On the merits of Hayek’s *Road to Serfdom*

by on May 9, 2013 at 3:56 am in Books, History, Philosophy, Political Science | Permalink

I’ve seen this work bashed a number of times in the blogosphere over the last few years.  It didn’t get everything right, but it remains an important and seminal work and at the time of its publication it was a revelatory work.  Let’s turn the microphone over to Albert Hirschman, hardly a right-wing ideologue.  This is from Jeremy Adelman’s very useful biography of Hirschman:

…when he [Hirschman] found a copy of Friedrich von Hayek’s recently published…The Road to Serfdom in a Rome bookstore, a nerve was struck: “Reading this book is very useful for someone like me who grew up in a ‘collectivist’ climate — it makes you rethink many things and has shown me in how many important points I have moved away from the beliefs I had when I was 18 years old. The experience of the army has also confirmed or rather demonstrated forcefully the advantages of a monetary society, anonymous, and where one preserves at least a sector of private initiative.”

…Even more than a reminder of his skepticism of statist planners, Hayek got at something Hirschman felt strongly: the need to acknowledge the basic limits to the “intelligibility” of our complex world.  Leaders were wont to claim complete knowledge when they did not have it and thus to squash the individual’s ability to make adjustments “to changes who cause and nature he cannot understand.”

Hirschman was never convinced by Hayek’s desire to rely so heavily on the market, but in this appreciation of the book you will find more wisdom than in the recent attempted take downs.  In essence, the critics are not grasping how backward was the intellectual climate when Hayek’s book came out and what a useful corrective it was.

By the way, here is a new and good Cass Sunstein review of the Adelman bio of Hirschman.

Addendum: From the comments, Ricardo points us to Sen’s nice words about the book.

Ricardo May 9, 2013 at 4:36 am

Amartya Sen also had some nice things to say about “The Road to Serfdom.”

Rahul May 9, 2013 at 9:55 am

As an aside, Economics is unique among the quantitative sciences for the scale of its adulation of the opinions of long dead men and long ago written books. No matter whether Hayek or Keynes.

Sometimes, I wonder whether that inadvertently plays a role in depressing the science-to-ideology ratio of the profession.

??? May 11, 2013 at 11:53 am

Conversely, it’s also unique among the social sciences for its relative NON-adulation of the opinions of long-dead men. And frankly, in economics, most of said adulation is done by non-productive ‘scholars’ who want to substitute appeals to dead authority in over measured analysis. If you want to check out this substitution, see Greg Ransom’s insane rumblings below!

Greg Ransom May 9, 2013 at 1:19 pm

There is a letter from Imre Lakatos to Hayek expressing the profound impact Hayek’s The Road to Serfdom had on him in the early 1950s when he was among a handful within communist Hungary allowed to read such things.

Greg Ransom May 9, 2013 at 1:35 pm

The secret little fact of history is that a number of fairly familiar people where utterly transformed by their reading of Hayek, and they have said so, including, among others, New Deal economist Milton Friedman. But the significant fact is — as historian of political economic ideas Alan Brinkley notes — is that a significant and profound change of thinking extended across the ideological spectrum.

Find some of the others who can be found explaining how their thinking was significantly changed or informed by Hayek:

http://hayekcenter.org/?page_id=5

Sociologist Robert Nisbet tells the story of having his view of the world changed while reading the Reader’s Digest version of The Road to Serfdom on the way back from the Pacific in a troop carrier, one of hundreds of thousands of American soldiers with a copy of the article in their bag on the long voyage back from war. Who were all of the millions of people who read and got something out of the Reader’s Digest version of The Road to Serfdom? Or who the hundreds of thousands were who read the book itself? It’s impossible to know, although some we do know, Keynes, Churchill, Thatcher, Reagan, at least half dozen US Supreme Court members, etc.

Much of history is unknown.

Who knows the impact of the ideas of Hayek in the thinking of Leonid Hurwicz, John Hicks, Karl Popper, John Maynard Keynes, Armen Alchian, Joaquin Fuster, or intertemporal equilibrium theory, information theory, etc.? Pretty much no one.

