Hayak Applies Today

The Wisdom of Friedrich Hayak Applies Today

by Richard “Chip” Peterson, Economics PhD, essay  completed Sept. 23, 2010

            Friedrich Hayak was one of the first people to win a Nobel Prize in Economics. Among other stellar works, his book, The Road to Serfdom, written in 1944, was one of his most notable works. The interesting thing about that book is that, in spite of its age, it is still highly relevant, and helps explain current political forces at work in the U.S. Economy and political system.

            The book starts by demonstrating that free market economics, where people decide for themselves what jobs to do, how much to work or save, and what to buy or give away, is the best system for maximizing individual welfare and economic productivity.  Free markets with multiple producers and potential competition tend to be guided beneficially by Adam Smith's “invisible hand” to produce what individual people want in the most efficient manner. In contrast to free markets, Hayak notes that many people in recent years have advocated the use of “centrally planned” economies.

            The justification for central planning may vary. Some people advocate it because they think the superior knowledge of the superior (best educated or more socially aware and responsible) central planners is to be preferred to the individual decision making of less well educated or less socially aware individuals. Of course, it is often the (self-serving) intelligentsia or political leaders--or other  elitists (often including the media) who most adamantly  subscribe to such beliefs. Other people advocate central planning in preference to free market economic systems because they want to advance some deeply held ideological beliefs that they have that they believe would not be  satisfied sufficiently if free markets were allowed to work without the benefit of those “elites' superior guidance.” The beliefs they wish to advance through central control and planning for an economy may be related to a desire to advance social philosophies such as Communism or Socialism,  religious philosophies of various sorts (by denying economic opportunities or other freedoms to people with “wrong” religious practices), or  quasi-religious philosophies, such as environmentalism or humanism.

            Hayak was most concerned with the central planning tendencies that he had observed in the rise of  Socialism, as embodied in Russian Communism and Germany's Nazism, and the rise of Fascism, as embodied in Mussolini's Italy. The power of his book was that in 1944 he was able to perceive and document many similarities among these three disparate “isms.” In each case a self-appointed "elite" group sought to make the rest of the people do what the elite thought would be best. In some cases the elite tried to advance an ideological cause, most often socialism in its various forms (including Communism and National Socialism), that they claimed would improve the welfare of the "working classes" or of other less educated or enlightened people.  Most of the groups that he described, or, at least, the governments they had formed, were vanquished during World War II.

        However, not all elitist opinions and central planning policies vanished after their disastrous implementation prior to and during World War II. Hayak was concerned because the dominant post-war British Labor Party had adopted many of the same elitist central planning tendencies of the earlier "socialists," and as a result, the economy of his adopted country, Britain, languished after the War. It was only after Margaret Thatcher adopted more free-market oriented government policies that the British economy was able to revitalize itself. 

        The U.S. economy recovered relatively rapidly after WW II because it more quickly abandoned the "statist" policies of Franklin D. Roosevelt that had been imposed during the War and it had never adopted so many of them in the first place. While the U.S. had high marginal tax rates under Roosevelt, it had not nationalized industries, and it quickly discontinued price controls and the rationing of goods after the War. Thus, the U.S. leaders had not tried to maintain a dominating government after the war had ended. 

        Unfortunately, many of the "progressives" who had been enamored of the "government knows best" socialist philosophy continued to have great influence in the U.S. media, Universities, and political arenas. The socialist philosophy had been nurtured by Karl Marx in which he noted in his Communist Manifesto, that, among other things,  the Communist cause should involve the education of the populace and the control of the media. Those were policies adopted by Communist Russia and Russia had tried to make sure those principles were exported to the United States, since the Communist philosophy required that all nations ultimately adopt communism. International Labor organizations also exported Communist and socialist philosophies widely around the world since they thought that they, "the proletariat, " would profit by making the better off in society share their wealth--under the Communist ideal of "from each according to his ability and to each according to his needs." 

        Leading U. S. intellectuals were often taken by the ideals of socialism. In fact, Woodrow Wilson, the President of Princeton University before he became President, did much to enhance the implementation of "progressive" ideas in the United States-- since the Federal income tax, the direct election of senators, and the creation of a central bank for the U.S. all occurred while he was President, not to mention that he got the U.S. involved in Europe's World War I under the intellectual guise of "making the world safe for democracy."  Also, Dewey, a leading U.S. educator, traveled to Russia to study the communist educational system. Some of the Russian spies uncovered, such as Alger Hiss and Whittaker Chambers, were college educated citizens of the United States, since many U.S. college educated  intellectuals in the U.S. had been attracted to communism during our Great Depression. 

        U.S. intellectuals, including the media, were attracted to the "progressive" socialist philosophy since it implied that they would have an important role to play in advancing the world and their country toward the new utopian world of shared wealth, blissful living, and equality envisioned by the socialistic philosophy. Consequently, many members of academia and many members in the media have supported and advanced such philosophies. Unfortunately, in the process, like adherents to a religion,  they have often tried to exclude or debunk those who hold different views. This process can be seen today as it is practiced through the "political correctness" views of academic institutions and the main stream media members. Both groups viciously verbally assault people with different views--as can be seen in the way they castigate Tea-Party members and make fun of people who adhere to traditional religious faiths instead of the "intellectually" more acceptable "secular humanist" or environmentalist (mother earth) philosophies.

        Because they tend to view themselves as "intellectuals" who are smarter than the general population, present day elitists tend to be concentrated among people with advanced verbal skills--such as media members, entertainment industry specialists, and college graduates, especially liberal arts graduates or lawyers who have attended one of the "elite" private universities in the U.S. Unfortunately, they do not represent a cross-section of the population as a whole. In addition, many have very little scientific training, even though they often are quick to make drastic pronouncements regarding scientific topics with limited knowledge (think of Al Gore's recent movie where many of the scientific "facts" that he used to defend the imposition of drastic controls on human behavior are highly debatable). For instance, polar bears are not going extinct and the Himalayan glaciers will not disappear shortly, and the earth has not continued to warm exponentially as predicted by the "hockey stick" model of global warming. Nonetheless, intellectuals and politicians resist letting facts getting into the way of their biases. If they are correct about global warming, then they can rationalize drastic interventions into all aspects of other humans' lives--and they like the feeling of power and accomplishment that such intervention can bring.

        Consequently, it is clear that Hayak was right and his wisdom still applies . There still exist a large number of self'-appointed "elite" people who feel the have the right and obligation to order others around and who do not believe the free market is more effective in allocating resources than they, in their wisdom, would be.  Such  people believe that their knowledge and intelligence are greater than any that could be embodied in free markets. However, Communism has failed economically in Russia, in Cuba, and in North Korea. It has persisted in China only because the Chinese were smart enough to adopt free market principles after experiencing the hardships caused by Mao's attempts to run their country as a pure Communist state. Furthermore, Communism has led to horrific repression of people who do not agree with their "elite" leaders--such as the Gulags in Russia, the jails and executions in Cuba, and the starvation policies imposed in North Korea. 

         In order to avoid another economic disaster it is essential that U.S. citizens return to their roots and not let the "progressives" philosophy of state control--potentially of all aspects of individuals lives-- become the dominate political force in the U.S. It will take many years to reverse the tide of progressive thinking since it now is so deeply ingrained in the U.S. media, educational system. and political system. People are no longer taught how free market solutions can be superior in most cases (economic externalities can be an exception) to the direct allocation of resources by the self-proclaimed "elite'" 

Email Chip with any questions., Chippete@aol.com

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