Friedrich August Hayek

As in the previous chapters we will not provide here any biographical data. Who is looking for a biography of Friedrich Hayek can found it, not really surprising, at wikipedia: Friedrich Hayek.

About the 'Road to Serfdom' there is even a complete article at Wikipedia. What needs to be explained is not the content of the books, its thesis are as trivial as false, but the fact that the english version of the book was sold over 2 millions times. How it is possible that such a confused and contradictory text, where actually no thesis can be tested in any way against reality had become so famous?

It seems that the deficiencies of the book are actually its strength. Due to vagueness of its concepts and the lack of precision in the terms used, liberty, collectivism, socialism, national socialism etc. his book reflects more the opinions, feelings and state of mind of the reader than telling something new to the reader. Anybody who disagrees for any reason with any kind of government intervention sees himself confirmed in this book and there are a lot of people who are for any reason dissatisfied with the government or with democracy in general.

The basic theory of Road to Serfdom is quiete simple. The more the government intervenes in the economy, the more resources he will attract, the more the individuals will depend on the government and the more personal freedom is restricted.

Friedrich Hayek tries to illustrate this theory, with historical development. However we will see in the next chapers, see a variation of a totalitarism theory and warning against a planned economy, that his theory doesn't fit with the historical data.

The next problem are the vaguely defined or not defined at all terms used. Collectivism could be interpreted as something ideally opposed to individualism. In this case, it would describe a world, where all the individuals think, feel, behave the same way and individualism a world where all the individuals think, feel and behave differently. That doesn't exist. In the context of a totalitarian regime we can say, that is actually how the term totalitarism is defined, that a totalitarian regime requires an active support of the regime and not only a passive sufferance.

The same it true for the term 'socialism' as used by Hayek. For Hayek Socialism is any kind of direct intervention in the economy including keynesianism. He doesn't distinguish between socical democrats, communists and fascists. All of them are collectivism. Road to Serfdom is dedicated to the "The socialists of all parties". National socialism and fascism are for him not national, racist or antisemitic mouvements, but socialist mouvements. He disregard completely all the characteristics of national socialism. Government intervention in the economy and murdering 6 millions jews is for him the same thing or in other words government intervention leads automatically to world wars. He tries to prove this thesis by a very special interpretation of history, see a variation of a totalitarian theory. If the book were not sold, in the english version, 2 milions times, we would just say that Hayek was mad.

The thesis of Hayek is that any kind of direct intervention lead to a restriction of freedom. The truth is, that the strive for power leads to a restriction of personal freedom and to government intervention. The concrete content of an ideology plays almost no role. Concerning the ideology the Soviet Union under Stalin and Germany under Hitler were completely opposed. Concerning the mechanisms that allowed these totalitarian regimes to stay in power there were very similar. Hayek commits the big error to assume that the content is relevant for a totalitarian regime to stay in power. Actually the content is completely irrelevant and it is therefore useless to analyse the content of an ideology.

No need to say that the thesis 'government intervention' => 'restriction of personal freedom' is nonsense. If this were true, the higher the ratio of government expenditures to gross national product the less personal freedom should exist. It is to assume that the Swedes, with very high ration of government expenditure, didn't feel less free than the Argentians under the Videla dictatorship, with a very low ratio of governmental expenditure. To give an example.

Actually Friedrich Hayek is nothing else than Adam Smith with a little bit fighting for freedom. There is no question that the market mechanisms are the most efficient mechanism to guarantee the optimal allocation of resources, see homo oeconomicus. However it is equally clear that the market alone can't resolve all kind of problems and governmental intervention is needed. Hayek assumes that in this case there can't be any control at all, because only the market mechanism effectuate an efficient control. That is wrong. In democracies transparency can effectuate an efficient control as well, see preliminaries.

The next error of Hayek, there are a lot and we are not going to mention all of them, is the assumption that in democracies a majority dominates a minority. Empiric evidence shows, that the opposite is true and that this is a real problem that must be resolved. Minorities are in general better organised than majorities. Special interest groups, for instance the producer of sugar, are better organised than the consumer of suger. The consumer of suger won't resist against a customer duty on sugar, because the increase of the sugar price compared to a situation of free trade is to small to be worth the effort. For the producer of sugar however there is a big difference and therefore they will campaign, until know succesfully, for customer duties on foreign sugar. Rent seeking and corruption is a bigger problem than the possible oppression of the minority by the majority, that for logical reasons, see warning against a planned economy, is no problem at all.