Greg Ransom May 9, 2013 at 1:45 pm

Another on the record as being utterly transformed by Hayek is Robert Nozick — its hard to image a good deal of Nozick’s contribution without Hayek, including his epistemology, which has Hayek inspiration at its core (“tracking” is directly linked by Nozick via citation to Hayek) and in its various mechanisms.

The Hayek bashing is an embarrassment to scholarship and the academy, and it has a long history. Hayek talks of physically feeling the hostility toward him from the faculty at many economic departments — politically and ideologically grounded hostility, with its source being fundamentally The Road to Serfdom.

Greg Ransom May 9, 2013 at 1:53 pm

And the attempted smearing and blackballing goes on.

There is an ongoing effort to link Hayek to National Socialism & link Hayek to Hitler. Well, conservative-hater and Hayek-basher Corey Robin has come up with a high concept scheme to do so, linking Hayek to Hiter via Nietzche — really.

There is an argument about wealth & experimentation Hayek takes straight from Mill and others, and Robin in The Nation manages to fabricate that into a link to Nietzsche and the National Socialist killing machine. It’s a long and tortured routine, but Robins gets where he want to go,

dead serious May 9, 2013 at 3:06 pm

“There is an ongoing effort to link Hayek to National Socialism & link Hayek to Hitler.”

That seems foolish when the illustrations themselves depict Hitler’s rise. One cartoon panel invokes Hitler’s name.

Chris Marks May 9, 2013 at 3:50 pm

Anyone who links Hayek to the Nazis is bat poop insane.

Brandon May 9, 2013 at 4:59 pm

Robin seems to spend much more time linking Hayek to Pinochet than anyone else.

Greg Ransom May 10, 2013 at 12:47 pm

Robin’s current preoccupation has been to link Hayek to Nietzsche & Nazism.

Ricardo May 10, 2013 at 9:44 am

Robin is more interested in linking Hayek to Nietzsche and to understanding why so many on the right, like Hayek, celebrate free markets even while showing signs of influence from a thinker who despised the vulgarity of commerce.

The key quote is not the one on wealth and experimentation but rather the quote from Hayek’s “The Constitution of Liberty”:

“What is important is not what freedom I personally would like to exercise but what freedom some person may need in order to do things beneficial to society. This freedom we can assure to the unknown person only by giving it to all.”

This is not exactly the stuff of “We hold these truths to be self-evident, that all men are created equal.” — what makes freedom worthwhile is the small number of “unknown persons” who will use freedom to push the frontiers of civilization. That’s a good catch by Robin. I don’t know enough about Hayek after “The Road to Serfdom” (“The Constitution of Liberty” was written 16 years later) but this does seem to suggest a Nietzschean contempt for the vulgarity of the masses and a celebration of elite value-creators. Hayek was also deeply suspicious of democracy at least in his later years and Mises was even more explicit on these points.

Greg Ransom May 10, 2013 at 12:52 pm

There is a link between Hayek and John Stuart Mill and Bernard Mandeville and other British Enlightenment thinkers on the topic Robin explores (rather incompetently and in an utterly misleading way to the extend of being dishonest.)

There is no link between Hayek and Nietzsche.

Hayek only once or twice mentions Nietzsche and his mentions do not display familiarity or competence in Nietzsche’s work.

W. Peden May 11, 2013 at 9:07 am

Where did you get “small number” from the claim that the “unknown person” is not “all”? Are Christians a small number of people because not everyone is a Christian?

If Hayek was into celebrating “elite value-creators”, then we’d presumably be able to find a much better quote than that. Moreover, what Hayek says about morality in his later work EXPLICITLY contradicts a Nietzschean metaethics, i.e. it’s constructed (as opposed to evolved) morality that Hayek dislikes.

When we actually have Nietzsche-influenced thinkers (Herbert Marcuse, Brian Leiter, Jean-Paul Sartre, Jacques Derrida, Jack London, Michel Foucalt, Richard Rorty, H. P. Lovecraft etc.*) we don’t have to just look for “suggestions” and misinterpret quotes. Real-life Nietzcheans are not a shy bunch.

