The Road to Serfdom: Keynes & Hayek

Are we walking the road to serfdom? In his treatise The Road to Serfdom, Friedrich Hayek argued that Western democracies, including England and America, have:

Progressively abandoned that freedom in economic affairs without which personal and political freedom has never existed in the past. We have in effect undertaken to dispense with the forces which produced unforeseen results and to replace the impersonal and anonymous mechanism of the market by collective and ‘conscious’ direction of all social forces to deliberately chosen goals. Planning, because coercive, is an inferior method of regulation, while the cooperation of a free market is superior because it is the only method by which our activities can be adjusted to each other without coercive or arbitrary intervention of authority.

Centralized planning is inherently undemocratic, because it requires that the will of a small minority be imposed upon the people. The power of these minorities to act by taking money or property in pursuit of centralized goals, destroys the Rule of Law and individual freedoms. Where there is centralized planning, “the individual would more than ever become a mere means, to be used by the authority in the service of such abstractions as the ‘social welfare’ or the ‘good of the community.

What Hayek enunciated was my view that while government can accomplish an awful lot of things, the things that it accomplishes may not be what the country and its citizens need or want. How can a tiny bureaucratic elite reliably decide what society needs or wants? Central planning leads inexorably not only to a misallocation of capital, but to citizens’ subservience to authority — authority which may not be at all wise. So what did Hayek’s contemporary, the influential John Maynard Keynes known as the Father of Government Intervention into the business cycle, think of Hayek’s opinion?

From Bloomberg:

After reading “The Road to Serfdom,” Keynes wrote to Hayek, “Morally and philosophically, I find myself in agreement with virtually the whole of it; and not only in agreement but deeply moved agreement.” Hayek might not have succeeded in drawing “the line between freedom and planning satisfactorily,” and therefore might not have created a useful guide through the “middle way” of actual policy making, Keynes wrote, but he had articulated values essential “for living a good life.”

So while there was a general agreement between Keynes and Hayek that government intervention is problematic, Keynes believed that the advantages of intervention — especially in dealing with crises and depressions — outweighed the negative effects on personal freedom.

But we have seen since the crisis that government intervention to “save the system” destroys meritocracy. We have seen the zombie banks — and their failed business models — waddle on, flush with bailout cash and stimulus funds. We have seen the fact that bailing out banks and large corporations merely transfers bad debt and risk from the corporate level to the government level. We have seen Bush, Obama and Rick Perry’s friends benefit from crony capitalism. And we have seen — as Nouriel Roubini now admits — that all of the Keynesian policy instruments are failing in securing a global recovery.

So is the answer dismantling the state?  Not exactly — the state is actually very good at certain things. According to Adam Smith:

According to the system of natural liberty, the sovereign has only three duties to attend to; three duties of great importance, indeed, but plain and intelligible to common understandings: first, the duty of protecting the society from violence and invasion of other independent societies; secondly, the duty of protecting, as far as possible, every member of the society from the injustice or oppression of every other member of it, or the duty of establishing an exact administration of justice; and, thirdly, the duty of erecting and maintaining certain public works and certain public institutions which it can never be for the interest of any individual, or small number of individuals, to erect and maintain; because the profit could never repay the expense to any individual or small number of individuals, though it may frequently do much more than repay it to a great society.

The state’s role is to create the conditions for a market economy, or “natural liberty” as Smith put it. Now, although Smith’s definition is a good place to start, there is an awful lot of debate as to what “creating the conditions for a market economy” entails (I would say that this often although not always includes socialised healthcare), it is certain that the state’s role is never to get itself involved in the market, pick winners and support its friends.

For all the billions and trillions of stimulus and accommodation, more and more Americans live in poverty:

While governments are captivated by corporations and beholden to special interests, the market is corrupted, and nations are walking down the road to serfdom.

6 thoughts on “The Road to Serfdom: Keynes & Hayek

  1. Equal opportunity is the greatest prerequisite for free-market capitalism. Taxing and killing the nation’s middle class to keep Dear President Obomba in job is by no means equal opportunity.

  2. Smith also said: “Wherever there is great property there is great inequality. For one very rich man there must be at least five hundred poor, and the affluence of the few supposes the indigence of the many. The affluence of the rich excites the indignation of the poor, who are often both driven by want, and prompted by envy, to invade his possessions … The appropriation of herds and flocks which introduced an inequality of fortune was that which first gave rise to regular government. Till there be property there can be no government, the very end of which is to secure wealth, and to defend the rich from the poor.” (phew, govcorp has their work cut out for them)

    This seems to conflict his three duties of the ‘sovereign’ above. Or by sovereign, does he mean something other than state?

    I agree with many of Smith’s beliefs, but as with any other ideology, they eventually get hijacked by jackals for their own nefarious ends.

    Fourth Turning, bitchez!


  3. Pingback: Ron Paul & Austerity « azizonomics

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