The intellectual context of F. A. Hayek's The Road to Serfdom.

Author:Boettke, Peter
  1. Introduction

    It has been over seventy years since F. A. Hayek published The Road to Serfdom (1944), and since that time, Hitler was defeated and World War II ended in victory for the Allies of the Western democratic states. The Cold War between the Western democratic states and the Soviet Union and its satellite countries ensued from roughly 1945 to 1991. The West's constitutional democracies were transformed into social democratic states as governments in these countries grew in size and expanded their scope from 1945 through 1980. In the intellectual realm, the ascendancy of Keynesian macroeconomic theory and the policy of demand management were matched by the development of microeconomic market failure theory and policies regulating commerce and industry. With the breakdown of the Keynesian consensus in the 1970s with stagflation, the deregulation of commerce and industry in the 1980s, and the collapse of communism in the 1990s, it seemed to many that Hayek's ideas put forth in The Road to Serfdom were at least superficially vindicated by history.

    Hayek's most famous work is often read as a policy book and a political tract for its time. It is also often read as little more than a "slippery slope" argument, and thus one wrong step leads one down a road from a free society to the gulag. Alves and Meadowcroft have argued in a recent article that "Hayek's slippery slope argument set out in The Road to Serfdom is empirically false" (2014, p. 859). Their claim is based on illustrating a positive relationship between government spending as a percentage of GDP in the Western democracies and data from the Economic Freedom Network and Freedom House ratings on political freedom. While the authors are careful not to draw any causal link between government spending and economic and political freedom, their claim is that these figures are prima facie evidence that Hayek's argument failed to anticipate the reality of the post-WWII Western democracies.

    In this paper, we will try to counter both claims by explaining that Hayek's book is part of a broader project on The Abuse of Reason, dealing with the institutional infrastructure within which economic activity takes place. His argument, rather than being a slippery slope, is an immanent critique of the socialist program as advocated by British socialists, who were his primary target in the 1940s.

    Hayek would be joined in his effort to warn intellectuals about the growth of government interference in the market economy by Milton Friedman (popular) and James Buchanan (analytical) in the second half of the twentieth century. Buchanan's works, such as The Calculus of Consent (1962) and The Limits of Liberty (1975), sought to grapple with the analytical questions of how to structurally bind the government in a way that is consistent with the ordinary behavioral assumptions of economic analysis to minimize the predatory state and empower the protective and productive state. Buchanan's work had a wide academic influence, but limited popular appeal. Friedman's works, such as Capitalism and Freedom (1962) and Free to Choose (1980), had an amazing popular appeal and practical impact in the world of public affairs. All three--Hayek, Friedman, and Buchanan--would be recognized with the Nobel Prize for their contributions to economic science, and all three would also serve as president of the Mont Pelerin Society, reflecting their stature as leading modern representatives of classical liberalism. But I think it is safe to say for our purposes that it was the work of Hayek and Friedman that had the more direct impact on the practical affairs of men.

    The three critical events to highlight this impact would be the shift of policy focus in China under Deng Xiaoping, in the United Kingdom under Margaret Thatcher, and in the United States under Ronald Reagan. The rhetoric of these policy shifts always outdistanced their reality--so in China, it may not matter what color the cat is as long as it catches the mouse, but it matters that the party maintains central control. Thatcher and Reagan may have respectively slowed government growth, but they didn't reverse it in either the United Kingdom or the United States, respectively. Still, the relative move toward policies of economic freedom in the 1980-2005 period as compared to the policies of economic regulation of 1945-1980 caused significant improvements in the economic well-being of billions of individuals across the globe, as documented in Andrei Shleifer's article "The Age of Milton Friedman" (2009). Moreover, Hayek's The Road to Serfdom has witnessed a renaissance in popularity, not only among transitional political reformers in post-Soviet Russia, such as Anatoly Chubais (Shapiro 2001, p. 18), but also among political commentators, such as Glenn Beck, Rush Limbaugh, and Mark Levin, reacting to the Obama administration's economic policies (see Farrant and McPhail 2010, 2012; Boettke and Snow 2012).

    So the world has experienced much since the publication of The Road to Serfdom in 1944. It would be absurd to claim a direct causal link between its publication and improvements in living standards throughout the world (with the notable troubling exceptions of Africa and Latin America). It might even be absurd to claim a causal link between the publication and the practical affairs of public policy--as if policy is directly about ideas, rather than the interests that form and coalesce around certain public policies. But ideas frame the policy debate, and in so doing can indirectly impact human affairs.

    Hayek's work--not only The Road to Serfdom but also The Constitution of Liberty (1960)--had such an indirect influence. But rather than allow these works to be relegated to coffee-table status--which we are not denying they achieved--we want to make sure we don't just think about how many copies were sold and which powerful politicians claim to have been influenced, so we will focus here on discussing the intellectual context and substantive argument that Hayek puts forth in The Road to Serfdom. In section 2, we outline the Misesian roots of Hayek's argument within the context of the socialist calculation debate that ensued from the 1920s through the 1940s. Having placed Hayek's argument in the context of this debate, section 3 outlines Hayek's transition from a technical economist to an institutional economist. It was during the socialist calculation debate that Hayek, along with Mises, began "a process of improved self-understanding" (Kirzner 1988, p. 3), not only of the entrepreneurial market process, but more importantly of the institutional conditions within which the market process generates tendencies toward the mutual adjustment of decentralized decision-makers (Hayek 1937, p. 53). In section 4, we contend that rather than making a claim of "inevitability," Hayek's slippery slope argument was a claim about the instability between the organizational logic of planning, which is to centralize political and economic decision-making, and its effect on liberal institutions, which is to substitute the rule of law for the rule of men, the worst of whom are incentivized to exercise political power. Section 5 concludes.

  2. The Misesian Roots of Hayek's Argument

    The Road to Serfdom picks up where Hayek's edited volume Collectivist Economic Planning (1935) left off. By that we mean simply that Hayek operated under the impression that the works by the economists he reprinted in Collective Economic Planning had decisively demonstrated the failure of socialists to centrally plan the economy. In particular, Ludwig von Mises's work had demonstrated the theoretical impossibility of the socialist economic planner to engage in rational economic calculation. Without this ability to engage in rational economic calculation, the socialist planner will be unable to meet socialist objectives via socialist means. The project suffered from a devastating internal contradiction.

    This was Hayek's theoretical touchstone, and it must never be...

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