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A SUBSTITUTE END FOR SOCIALISM? F. A. HAYEK AND KEYNESIAN FULL-EMPLOYMENT POLICY*

Published online by Cambridge University Press:  07 November 2011

ANDREW FARRANT  and
EDWARD McPHAIL
ANDREW FARRANT*
Affiliation:
Dickinson College, Carlisle, USA
EDWARD McPHAIL*
Affiliation:
Dickinson College, Carlisle, USA
*
Andrew Farrant: Department of Economics, Dickinson College, Carlisle, PA 17013, USA[email protected]
Edward McPhail: Department of Economics, Dickinson College, Carlisle, PA 17013, USA[email protected]
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Abstract

This paper provides a caveat to Ben Jackson's article ‘At the origins of neo-liberalism’. Though agreeing with Jackson that many early market liberals did not particularly object to Keynesian policy and the nascent welfare state, we make use of archival and published material to help shed light on F. A. Hayek's assessment of Keynesian policy. In particular, we argue that Hayek had adopted a negative view of Keynesian policy and the welfare state as early as the mid- to late 1940s.

Type
Communication
Information
The Historical Journal , Volume 54 , Issue 4 , December 2011 , pp. 1115 - 1123
Copyright
Copyright © Cambridge University Press 2011

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Footnotes

*

We thank the editor, two anonymous referees, and Richard Toye for very helpful comments and suggestions. Permission to quote from the Hayek archives was granted by the Estate of F. A. Hayek.

References

1 Hayek, F. A., The road to serfdom (Chicago IL, 1994 (orig. written in 1944)), pp. 199–200Google Scholar.

2 Jackson, B., ‘At the origins of neo-liberalism: the free economy and the strong state, 1930–1947’, Historical Journal, 53 (2010), pp. 129–51CrossRefGoogle Scholar.

3 Ibid., p. 130.

4 Ibid.

5 Hayek, F. A., ‘Genius for compromise’, Spectator, 26 Jan. 1945, pp. 75–6Google Scholar.

6 Hayek, F. A., quoted in Farrant, A. and McPhail, E., ‘Hayek, Samuelson, and the logic of the mixed economy?’, Journal of Economic Behavior and Organization, 69 (2009), p. 5Google Scholar.

7 ‘The recent experience of Great Britain … confirms once more what had been seen many times before: while it is hoped that central planning will help to overcome particular economic difficulties, it in fact only increases and aggravates them’, Hayek, F. A. 1948, quoted in Farrant, A. and McPhail, E., ‘Hayek and the sorcerer's apprentice: whither the Hayekian logic of intervention?’, American Journal of Economics and Sociology (forthcoming)Google Scholar.

8 ‘People will find they can't live with constantly rising prices and will try to control it by price controls and that of course is the end of the market system and the end of the free political order … it will be via the attempt to regress the effects of a continued inflation that the free market and free institutions will disappear’ , F. A. Hayek quoted in W. Grinder and J. Hagel, ‘The Austrian theory of the business cycle’, in P. K. Klitgaard, ed., The dynamics of intervention (Oxford, 2005), p. 179.

9 Hayek, F. A., ‘Good and bad unemployment policies’, Sunday Times, 30 Apr. 1944, p. 4Google Scholar.

10 Jackson, ‘At the origins’, p. 147. Jackson invokes Hayek's notes from the 1947 Mont Pelerin Society session on ‘Contra-cyclical measures, full employment and monetary reform’ to buttress his thesis (see p. 149). The notes, however, suggest that Hayek himself did not participate in the discussion.

11 Hayek, Road, pp. 134–5.

12 Ibid., p. 135. Elsewhere, Hayek noted that when ‘the central and local authorities directly control the use of more than half the national income … they control indirectly almost the whole economic life of the nation’ (ibid., p. 68).

13 Ibid., p. 135.

14 Jackson, ‘At the origins’, pp. 148–9.

15 Hayek, Road, p. 134.

16 Jackson, ‘At the origins’, p. 148.

17 Hayek's 1948 postscript somewhat fleshed out the ‘nature’ of the macroeconomic planning in ‘the good sense’ at which Hayek had scarcely more than hinted in The road to serfdom itself. F. A. Hayek, ‘Postscript to The road to serfdom’, typescript, Hayek, pp. 106–10, F. A. Hayek papers, Hoover Institution Archives, Stanford University, p. 12 (hereafter Hayek, ‘Postscript’).

