was that an economy was not a machine to be driven, but rather a complex interaction between agents (both individual and corporate) in which prices of all kinds (including opportunity costs) acted as signals allowing these agents to respond rationally to changes in taste, technology, availability, and other relevant considerations. Prosperity resulted from economic agents being able, both as producers and consumers, to respond to these reflections of reality. The essential point about the information conveyed by prices was that it was dispersed. No government or planning authority could know more than a fraction of what it contained. Central direction was, then, not merely the rule of ignorance, but of an ignorance whose every interference would obscure the real features of social and economic life. Planners often spoke of a “planned economy,” but in fact these policies amounted to the substitution of administration for the free interaction of producers and consumers. Rationing for a time might replace a pricing system, but this was not merely inefficient. It would also destroy freedom by transferring power from people to governments. Hence you could no more have a little bit of central direction than you could be a little bit pregnant.
The great debate of the post-war period cast planners against liberals, though the liberals, especially in America, were absorbing significant tendencies towards socialism without changing their name. In time, classical liberals had to change their name to “libertarians” in order to avoid confusion. But as abstract sentimentality became more prominent in the political rhetoric of Western states, “libertarians” had to combat the idea that they were heartless.
A significant topic of the planners, as they got to work turning Britain into a welfare state, was to charge the Hayekians with lack of compassion for the poor. This talk of freedom is all very well, they said, but what of the irrationalities of modern capitalism which doomed many to poverty and unemployment, especially in periods of depression. In these emotional terms, Hayek and his supporters were not only wrong but bad. The central issue took two forms.
The first was the socialist argument that capitalist production was irrational. In cities, half a dozen gas stations would fiercely compete, while the needs of the countryside would go unheeded. Prices reflect scarcity but pay no attention to need. And surely “the commanding heights of the economy” should benefit the people rather than increase the profits of investors. Capitalism as a blind groping of entrepreneurs ought to be replaced by rational planning, which could only be done by governments.
At their most moronic, these arguments (still vibrant in the activism of anti-globalists) came down to the slogan “people before profits.” The power of these arguments resides in their short-term effectiveness. Governments can indeed wave a wand and fix prices and profits. The consequent distortions of economic life take time to surface. The idea that capitalism is dynamic because it is self-correcting looked unimpressive to people who had lived through a decade of depression and then experienced the exhilaration of a centrally directed victory in war. Hayek’s argument that governments are not only blind but also sclerotic only became convincing when the rising costs and declining benefits of public welfare became evident several decades later. As Hayek was later to write: The limits of knowledge determine the limits of government. The Hayekian view is sometimes described, or rather sneered at, as “faith in the market,” but this is to understate the crucial element of scepticism in his opinions. He did not think for a moment that markets were a perfect solution. But he was swimming against a rising tide.
The second issue invoking governmental control of the economy was that of inequality, or, as it is more commonly put these days, the gap between rich and poor. It is not easy here to clarify the levels of confusion in popular opinion on this issue. We rightly say that in Western liberal societies, each citizen is “equal before the law,” provided we remember that the concept of equality is a metaphor, most at home in mathematics and measurement, and therefore an unsuitable device for characterizing the complex relations between human beings. But popular slogans about equality have become a powerful political weapon. They are an easy way to rouse politically useful resentments and they conduce to the project, which is locked into the Bolshevik illusion, of imposing a single way of life upon the whole of modern society. Such a homogenization of modern societies finds its plausibility in deriding the luxury and excess of the rich and affirming the moral doctrine that the point of a human life is to enjoy having one’s needs satisfied. Governments rather than individuals would have to determine needs, and individuals disposing of private resources of their own would have to be abolished lest the dreaded inequality should reappear.
Hayek’s idea of the road to serfdom is thus in part a refutation of the idea that modern societies could combine freedom with equality. As Ebenstein observes, Hayek argued that you can’t have productivity if you impose equality on people. Ebenstein quotes a remark Hayek made in an interview in later life: “we will have to recognize that only a system where we tolerate grossly unjust difference of reward is capable of keeping the present population of the world in existence.” The progress made by the rich few will in time “trickle down” (as it was later put) to others.
