Hayek: A Collaborative Biography

Part VI, Good Dictators, Sovereign Producers and Hayek's "Ruthless Consistency"

R. Leeson, R. Leeson

• Éditeur: Palgrave Macmillan
• Année: 2016
• ISBN:
  9781137479259
• Sujet: Economía
• Sous-sujet: Econometría

In this sixth volume contributors examine Hayek's neoliberal economics and politics in the 20th century, and the demise of the socialist system. Taking a closer look at Hayek's time in Australia, and his time spent travelling in the east.

1

Introduction

Robert Leeson

1 ‘Ruthless consistency’: from Manchester to Vienna via London and Chicago

Ideologies – like religions – mix ‘knowledge’ with faith: followers are often unable to distinguish between the two, and have little understanding about ‘knowledge’-to-faith quotients within their own community. As a result, ideologues are often incapable of predicting the consequences of their actions. Bringing deregulated ‘personal liberty’ to both the financial sector and the former Soviet Empire facilitated one form of tax-funded producer sovereignty: ‘the strife over subsidies’, as oligarchs cornered both markets and governments (see Chapter 7).

Feudalism and capitalism interacted in four phases: co-existence, partial economic elimination (neo-feudalism), social submergence, and liberty-driven reappearance through deregulatory capture in the financial sector and in post-communist Russia (financial neo-feudalism). Before the 1974 Nobel Prize for Economic Sciences, the British branch of the Neoclassical School had dominated economic discourse (mixed with some Lausanne elements, such as Pareto ‘efficiency’); Marshallians proposed regulation and market-based remedies to encourage private and social benefits and discourage social costs. Coal symbolizes both: energy is tapped for productive or household consumption uses; and – assuming the evidence and analysis of relevant scientific community is more likely to be correct than false – climate change is the Pigouvian externality.

Coal-fired steam ships transported millions of migrants to the New World in the decades before the Great War, initiating vast social, as well as geographical, mobility. In 1895 (at aged 14), Milton Friedman’s mother, Sarah, migrated to the United States and worked as a ‘seamstress in a “sweatshop”’. On 25 March 1911, Sarah Friedman leapt from an open ninth-floor elevator door to escape the Triangle Factory Fire. 140 mostly young migrant women were either burnt alive or jumped to their deaths. This 9/11-style New York trauma spontaneously intensified the 20th-century regulation wave – that lasted until Friedrich von Hayek’s 1974 Nobel Prize for Economic Sciences. The two Sarah Friedmans were, presumably, not related: Milton once knew his father’s surname but was ‘too uncertain now to record my present impression’. His parents, who had ‘heated discussions about where the money was to come from to pay incoming bills’, spoke Hungarian ‘only when they wanted to keep something from the children’ (Friedman and Friedman 1998, 19–21; Stein 1962, 220).

The New World market-based correction of externalities provided Friedman with a subsidized education; in September 1946, his achieved status was rewarded by an appointment to the University of Chicago. Six months later, von Hayek’s Old World-ascribed-status-assisted ability to acquire tax-exempt donations from businessmen (primarily, the ‘Volker Fund of St Louis’) facilitated an ‘expenses paid’ trip to the London Dorchester Hotel, the Paris Grand Hotel, and from there to Pilgrim Mountain (Mont Pèlerin):

It was George [Stigler]’s and my first trip abroad ... Here I was, a young naïve provincial American, meeting people from all over the world ... This marked the beginning of my active involvement in the political process. (Friedman and Friedman 1998, 159–161)

Stigler’s (1982) parents had migrated separately to the United States at the end of the 19th century: ‘my father from Bavaria and my mother from what was then Austria-Hungary (and her mother was in fact Hungarian)’. The Victorian liberal, John Bright, found in America ‘a free church, a free school, free land, a free vote, and a free career for the child of the humblest born in the land’ (cited by Bradley 1980, 61). The post-1870 British system of publically-funded elementary education was influenced by the American model: compared to the Habsburg Empire, Britain and America have been relatively successful in promoting human-capital-fuelled social mobility.

The 1954 Brown versus Board of Education Supreme Court decision was a marker on the road-from-slavery: Little Rock became the symbol of resistance to ‘interference’ with the Arkansas anti-integration laws. In September 1957, a mob of over 1000 white protesters prevented nine African-American high school students from exercising their constitution right by enrolling – and attending – Little Rock Central High School.

Arkansas Governor Orval Faubus questioned both the authority of the Supreme Court and the validity of desegregation. President Dwight D. Eisenhower (24 September 1957) declared:

At a time when we face grave situations abroad because of the hatred that communism bears towards a system of government based on human rights, it would be difficult to exaggerate the harm that is being done to the prestige and influence and indeed to the safety of our nation and the world. Our enemies are gloating over this incident and using it everywhere to misrepresent our whole nation. We are portrayed as a violator of those standards which the peoples of the world united to proclaim in the Charter of the United Nations. (cited by Damms 2002, 129)

The year after Brown versus Board of Education, Friedman (1955) noted that there had been

sizable underinvestment in human beings ... This underinvestment in human capital presumably reflects an imperfection in the capital market: investment in human beings cannot be financed on the same terms or with the same ease as investment in physical capital ... The productivity of the physical capital does not – or at least generally does not – depend on the co-operativeness of the original borrower. The productivity of the human capital quite obviously does – which is, of course, why, all ethical considerations aside, slavery is economically inefficient.