* You might notice that these were all left-wing thinkers. That’s because, particularly since 1945, Nietzsche’s greatest influence has been on the left. In America in particular, Nietzsche makes for a much better thinker for the culture-war philosophy that drives much of the academic left than, say, Marx or (the now utterly forgotten) Laski. However, when a left-wing thinker is heavily influenced by Nietzsche or Heidegger, people don’t jump to Nazi associations.

Hayek was suspicious of democracy, but not on Nietzschean grounds. Nietzsche’s critique of democracy and egalitarianism was based on an elitist low-regard for “the masses”, whereas Hayek’s was based on a low-regard for the ability of anyone- masses or elite- to be able to handle unconstrained power.

Alexandre delaigue May 9, 2013 at 4:47 am

“In my opinion it is a grand book … Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.” Keynes on “the road to serfdom”.

Bruce B May 9, 2013 at 8:26 am

But we can no longer be so reasonable! Hayek and Keynes have attained major prophet status and their works are sacred canon to the modern political right and left. To state that both were smart men who got some things right and some things wrong is to invite abuse from both sides!

RPLong May 9, 2013 at 9:09 am

haha… +1

LeonK May 9, 2013 at 9:55 am

All the points.

agorabum May 10, 2013 at 5:44 pm

The problem is in your “some things.” What people on the left are in such a fuss about is the disregard of Keynes prescription on how to fix demand in a zero monetary bound / recessionary situation, and the rejection of Keynes to embrace austerity. I don’t know of any prominent leftish economists that say Keynes is never wrong. They do say (Krugman, DeLong, etc.) that Keynes is right about the specific issue of austerity.
Where Hayek is wrong is that any government intervention in the economy will lead to serfdom, and that totally unfettered free markets (essentially pre-Lochner) was the only hope. He was right in seeing that fascism and soviet communism were much closer to each other than they liked to believe, and to the extent that a heavy government hand is bad.

Brian Donohue May 11, 2013 at 10:26 am

Yes of course- circumstances! Very Burkean. Keynes and Hayek agree.

What drives people not on the left nuts is the cavalier application of words like ‘austerity’ to a $17 trillion debt, $500 billion deficit, demographic reality looming situation.

Kent Guida May 11, 2013 at 1:24 pm

Great Keynes quote. Where is it from? Never heard it before.

Doug May 9, 2013 at 5:16 am

Modern day critics of Hayek are always rooted in some variation of the argument that post-war Western democracies, particularly Western Europe, invalidates the work. That modern day social democracies and welfare states do indeed exercise a high degree of economic command and control, and they haven’t degraded into totalitarian tyrannies. The historical lesson would seem to indicate that it is quite possible to separate economic freedoms from personal and political freedoms.

My response to this mirrors Zhou Enlai’s assessment of the French Revolution: it’s too soon to tell. The modern-day social democracies that we’ve come to take for granted as skillfully and stably balancing the needs of liberty and equality are still very young. A hundred years at most for the oldest. Really nothing more than a historical blink of the eye.

I’d wager that at the rate things are moving Hayek might just yet be proven right. The Western democracies appear to be stuck in a spiral of crises that based on history all too frequently crescendos in totalitarianism. It seems to me that Paris does not have many more decades, let alone centuries, to keep soldiering on through its status quo socialist welfare democracy unscathed.

Mike H May 9, 2013 at 11:37 am

“That modern day social democracies and welfare states do indeed exercise a high degree of economic command and control, and they haven’t degraded into totalitarian tyrannies.”

Western European “welfare states” have consistently scored high on the economic freedom index, see:
http://upload.wikimedia.org/wikipedia/commons/e/e2/GM_-_Countries_by_Economic_Freedom_Index.png

Also it is debatable whether high social welfare and the high tax rates needed to support it are symptomatic to the centralized economic planning that Hayek had in mind when he wrote the Road to Serfdom. True, redistribution of income still qualifies as economic planning in the long term, but I am not so sure that the modern day European politicians and bureaucrats have any higher command and control over their local economics than say the historical German social democratic government had over the Weimar Republic. If you look at the 1920s and 1930s, economic interventionism was the norm and everyone (including the conservative elements) back then was cheering for more government “plans” over the market. Hayke actually made a lot of major concessions in The Road to Serfdom by saying that we need “some” plans, just not too much that the market couldn’t function.