18 Jackson, ‘At the origins’, p. 148.

19 Hayek quoted in ibid., p. 149.

20 Hayek, ‘Postscript’, p. 9.

21 Ibid.

22 Ibid., p. 10.

23 Ibid., p. 11.

24 Ibid., p. 12. Hayek is alluding to the disagreements over capital and interest theory that had arisen during his early to mid-1930s exchanges with Piero Sraffa, Frank H. Knight, and Keynes himself. Keynes argued that Hayek's business cycle theory provided ‘an extraordinary example of how, starting with a mistake, a remorseless logician can end up in Bedlam’ in B. Caldwell, ed., Contra Keynes and Cambridge: essays, correspondence (The collected works of F. A. Hayek, ix (Chicago, IL, 1995)), p. 154. For Sraffa, Hayek's ‘maze of contradictions makes the reader so completely dizzy that when he reaches the discussion of money he may out of despair be prepared to believe anything’ (ibid., p. 201). Frank H. Knight noted in bemusement that he wished ‘someone would try to tell me in a plain grammatical sentence what the controversy between Hayek and Sraffa is about. I haven't been able to find anyone … who has the least idea’ (ibid., p. 37).

25 Hayek, ‘Postscript’, p. 12. A detailed analysis of the minor ways in which Hayek's view of monetary policy altered between the 1930s and 1970s can be found in Farrant, A. and McPhail, E., ‘Hayek, Keynesian economics, and planning against competition: a caveat?’, History of Economics Review, 53 (2011), pp. 1–10CrossRefGoogle Scholar.

26 Hayek, ‘Postscript’, p. 12.

27 Ibid. Despite having ‘grave defects … the gold standard … made monetary policy in a great measure automatic and thereby predictable … the changes in the supply of basic money which its mechanism secured were on the whole in the right direction’ (see Hayek, F. A., Individualism and economic order (Chicago, IL. 1948), p. 209Google Scholar). Similarly, ‘the automatic operation of the gold standard is far from perfect … under the gold standard policy is guided by known rules’ (ibid., p. 210).

28 Ibid., p. 112.

29 Hayek, ‘Postscript’, p. 13.

30 Ibid., draft notes.

31 Ibid., p. 13.

32 Hayek, ‘Good and bad unemployment policies’, p. 4.

33 Ibid.

34 Machlup quoted in B. Caldwell, ed., The road to serfdom (Chicago, IL, 2007), p. 15.

35 Jackson, ‘At the origins’, p. 149.

36 Ibid.

37 F. A. Hayek, ‘Full employment illusions’, Commercial and Financial Chronicle (New York), 164, no. 4, 508 (18 July 1946). Reprinted in A tiger by the tail: the Keynesian legacy of inflation (Institute of Economic Affairs and Ludwig von Mises Institute, 2009), pp. 142–51.

38 Ibid., p. 144.

39 Ibid., p. 146.

40 Ibid., p. 143. Similarly, Hayek noted that ‘vague but popular phrases like ‘full employment’ may well lead to extremely shortsighted measures … the categorical and irresponsible “it must be done at all cost” of the single-minded idealist is likely to do the greatest harm’ (Hayek, Road, p. 226).

41 Hayek, ‘Full’, p. 145.

42 Ibid., p. 146.

43 Ibid., pp. 150–1.

44 Hayek, ‘Postscript’, p. 14.

45 Ibid.

46 F. A. Hayek 1948, quoted in Farrant and McPhail, ‘Hayek, Samuelson, and the logic of the mixed economy?’, p. 8.

47 F. A. Hayek, ‘Preface to the 1956 paperback edition of The road to serfdom’ (Chicago, IL. 1994 [1956]), p. xlii.

48 Toye, R., The Labour party and the planned economy, 1931–1951 (Woodbridge 2004), pp. 4–5Google Scholar.

49 Brooke, S., ‘Problems of socialist planning: Evan Durbin and the labour government’, Historical Journal, 34 (1991), pp. 687–702CrossRefGoogle Scholar, at p. 687.

50 Hayek, ‘Genius for compromise’, p. 75. These remarks later appear verbatim in Hayek's 1948 postscript. Hayek's argument is seemingly intended to provide a rejoinder to Harold Nicolson's negative evaluation of Hayek's claim that interventionist policy would mutate into totalitarian planning. Nicolson had argued that Harold Macmillan's The middle way provided an apt antidote to Hayek's view. See Farrant, A. and McPhail, E., ‘A response to Caldwell on F. A. Hayek and the Road to Serfdom’, Challenge, 54 (2011), pp. 98–112CrossRefGoogle Scholar.

51 Jackson, ‘At the origins’, p. 147.

52 Cockett, R., Thinking the unthinkable: think-tanks and the economic counter-revolution, 1931–1983 (London, 1994)Google Scholar.