All bureaucracies – public and private – are prone to inefficiencies: Friedman (1955), who invoked Pigouvian externalities ‘neighborhood effects’ to justify public-funded education, proposed a ‘mixed’ system

under which governments would continue to administer some schools but parents who chose to send their children to other schools would be paid a sum equal to the estimated cost of educating a child in a government school, provided that at least this sum was spent on education in an approved school.

Friedman’s voucher system may improve outcomes through market-based incentives: the mission of The Friedman Foundation for Educational Choice – to advance ‘school choice for all children’ – is within the Marshallian tradition (Pigou 1925); so too is Friedman’s mea culpa capacity.

In Britain and elsewhere, the divisions within the working class are as strong as the divisions between classes: the aspirations of the upper working class require a distance to be maintained. Their relative social success can be explained through different discount rates: the interest rate in the brain. Education and business are both vehicles for social advancement for those who value deferred consumption; the ‘business conservative’ donor class can acquire a belated and ideology-loaded ‘education’ through Austrian-influenced think tanks. Those with low ascribed and achieved status, who heavily discount future consumption, pose problems for public policy and future tax liabilities.

Wartime patriotism facilitated a no-strike pledge by American labour unions: by autumn 1946, average real weekly wages had fallen to Great Depression levels. In 1945, Philip Murray, head of the steelworkers’ union complained that steel company stockholders had received more than $700 million in wartime dividends. By the early 1950s, labour union membership reached its highest-ever level (Horowitz and Carroll 2002, 7, 9).

Most Americans describe themselves as middle class. In contrast, Leo Rosten noted

the depth of the [English] class distinction, which is just beginning to disappear, has created degrees of bitterness which I’ve never found in the United States. There is a hatred.

Hayek (1978) replied:

My impression of England may be wrong in the sense that I only really know the south. All you are speaking about is the north of England, where I think this feeling prevails. But if you live in London – Right now my relations are mainly in the southwest of England, where my children live, and I don’t find any of this sharp resentment. And the curious thing is that in the countryside of southwest England, the class distinctions are very sharp, but they’re not resented. [laughter] They’re still accepted as part of the natural order.¹

Hayek’s (1949; 1975; 1994, 92) plan for social revolution was designed with previous failure in mind:

the more conservative groups have acted, as regularly as unsuccessfully, on a more naïve view of mass democracy and have usually vainly tried directly to reach and to persuade the individual voter.

Hayek referred to

the silver voice of that genius in persuasion, Lord Keynes ... ... [who] was exceedingly difficult to resist in conversation or discussion. Even if you knew that he was wrong, you sometimes found it extraordinarily hard to maintain your position while you talked to him – although once you turned away, you realised that you had been misled ... people got enchanted by merely listening to his words.[His Old Etonian] voice was so bewitching.

‘The English working class, as Mr Wyndham Lewis has put it, are ‘branded on the tongue’ (Orwell 1968a, 5). Two advertising executives, the Baghdad-born brothers Charles and Maurice Saatchi, recruited the actor Laurence Olivier to equip the former Secretary of State for Education and Science to ‘speak’ persuasively to the British individual voter. Mrs. Thatcher regarded the Saatchi and Saatchi ‘Labour isn’t working’ poster as ‘wonderful’; their ‘Britain is going backwards’ television advertisement had shots of climbers inching their way down Mount Everest (Fallon 2007; Edwards 2011).

Hayek (1978) reflected:

I oughtn’t to praise them because the suggestion of the Institute [of Economic Affairs] came from me originally; so I let them on the job, but I’m greatly pleased that they are so successful.²

In addition to the Old Etonian Anthony Fisher, the IEA was founded and run by Ralph Harris (2006, 171–172) and Arthur Selden, who were ‘proud’ of their own upward social mobility and the ‘unprivileged backgrounds’ of the more ‘robust’ IEA authors. Harris, the son of a working class, council-housed tramways inspector, was the beneficiary of the primary vehicle of British social mobility: for-social-profit public education. At Cambridge University, Stanley Dennison introduced him to von Hayek’s aristocratic social philosophy. At the IEA, ‘poverty was the spur to invention’ in ‘proclaiming the missionary truths’. After ennoblement by a grocer’s daughter – as Baron Harris of High Cross – he became President of the Mont Pelerin Society (1982–1984).

Neoclassical theory is not required to predict that British Airways would use ‘dirty tricks’ to sabotage their more cost-efficient Virgin competitor (Gregory 1993); all incumbents have incentives to deter entrants. Capitalism combined with tax-funded education allows achieved status to compete with its ascribed status incumbent – those who value democracy must protect its most valuable property: human capital formation.

According to Ludwig von Mises’ (1985 [1927], 19, 44, 42–51) Liberalism in the Classical Tradition, Austrians have different priorities:

The program of liberalism, therefore, if condensed into a single word, would have to read: property, that is, private ownership of the means of production (for in regard to commodities ready for consumption, private ownership is a matter of course and is not disputed even by the socialists and communists). All the other demands of liberalism result from this fundamental...