JWatts May 9, 2013 at 3:09 pm

Western European “welfare states” have consistently scored high on the economic freedom index, see:\
Looking at the graph it looks to me as if a lot of Western European states score in the middle of the index and not at the high end.

Mike H May 9, 2013 at 8:06 pm

True. But they still do much better than say China, Brazil or the rest of the third world. My point being that Western European welfare states possess other elements of economic freedom (excellent protection of property rights, fair and affordable legal system, free trade etc.) that offset the economic inefficiencies resulted from their high welfare spending and taxes.

If countries like China or Brazil start implementing European-style welfare state without first liberalizing their economies, that is when we will see more spectacular examples of the Road to Serfdom.

perfectlyGoodInk May 9, 2013 at 6:31 pm

On the flip-side, look at China’s government, which has been liberalizing economic command and control while maintaining a totalitarian tyranny on the political side.

The Original D May 9, 2013 at 11:46 pm

Zhou Enlai was not talking about the French Revolution of 1789. He was talking about the 1968 Paris riots.

http://www.ft.com/cms/s/0/74916db6-938d-11e0-922e-00144feab49a.html#axzz2SrFpoihu

W. Peden May 11, 2013 at 9:12 am

Hayek doesn’t argue in the Road to Serfdom that government welfare leads to totalitarianism. The issue in the book is economic planning.

(He did try to link up government welfare to economic planning in later bits and pieces, without success.)

Warren Oliver May 9, 2013 at 5:44 am

George Stigler (Chicago School economist, founding member of the Mt Pelerin Society) wrote in 1988 (Unregulated Economist pp146-7)
“I believed much more in the central theme of the Road to Serfdom when it first appeared than I do now… The proximate reasons that the darkly pessimistic predictions of conservatives have not been fulfilled are two. First, the predictions were based on their special view of freedom: Freedom as consisting only of the lack of coercion by the state, so that the widening range of choices due to the growth of income and education is not an effective increase in freedom in Hayek’s view, although it is in mine. The second reason is more interesting. Hayek denied that piecemeal regulations of a hundred different industries and callings could survive. The conflicts and inconsistencies would force the adoption of a single, centralized all-comprehensive plan — and that plan could allow little individual choice. But that multitude of inconsistent, partial interventions by the state in economic life is exactly what we have. Hayek’s orderly mind could not comprehend the survivability of our disorderly world.”

I would speculate that Hirschman was comforrtable with disorder.

derek May 9, 2013 at 10:07 am

Well, for one when Hayek wrote there was a centrally controlled serfdom that by the late 70′s still controlled a very large part of the world. And was celebrated amongst the intelligentsia. Does anyone even remember that?

I was in business in 1988, and had very little regulatory interest. I didn’t collect taxes for the federal and provincial governments, there were safety regulations but they were not onerous nor intrusive. I am in business now, a different business, but the intrusion of the state into my economic freedom is substantially higher. I’m collecting taxes for two levels of government, and much of the regulatory requirements are essentially reporting. The occupational safety regime is very heavy and onerous. Every product I use is now strained through some government initiative of some sort, from the containers to the equipment itself. What I’m dealing with is being on the bottom end of regulatory capture, where the people I buy from are far more interested in pleasing a government agency to maintain monopoly or limit competition than making something that works.

My clientèle requires a bit more expertise so I don’t have to deal with this, but the biggest competition for most small businessmen are those who don’t follow the rules and work underground. If you don’t pay taxes, don’t pay permits and fees, structure your help as subcontractors so you don’t pay payroll taxes or other employee fees to government, they start 20% or so cheaper.

The authority having jurisdiction over my endeavors has publicly said that their regulatory activities are not subject to the Charter of Rights and Freedoms in the Canadian constitution. That means search and seizure, due process, all those niceties don’t apply to the government oversight of what takes up most of my waking hours and feeds my family.

I honestly think that we fail to see how indentured we are. In these tough economic times the difficulties show. The Soviet Union collapsed not because they couldn’t make things and have almost everyone working. The system they had was so rigid that it couldn’t react to changes in the environment.