Today many would contest this on the ground that wealth doesn’t actually trickle down to the poor in Africa and some Asian countries. The best explanation of this fact is that the equalizing effect of modern life, limited as it may be, results from features of Western life which may well be far from obvious. But some of these features are pretty clear. The absence of gross corruption would be one. Another, often suggested, is democracy, but democracy in its turn depends upon the implicit rules and conventions that Hayek came in later life to think such an important part of Western progress. In any case, there are certainly limits to how far down the income scale the benefits of productive advances can reach even in Western societies. For a great variety of familiar reasons, many people are poor, some from incompetence, some from misfortune. Hence there is always a case for providing welfare for such people, and Hayek was not averse to such policies. But in the background of this discussion lay a deeper question which brings us to the moral issue in Hayek’s work.
The cause of economic progress, on his view, is the freedom of competing entrepreneurs to take risky decisions about where profits are to be made. His socialist opponents, by contrast, thought that the ultimate outcome of modern progress must be societies marked by universal co-operation. In such a community, well distributed benefits would reduce violence and hostility to the vanishing point. Competition is bad because it means that some people will lose out, and losers are not only the victims of oppression but also the materials of disunity. Competition is thus, in pure socialist doctrine, exactly the moral condition which causes the evils that socialists seek to overcome.
This issue does seem to be a major crux in Western experience. It currently recurs in the popular movement against globalization and in the widespread attractions of internationalism, which favors centralizing the distribution of power (and thus of wealth) so that all peoples will be able to have a decent life, as a decent life would be understood at the moment of proposing the idea by a reasonably austere bourgeois in Britain or America.
I am inclined to say briskly that this project takes utopianism to the edge of lunacy, but it is significant because the popularity of the idea points a dagger at the heart of liberal civilization. If competition is indeed (as Hayek argues) absolutely central to the progress of European life, and if competition causes (to use a familiar formula) the alienation of man from man, then we have taken a wrong turn, and our civilization must go. That is what a great deal of the intellectual self-hatred of half-educated Westerners amounts to. But of course “we” cannot destroy a civilization and build a new one, and hence these passions tend to explode in millennial forms of hysteria.
Hayek knew perfectly well that most such salvationist opinion is worthless, and he characterized the ambitions underlying them as “constructive rationalism.” In his evolutionary moods, he argued that aiming to make the world conform to our ideas of justice is a survival of instincts appropriate to the tribal societies from which we had long ago emerged. Only the piecemeal supersession of these instincts had allowed a liberal order to emerge. This is perhaps a rather dodgy bit of conjectural history, but it helps us to understand two features of the Hayekian program. First, that Hayek was happy to identify himself in terms of the fundamental party-political spectrum of socialism-liberalism-conservatism. Second, that an element of radicalism in Hayek himself is not altogether easy to distinguish from the kind of social engineering which he strongly deplored.
Hayek’s rejection of socialism was central to his whole career, but every so often he turns aside to cuff conservatism as well. This has not saved him from being himself accused of covert conservative tendencies. But what he certainly does is distance himself from a conservatism that he characteristically understands in psychological terms as a form of timidity. Self-ascribed boldness and courage is, of course, a familiar boast of intellectuals, but Hayek hardly needed to employ it. He actually was pretty courageous. As it happens, most conservatives in recent decades have taken the Hayekian lessons on board, but one significant critic has been Michael Oakeshott.
Oakeshott had, back in 1947, remarked somewhat waspishly about The Road to Serfdom that “a plan to end all planning may be better than its opposite, but it belongs to the same style of politics.” Oakeshott’s point was that a rationalist disposition had sucked most of the concrete understanding out of politics and replaced it with doctrines, abstractions that “abridged” the complexities of national political traditions and thus weakened their resourcefulness. Oakeshott’s argument at this time turned out to be a kind of zen provocation, since many of his readers proved his point by immediately wanting to be told what to do about it—demanding, that is to say, a doctrine. Hayek certainly found Oakeshott’s thought valuable, and in the 1960s he gave a lecture at LSE using Oakeshott’s distinction between “telocratic” and “nomocratic” views of the ends of government, a distinction to which he referred again in the second volume of Law, Legislation and Liberty. Hayek and Oakeshott often agreed in practice, and respected each other, but there was a major difference in tone and philosophical level.