Any kind of social transfers is considered a Road to Serfdom, because it requires an increase in taxes. However general statements of this type are meaningless in praxis. Is it already a Road to Serfdom if there are a allowance for children in tax system? In this case it can be argued that all the persons of a household pay the same tax, the income of the household is diveded by the members of the family. We can even say, that families pay higher taxes. In a houshold with an income of 5000 dollars and five members every member has an income of 1000 dollars. Is a minimum wage a Road to Serfdom? It can be argued that at a wage higher than the (monetary) marginal output of labour would lead to unemployement, but a wage below the (monetary) marginal output is not due to an abuse of power. Beside that the final impact of social transfers is unclear. The rich pay higher taxes, but the benefit from higher demand. We have no intention to discuss the topic here, but it is difficult to discuss about social transfers if we don't have a concrete mean and a concrete situation in mind.

That is the big difference between Milton Friedman and Friedrich Hayek. In most topics, beside the monetarian transfer mechanisms, they share the same opinions, but Milton Friedman applies abstract principles to concrete issues. That way at least it is possible to discuss about these issues, see Milton Friedman, although one didn't agree with his conclusions.

It is indeed useful to have some criteria to be taken into account when evaluating a situation. Those who believe that the government resolves a problem better than the goverment, because the government is not "greedy" and pursue always the "general" interest must explain why he believes that a bureaucracy doesn't pursue its own interest and why a public employee should work more than the absolutely necessary if he get the same payment at the end of the month in any case. To illustrate the problem with an example.

Economists can define some criteria to be taken into account when analysing a problem, but Friedrich Hayek is nothing more Adam Smith. This is as well true for Milton Friedman, if we put aside his monetary theory, that is nothing else than the application of the keynesian monetary transfer mechanism under very special assumptions, but at least Milton Friedman applies the criteria of Adam Smith to concrete problems.

There are an endless number of private institutions, most of them in part sponsored by the industry in any contintent aiming to promote the thinking of Hayek or the Austrian School in General. In Germany we have,,, etc. etc, in the USA,, etc. etc. in Southamerica etc. etc.. It seems that better than any other ideology Hayek is helpful in defending the interests of the industry. Lower taxes, lower environmental standards, dismantling labour rights etc. is a fight for freedom. That sounds much better than just saying that it increases profits. There is no doubt, that about all this issues could be discussed, however there is no need to mix these issues with freedom. The question is, whether these means are economically counterproductive or not. It they have no impact on efficiency, it is a question of distribution of the national income and that has little to do with a fight for liberty.

The author doesn't underestimate the risks of government intervention. Any time the government intervenes there is no direct and objective control over the allocation of resources, see homo oeconomicus. Any bureaucracy will pursue its own interests that have little to do with the common interest.

However it is of no help. An entrepreneur with a concrete problem with an absurd regulation won't convince a public employee by saying that is a road to serfdom. What is needed in this case is the power to campaign against this regualation and to prove that the same goal can be reached by other means or that the goal is nonsense.

Furthermore it is a stunning phenomenon that most of the freedom fighters of the Hayek type are public employees, most of them academic teachers of economics or working in the public financed discussion paper industry. At least the public financed never discussed discussion paper industry is a typical example for what is criticised by Hayek. Most of these people have no working experience and still less experience as entrepreneur.

Most of the freedom fighters of the Hayek style are marxists, although they believe to be the opposite, because public employees are always marxists. They spent money to write never discussed discussion papers with no impact, they have a lifetime job, what they earn is independent from the performance and their pensions are secure. That is exactly the situation of a worker in a socialist country.

As a "theory" Hayek is completely irrelevant and actually it is more a "philosophy". However Hayek is interesting from a marketing point of view. It is really stunning, that such a bunch of nonsense could become so famous and that the simple technique to offer for all the people who are unhappy with the government an explanation for their problems works and is highly profitable.

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