Today, in the US and Europe, places where it is tough, how much of what folks are doing to get by is illegal? I know folks who cook pastries or ethnic specialities in small quantity for sale, sell all they make for some cash. How about making some knick knacks for kids, some wooden toy, again for some money so you can buy food? How much of the economy that lots of people live on in difficult areas is illegal? It’s spring, your yard needs cleaning, the eaves painted, maybe swap out a window that was leaky. Do you know the serfdom required to do these small tasks legally?

msgkings May 9, 2013 at 1:16 pm

There is some evidence that (in the US at least but surely elsewhere too) in the global recession cash transactions/underground/black market/off the books commerce has indeed grown, and it’s one of the reasons why at least in the US consumer spending has continued to grow at a healthy pace even though official incomes and employment have not.

http://www.newyorker.com/talk/financial/2013/04/29/130429ta_talk_surowiecki

Brian Donohue May 9, 2013 at 2:06 pm

derek FTW!

JWatts May 9, 2013 at 3:24 pm

The occupational safety regime is very heavy and onerous.

+10 regarding OSHA.

The current Arc Flash safety rules are ridiculous. If you are on a plant floor and within 3 feet of a live 50V circuit, you must wear the proper safety gear, including: eye protection, long sleeve shirt, gloves, long pants and shoes. Think about that requirement for a minute and then think about it being applied to an office environment.

Brandon May 9, 2013 at 5:03 pm

Can you cite that rule? I’ve been on many plant floors that are particularly strict about safety requirements and haven’t experienced that.

JWatts May 9, 2013 at 5:27 pm

OSHA Regulations CFR 29 1910.331 – 1910.335 – Electrical Safe Work Practices & NFPA 70E Electrical Safety in the Workplace.

Here’s a comment on it:

OSHA regulations, NEC standards, and NFPA 70E have mandated that industry have an electrical safety program along with electrical safe work procedures. OSHA adopted regulations on safe electrical work practices in 1990 based on NFPA 70E, and is proposing a revised standard that conforms to the most recent editions of NFPA 70E. Given that the NEC (National Electrical Code) and OSHA have both started referring to it in their documents, citations are now being written based on NFPA 70E. NFPA 70E applies to employees who work on or near exposed energized electrical conductors or circuit parts. This includes electrical maintenance personnel, operators, troubleshooters, electricians, linemen, engineers, supervisors, site safety personnel or anyone exposed to energized equipment of 50 volts or more. The goal of the standard is to keep electrical workers free from the hazards of shock, electrocution, arc flash, and arc blast.

Brandon May 9, 2013 at 5:51 pm

Thank you.

It doesn’t make sense to say “think about it being applied to an office environment” unless you’re talking about somebody working on exposed and energized equipment. It doesn’t mean that you can’t come within 3ft of a 115VAC outlet on a plant floor without PPE, just that you can’t work on a live circuit without it.

JWatts May 9, 2013 at 10:08 pm

, just that you can’t work on a live circuit without it.

No, it’s more than than that. You can’t come within 3 feet of it without full PPE gear regardless of whether you are working on it or not and the exposed comment is any possible exposure where a tool could reach a live circuit. And if you’ve ever been within 3 feet of a power strip where the plug wasn’t securely in an outlet (ie you can see the metal prongs) or the cable is in anyway frayed or there is a lamp without a bulb in it, etc you are subject to being cited by OSHA unless in PPE gear. And I’ve seen all of those conditions in office environments.

Brandon May 10, 2013 at 10:28 am

Do you have real-world experience on plant floors, especially plants incredibly conscious of their “safety culture?” I do, and your depiction of the rules has not been my experience at all. If the equipment can’t be de-energized, wear your PPE or otherwise shield the exposed parts (e.g. many panel-mount transformers have optional protective covers for the terminal points that are considered sufficient; a thick sheet of plastic can also be laid over exposed terminals if the voltage isn’t too high).

That regulation stresses that, unless it’s essentially impossible, you should de-energize any high-voltage (>50V) equipment prior to working on it. If you can’t, you need proper PPE. You shouldn’t be using frayed cords, anyway, so good for OSHA for disallowing that. I’d be shocked if OSHA has ever cited anyone for a partially plugged-in power strip and not just told them to push it back in, problem solved.

