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- Under Biden Free Enterprise Means Government Control - July 20, 2021
- Appreciating F. A. Hayek’s Insights on Money and the Business Cycle - July 13, 2021
When Austrian economist Friedrich A. Hayek (1899–1992) wrote his famous book The Road to Serfdom (1944) in the midst of the Second World War, he mentioned in the preface that he had often been told by his socialist colleagues that he would, no doubt, hold an important position in a future planned society, if only he would come around to agree with them and espouse their collectivist values.
But he could not. He firmly believed that too many people in society were attracted to the socialist vision of a future society without being properly informed and aware of all that such a command economy would entail. In spite of the socialist assurances that government control of economic affairs did not mean any essential reduction or loss in personal freedom and social liberties, Hayek was deeply fearful that once government was responsible for economic planning, no facet of life would remain outside of the control of those in political authority.
I have always greatly admired Hayek for taking the stand that he did because no doubt his professional life would have been well rewarded with recognition and position if he had been willing to go along to get along. He would not have been the first to do so. A good number of free-market–oriented economists changed their tune during the years of the Great Depression, becoming proponents of Keynesian economics with its premise of a need for government monetary and fiscal management of “aggregate demand” to ensure full employment.
Those who compromised freedom
One example was the Harvard University economist Alvin Hansen (1887–1975). It would be an exaggeration to say that Hansen ever approached holding laissez-faire views during any period of his professional career, but in the early 1930s he was generally critical of excessive government intervention in the market, and viewed the economic downturn after the stock market crash in late 1929 as a needed adjustment period to restore a healthier balance to an imbalanced economy.
When John Maynard Keynes published his famous book, The General Theory of Employment, Interest, and Money, in early 1936, which became the lodestar for the Keynesian revolution, Hansen reviewed it in the Quarterly Journal of Economics. He concluded that the work was not the basis or foundation for a “new economics.” Instead it was a passing phase, he said, indicating the changing currents of uncertainty concerning how to correctly understand and remedy a serious depression like the one the world was going through.
Yet within a few years there was no more vocal or prominent advocate of Keynesian economics than Alvin Hansen. It won him stature and prominence in both the economics profession and in the arena of public policy discourse. I know nothing about the motives behind Hansen’s “conversion” to the Keynesian world view. He may have changed his mind in that direction for honest intellectual reasons, having come to be sincerely persuaded about the relevance and correctness of Keynes’s analysis. But it is, nonetheless, the case that coming around and holding those views and fervently arguing for them certainly raised his position in the American intellectual community.
Friedrich Hayek swam against the statist tide.
Friedrich Hayek, on the other hand, chose to swim against the tide. And as a result, his status and stature fell precipitously following the Second World War. From being considered one of the leading (anti-Keynesian) economists in the world and a forthright and prominent critic of the politics and economics of socialist central planning, he disappeared into an intellectual black hole. In the 1930s, he was the third-most cited economist in the economics journals of that decade. In the postwar period, he became an Orwellian “non-person.”
While I was an undergraduate majoring in economics at California State University, Sacramento, Hayek won the Nobel Prize in Economics in 1974. Virtually to a man, every one of my economics professors was baffled by the announcement of the prize. Who was Hayek, they asked? What had he ever seriously written to deserve such an award? Oh, yes, didn’t he write that political diatribe against government planning during World War II? Wait! Wasn’t he that out-of-step economist who assumed full employment when writing about the business cycle during the Great Depression of the 1930s? The Nobel committee must really have had to scrape the barrel of potential recipients to get to Hayek, they all thought.
People who knew Hayek said that for a long time he had bouts of depression that stymied his writing efforts. All that changed with the Nobel Prize. At the age of 75, Hayek experienced a new professional and psychological lease on life. When I met with him in the second half of the 1970s, I found him vibrant and bubbling with new and exciting ideas on economic theory and policy. He had been freed from the intellectual oblivion that clearly weighed heavily on him.
But for the three decades following the Second World War until his Nobel award in 1974, he never wavered in his dedication and defense of a classical-liberal, free-market view of man and society. The fruit of his time in intellectual exile, if you will, were his important works The Constitution of Liberty (1960) and Law, Legislation, and Liberty, published in three volumes over the 1970s.
Ludwig von Mises never compromised.
Another example of similar intellectual courage can be seen in the life of Hayek’s mentor and longtime friend, Ludwig von Mises (1881–1973). In the years before the Second World War, Mises’s place and stature in the European community of scholars was among the highest. Even before the First World War, Mises had laid the foundations for what became known as the Austrian theory of the business cycle, in his Theory of Money and Credit (1912; 2nd ed., 1924). In the immediate aftermath of World War I,
he established his international status with his insightful critique of the logical contradictions and impossibilities in any and all forms of comprehensive socialist central planning, especially in his book Socialism: An Economic and Sociological Analysis (1922; 2nd ed., 1932).