Oakeshott argued that it is logically impossible to “apply” an abstract theory to the contingent world of politics. Abstractions, as the current joke has it, go “pear-shaped” as they encounter the contingencies of life, which is why, for example, bequeathing democracy or liberal constitutional systems to countries unaccustomed to their practice very soon leads to disappointment. All that a politician can do is pursue what Oakeshott called the “intimations” of a concrete political situation. The problem even with uttering this opinion is that it generally gets turned into the prescription that pursuing intimations is what politicians ought to do. The point at issue here is, no doubt, somewhat refined, but it is essential in helping us realize that Hayek was indeed not a conservative.
Hayek thought (as he remarks in The Fatal Conceit) that “life has no purpose but itself,” but he certainly saw modern Western societies as having a purpose: that of maximizing freedom and prosperity. These societies had succeeded in liberating themselves from many of the beliefs that had sustained tribes, but there remained constructive work to be done, and it was in advancing plans for institutional reform of this kind that Hayek exhibited the radicalism which made him a libertarian prophet. He wanted to liberate money from the grip of central banks and entrench the rule of law in democratic constitutions. The value of these castles in the air was not that he quite thought they could be applied, but that they would be instructive to those less far along the path from tribal life. Few countries, he observed in volume three of Law, Legislation and Liberty, “are in the fortunate position of possessing a strong constitutional tradition. Indeed, outside the English-speaking world probably only the smaller countries of Northern Europe and Switzerland have such traditions.”
How might we formulate the difference between Hayek and Oakeshott? Let me suggest that it might be done in terms of levels of scepticism. At the least sceptical level, the socialist actually believes that revolutionary upheaval, or some plan of social engineering, can save the world. The twentieth century was full of such moths who found the flames of abstraction irresistible, and many perished as a result. We are far from having done away with their successors. Against this kind of thing, Hayek’s sceptical account of an economy as a “discovery procedure” was an exhilarating illumination of what socialist melodramas of oppression had obscured. A society whose power was dispersed among all its individuals was the epitome of freedom. It was also, as Hayek perhaps at times overemphasized, the epitome of prosperity. At the level of proposals to engineer society so as to remove the disharmonies of inequality, Hayek’s scepticism was in good working order. It was not, however, a scepticism about abstract proposals in general, and it was on this point that the Oakeshott-Hayek disagreement emerged. Oakeshott’s scepticism is a philosophical distancing from any form of human folly. He interprets the Hobbesian account of Christianity in particular as dealing (as he puts it) with “the local and transitory mischief in which the universal predicament of mankind appeared” in his time. Hayek is too close to the mischief to recognize the universal predicament.
Hayek sought, then, as Ebenstein makes clear, great changes in the institutions of society, believing that “government is of necessity the product of intellectual design. If we can give it a shape in which it provides a beneficial framework for the free growth of society … we may well hope to see the growth of civilization continue.” Perhaps. But this is to assume that “we” know what a beneficial framework for a free society is and will continue to be. But it is on precisely this question that heads get broken, and a doctrine is not likely to replace these problems.
Ebenstein has given an excellent account of his subject, accumulating a vast amount of information and tacking between the life and the thought in ways that even the non-specialist will find illuminating. There is no doubt that Hayek was both morally and intellectually a major figure. He developed in time into the very prototype of an international guru, at home everywhere, and with a message for everyone. A kind of exile had broadened his opportunities, so that the technical economist turned into the social philosopher. He felt most at home, he once said, in England; the reason, I would guess, being that his generally amiable personality never lost the reserved formality of his Viennese upbringing. His absolute centre of gravity seems to have been the Reform Club in London’s Pall Mall. He may not have saved the world from socialism (though he did a lot), but he left behind the Mont Pelerin Society and a host of free market think-tanks which continue the important work of saving us from worshipping big government.
- Friedrich Hayek: A Biography, by Alan Ebenstein; St. Martin’s Press, 320 pages, $29.95. Go back to the text.