Enrique May 9, 2013 at 6:40 am

A friendly but powerful critique of Hayek can be found in Stigler’s essay “Wealth, and possibly liberty,” published in the Journal of Legal Studies in 1978. In my own view, Hayek’s critique of central planning is correct, but his definition and defense of liberty are shallow, see, e.g., mu critique of milton friedman at http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2193913

john knox May 9, 2013 at 8:21 am

So you really think there’s no difference in kind between private firms that have to compete with other private firms and the government? The fact that they both are hierarchically organized and engaged in central planning makes them the same thing? “Each firm is a kind of miniature ‘command-and-control’ economy since the decisions within the firm are based on hierarchy and planning. Indeed, the difference between a large firm, such as General Motors, and a small socialist country, is one of degree and not of kind. Of course, as Coase duly noted, firms are constrained by the competition of other firms, but my larger point is that Friedman’s dogmatic approach towards markets causes him to forget about the existence of firms. ” p. 12. That constraint seems like the most important fact of all and, in fact, makes them entirely different things. Firms go out of business, governments don’t (unless violently). And you also think that Friedman forgot about the existence of firms?

whatsthat May 9, 2013 at 9:59 am

You are assuming competition exists always everywhere. This is incorrect. Further you are assuming the existence of competition is necessary for firms to perform efficiently. This is also incorrect.

The fact that economic theory has very little to say about the inner workings of the firm should cause more work, simply handwaving this issue aside by saying competition makes it alright is entirely unsatisfactory.

john knox May 9, 2013 at 10:34 am

Wow. Please learn to read and not impute positions to people that they haven’t taken. Where did I assume that competition exists everywhere? That competition is necessary for firms to perform efficiently? That’s right, no where. Even when they don’t face effective competition, firms go out of business all the time because they are inefficient, stupid etc. But that’s the point, firms go out of business, governments don’t.

And of course when firms capture the regulatory apparatus they don’t face competition and also when they are monopolies. But if they are reaping monopolistic profits, those profits invite competitors.

And are you saying that market constraints and competition don’t matter for firms? I won’t stupidly say that you’re making assumptions that you haven’t expressed.

whatsthat May 9, 2013 at 11:09 am

Fair point, it was unfair of me to assume what you decided to be vague about…ha ha.

More seriously, competition will not matter for a monopoly – how can it? Will the consequent profits invite competitors? It depends, what if the firm has a 20 year license to monopolize.

Not sure about how governments don’t go out of business; they can be voted out.

- Stupid, Illiterate comment-maker.

john knox May 9, 2013 at 11:22 am

No reply option to your last comment so I’ll post it here.

Thanks for making my point about capturing the regulatory apparatus with the 20 year license. And oh yes when Obama was elected out went the entire government, Department of Labor, Ed, Pentagon, etc. etc. etc. We just started completely over.

And my deepest apologies for not writing an entire treatise in a blog post stating every obvious fact so that you wouldn’t be confused about every position that I hold.

whatsthat May 9, 2013 at 11:55 am

Okay, why is a 20 year license necessarily a reflection of regulatory capture?

I’m still confused. Do you maintain that competition is the only way to promote efficient outcomes? Because I don’t think this is always the case.

Enrique May 9, 2013 at 12:13 pm

To John Knox — I appreciate your comments — you are right to point out the problem of corruption and coercion by government — but what about corruption and coercion by firms? — yes, competition can be an effective check but not always — a lover of liberty should address all forms of coercion, from whatever source — also, ere is an optimal level of coercion, otherwise we would have no laws

john knox May 9, 2013 at 12:21 pm

No just most of the time.