He also forcefully articulated the case for classical liberalism, argued against various forms of government intervention and regulation, and warned of the political and economic dangers from both Soviet- and Nazi-style totalitarianism. Both friend and foe of free-market liberalism and Austrian economics knew and considered Mises one of the leading figures of the time.
But he, too, disappeared into a black hole of intellectual nothingness within the community of academic scholars after the Second World War. Having come to America in 1940 as a refugee from war-torn Europe at the age of 59, he found it difficult to obtain a prominent university professorship; he was a “visiting professor” at New York University’s School of Business from 1945 to 1969, when he retired at the age of 89. That surely should have made him the longest “visiting” professor in history for the Guinness Book of Records.
The economics profession not only ignored Mises, it also ridiculed and satirized his views on socialism and on money and the business cycle. While still at California State, I wrote a short article about him for the student newspaper when he passed away in October 1973. One of my economics professors came up to me and seriously said, “Mises! Mises! I thought he died in the 19th century!”
Everyone who knew Mises during those years of his life in America said that in spite of his treatment by the intellectual community, he always was cheerful and full of the excitement of new ideas. (However, his Memoirs, written shortly after his arrival in the United States in 1940, shows his despair about the world in which he was living.)
But he never compromised, never wavered, in his dedication, determination, and diligence in defending the ideas of individual liberty and economic freedom. He wrote another half-dozen books and multitudes of articles on almost every theme of economic theory and policy during his years in America.
Frédéric Bastiat and his success in the face of failure
Let me also reference the French classical-liberal economist Frédéric Bastiat (1801–1850). Today, among classical liberals, libertarians, and many conservatives, Bastiat is well known for his famous monograph The Law, written shortly before his death. There, in about 50 pages, Bastiat lays down the principles of individual liberty and the role of a limited government in a just society. He explains the danger from “legalized plunder,” that is, the government’s becoming the violator of people’s liberty and property rather than their guardian.
Also written not long before his untimely death is his brilliant essay “What Is Seen and What Is Not Seen.” It is easy to see and be impressed by government actions that seem to raise some people’s prosperity or employment. But, Bastiat said, we must also do our best to see what is less directly seen: the things that did not come into existence because people’s money was taken from them. What are the less visible and indirect impacts of what government does, impacts that may make worse the very circumstances the government said it wanted to make better?
Once you look beyond what is seen, you realize that when government gives money to Peter, it must first take it from some Paul who is therefore worse off. When the government interferes with work and wages or how businessmen go about running their private enterprises, it creates perverse incentives that undermine the economic betterment that the government intervention was meant to advance.
Because of those writings and many more, Frédéric Bastiat is a leading light for those wanting to understand freedom and the dangers from collectivism in our world today. But in his lifetime, he experienced one intellectual frustration after another. He tried to publish a newspaper devoted to free trade, but it failed. He attempted to organize a free-trade association in France like the one that brought about the end to protectionism in Great Britain in the 1840s; he could not get the financial backing or the membership support for it to succeed.
He was elected a deputy to the French Parliament, but was unsuccessful in getting any important classical liberal–oriented legislation through the parliamentary process. He died in 1850, probably considering that a good part of his life had been a failure. Again, in spite of that, during the short period of the 1840s, when he was most active politically and as a prolific writer, he never allowed disappointment or perceived failure to lead him in any way to a compromise of his principles for liberty.
George Schuyler opposed all forms of coercion.
Finally, I recently wrote an article about George S. Schuyler (1895–1977), one of the most respected and widely read black journalists and authors of the middle decades of the 20th century. I would not be too surprised if few of those who are reading this article have ever heard of him. He was, nonetheless, one of the most biting, sarcastic, and ridiculing writers on white racism from the 1920s through the 1960s. Among many other places, his contributions appeared in The American Mercury in the 1920s and 1930s, when it was under the editorship of H.L. Mencken, and in The Freeman, both before and after it became a publication of The Foundation for Economic Education.
Schuyler was scathing in his contempt not just for racist attitudes among whites against blacks. As an editorial writer for one of the leading and largest-circulation black newspapers in America, beginning in 1942, during the war, he wrote over and over again against the forced internment of Japanese-Americans by the U.S. government. He stated that the violation of any individual’s liberty and constitutional rights threw everyone’s liberty and rights into potential jeopardy. It resulted in Schuyler’s being kept under FBI surveillance for the rest of the Second World War and even after as a subversive threat to the war effort by challenging the Roosevelt administration’s imprisoning of an entire ethnic group without evidence or proof of traitorous conduct on the part of any persons so designated.