It would depend on the license. If it’s to protect intellectual property, i.e. pharmaceuticals, no. If it’s to limit competition yes. It’s not exactly news that a huge amount of rent seeking occurs by those seeking government licenses to limit competition.

john knox May 9, 2013 at 7:15 pm

Hi Enrique, What kind of coercion do you mean by private firms? I am concerned about private coercion but most of the time it’s when it’s combined with the power of the state. If individuals are free to either leave a firm or purchase services from another firm, I don’t get too worked up. It’s the power of the sovereign combined with private motive that is most disturbing to me. A lot of time when people complain about private coercion, though, they seem to have in mind something like my employer isn’t as nice as I would like, or McDonalds is the only fast food joint in town so we have to eat there if we want a quick burger.

derek May 10, 2013 at 12:46 am

I decide every day to exchange my time, my experience, thinking, physical labor, giving it to a client, in exchange for a fee. If I fail at my part of the bargain, or if my client fails, there is a bit of yelling, hard feelings, maybe some procedure before a judge. But in the vast majority of instances the transaction happens willingly and to both people’s satisfaction.

I am many times on the other end of the transaction where someone gives me their time, labor, experience in exchange for my money. Again in most cases things go very well.

In both cases I have to be smart to protect my interests. If I do, and the other party does as well, so much the better.

I got a note from a government agency that a failure to report something could cost me $1,000,000.
I applied for permission to conduct my business, sent in the required fee, and 13 months later the government agency, who brags about not being subject to the Charter of Rights and Freedoms in the Canadian constitution, manages to get around to handling my application.

I deal with some difficult customers, mostly large corporations that are top heavy and ridiculous in how they are managed. I have the choice to walk away from the relationship at any time, and have from time to time.

Sometimes there are large firms that manage to put themselves into a position where they abuse people, no question. But in the western democracies if there is one, they do it with the full support of government, or in their behalf.

Enrique May 10, 2013 at 9:30 am

Hello John Knox — Coase has a great discussion of “private coercion” in his 1988 McCorkle Lecture on “Blackmail” — in essence, there is some degree of coercion even in a purely voluntary transaction, especially in situations of bilateral monopoly, where there is only possible buyer and one possible seller … Many long-term contracts also partake of this problem … Then there is the hold-up problem, etc, etc

john knox May 10, 2013 at 6:09 pm

Hi Enrique,

I’m left a little underwhelmed about the extent of private blackmail. As Coase notes most of the time this doesn’t occur in negotiations between firms but instead when private individuals don’t want embarrassing information revealed i.e. I saw you cheating on your wife so pay up. While it certainly can exist it strikes as something not to lose much sleep over. Government blackmail strikes me as a much more severe problem. Justice department lawyers advising individuals and firms not to secure counsel (evidently happened quite often in the Bush justice department while going after alleged white collar crime).

mw May 9, 2013 at 8:45 am

“the critics are not grasping how backward was the intellectual climate when Hayek’s book came out”

Or, the critics OF the critics are not grasping how wrong the pendulum has swung in the opposite direction since…

Brian Donohue May 9, 2013 at 8:58 am

You can only be talking about the rhetoric. Leviathan has stalled a couple times in the past fifty years, but he hasn’t changed direction.

Frank May 9, 2013 at 10:57 am

+1

mw May 9, 2013 at 11:22 am

Yes, the helpless financial industry is being crushed under Leviathan. They can barely make enough to pay their 15% carried interest income tax rate.

Brian Donohue May 9, 2013 at 11:50 am
mw May 9, 2013 at 11:57 am

Good for you, but all the supposedly Hayekian Congressional conservatives are adamant about not drowning our “innovative” financial sector under “onerous” regulations. And for better or worse they’re the ones who really matter in this debate.

Brian Donohue May 9, 2013 at 12:09 pm

Yes, because when the Dems had Congress plus the White House, we got Dodd-Frank. We’ve still got too big too fail and Uncle Sam as the lender of last resort. Not Hayekian. Wall Street’s tentacles into both parties is extremely disturbing.

I had in mind there whole great big real economy out there where most people live, and which pays for the rest of it.

mw May 9, 2013 at 12:14 pm

There is only one party citing Hayek. That party does not contain Elizabeth Warren.

derek May 10, 2013 at 12:48 am

So the 2008 bailout of the financial sector was Hayekian?