But from being one of the most respected and recognized voices against racism and the segregation laws of the South, George Schuyler disappeared from the history of the defenders of freedom in America. Why? Because he was an advocate of individual liberty, free enterprise, impartial rule of law, and limited constitutional government.
In the 1960s, he spoke out against parts of the Civil Rights legislation that were proposed and passed during the Lyndon Johnson administration. He argued that forced integration was as unjust and inconsistent with a society of liberty as forced segregation. What freedom for the black man required was the repeal and abolition of all the Jim Crow laws that prohibited in any way the voluntary and free association among people, regardless of who they are.
But freedom did not include compelling association when some people did not desire it. Even if a private decision of non-association was based on racial bigotry, the government had no right to coerce interactions that the parties did not agree to. Bigotry and prejudice by persons could be done away with only through reason, persuasion, and example. It was not the role of government in a free society.
For that, and his criticism of some Civil Rights leaders concerning their goals and tactics, Schuyler was expelled from the black community of public figures. He was condemned as an apologist for white racists because he refused to support the use of political force to make people act in ways they did not want — no matter how foolish and absurd those people’s attitudes and beliefs might be.
Marginalized and limited to getting his articles published in a handful of conservative magazines, Schuyler never compromised his principles of individualism, free markets, and the ideal of human relationships based on voluntary consent. He remained true to himself and to his principles.
Freedom faces progressive and conservative opponents.
Friends of freedom live in personal, social, and political surroundings that are very often hostile to expressions of the ideas of liberty. Particularly in a political environment like that in contemporary America, the polarization of views is centered on merely alternative variations on the same collectivist theme. On the political Left, the progressives and democratic socialists call for the virtual end to the remainders of private enterprise and competitive markets in America. They wish to plunder our pockets even more deeply than has been done already.
Those on the Right have been captured by the mindset of Donald Trump, who says never a word, it seems, about liberty or limited government, but who issues a rhapsody of tweets on how trade wars are fun and easy to win, that businesses had better invest and employ where he thinks they should. And who dreams of a far more restrictive immigration regime, with no thought to the right of peaceful people to go about their affairs when and where they want on the basis of mutual agreement and trade. In other words, Trump conservatism represents a remade mercantilist planning system.
The Republicans and many conservatives have lost any political compass of directing principles. Trump supporters will point to the fact that he has lowered personal and corporate taxes and reduced a noticeable variety of government regulations over private enterprises. But those policies were not based on a philosophy of freedom, but on a mercantilist paternalism of government’s knowing best; thus, some taxes are lowered and other taxes (tariffs on imported Chinese and other goods) are raised according to the president’s plan for “Making America Great Again.”
There is no suggestion, you will notice, of “Making Individual Americans Free Again.” But that is what classical liberalism and libertarianism are fundamentally all about, what their vision and desired goal is focused on. That means that the friend of freedom is often in an unattractive position in that he must challenge both the progressives and conservatives; the social-welfare paternalists and the nationalist paternalists.
Principle is called for, not compromise.
The friends of freedom can lie low and not rock the boat by disagreeing with others, so as not to make relationships uncomfortable for themselves. They may compromise in such trying times, and “give in” to the democratic socialists or the Trumpian nationalists; sure, we need freedom, but what about a very modest universal guaranteed income, or only modest tariff increases to “teach the Chinese a lesson”?
Each of such steps moves us incrementally that much more away from liberty, and incrementally closer to comprehensive government control over our lives. “But we can stop it from going too far,” say the compromisers. The answer is: No, you cannot. Just look at the last 100 years. “Well, a little bit of government regulation; a little bit of government redistribution; a little bit of government intrusion into people’s personal and social affairs; just a little bit of government foreign intervention where it is ‘really needed.’” The “little bits,” may I suggest, end adding up to a lot. It is how we got into the political and economic dilemma we are in.
The only way to stop that from happening is by returning to and remaining true to first principles. Not to waver in the face of pressures not to “be so extreme.” F.A. Hayek, Ludwig von Mises, Frédéric Bastiat, George Schuyler, and others paid heavy personal and professional prices for being true to the idea and ideal of liberty. But they all ended their days, from all indications, without any regrets or second thoughts.
By doing so they have left us not only the words they wrote to inform us, but also the examples of their lives dedicated to liberty to inspire us. Let us follow their lead and restore a society of freedom.
[Originally Published at the Future of Freedom Foundation]