Kent Guida May 9, 2013 at 9:55 am

Road can best be appreciated in the light of Tocqueville’s Democracy in America. Hayek’s critique of the politics of his time was intended as an echo of Tocqueville’s warnings about the likely tendency of democratic societies to take the road to serfdom. As Doug above suggests, there is nothing in the history of the last 150 years, let alone the last 75, to suggest that Tocqueville and Hayek were wrong about this fundamental drift.
If you want to understand Hayek, start with Tocqueville. If you want to refute Hayek, try refuting Tocqueville.

Brandon May 9, 2013 at 5:05 pm

The substantial increase in freedom for people other than white males seems to indicate that they were wrong about this fundamental drift, or at least only considered it from one perspective.

Greg Ransom May 9, 2013 at 10:13 am

Why, oh why has the commentary on Hayek from economists in America been so *brain dead*.

Really.

Just brain dead. Incapable of competent readings. Ignorant of the science discussed. Ignorant of the topics at hand. Ignorant of the intellectual history. Ignorant of Hayek’s body of work. Ignorant of the relevant fields of thought involved. Often intentionally dishonest. Usually politically motivated, both in terms of internal professional politics and in terms of domestic politics. And on and on.

These problems go well beyond the standard problems Thomas Kuhn said would always be involved in cross paradigm conversations involving alternative visions of how to explain the world.

As I’ve pointed out many times, its a literature dominated by false and bogus myths, with little to recommend it outside of work by Bruce Caldwell and a few other specialists.

steve May 9, 2013 at 11:48 am

brain dead = disagrees with me

Greg Ransom May 9, 2013 at 12:21 pm

brain dead = brain dead

http://www.hayekcenter.org/friedrichhayek/hayekmyth.htm

Simply not getting it.

Simply getting it wrong.

See eg Roger Garrison on Paul Krugman on Friedrich Hayek.

Of Bruce Caldwell on interpretations of The Road to Serfdom and related writings.

Or Hayek’s letter to Paul Samuelson. Or, well, the examples are endless.

Discussions of Hayek in the secondary literature are very bad — bogus interpretations from people who don’t know what they are talking about and have little interest or incentive to get it right.

As I say, there are exceptions. Much Bruce Caldwell’s work is truly outstanding, if limited in scope. And there are others.

But when you run across, say, Arrow or Friedman or Samuelson or Stiglitz or Lucas or whoever referencing Hayek or discussing Hayek, you are more likely to encounter something bogus or misleading or off the ranch than you are something showing genuine competence in Hayek’s explanatory project.

Greg Ransom May 9, 2013 at 12:49 pm

Here is a topic no one wants to get right, no one will do the work to get right, and which most have every incentive from the perspective of Kuhnian cross paradigm rivalry to get wrong.

Hayek fully understood the problem of the secondary deflation — disequilibrium causing falls in the money supply — and praised Keynes *Treatise* in the very early 1930s for coming up with new possible ways to counter this disequilibrium/depressionary phenomena.

And Hayek’s was aware that the British 1925 return to gold at parity was pathologically deflationary — and would cause unemployment and depression in Britain in the context of Britain’s well known sticky wage problem, tied in part as everyone know at the time its labor laws and insurance programs, etc.

The debate in Britain was over how long it takes for an economy to equilibrate after the unforced error of a pathological central bank induced deflation/depression, and whether the labor market in Britain was capable of any flexible adjustment at all under more than a half decade of bank policy.

These are not universal theoretical causal questions, these are local, temporary empirical questions about a particular place and time.

But the literature contains almost nothing but willful conflations of these different things in kind — and not by any accident.

It’s built into the incentive structure of cross paradigm controversy to mischaracterize and to fail to master and to casually botch the explanatory scheme of the rival paradigm.

Even in the case of the United States — which Hayek seems not to have understood in terms of the empirical facts — Hayek explicitly stated in the early 1930s that a pathological disequilibrium deflation was a serious risk and that all means should be used to stop it once it was identified — a position consistent with his explanatory mechanism and a position consistent with what Hayek repeated in the 1970s and 1980s when asked about the US depression and Milton Friedman new empirical work. Every time Hayek said the evidence clearly showed just the kind of pathological disequilibrium deflation Hayek had talked about many times in the early 1930s and that Hayek’s policy recommendation was massively aggressive pre-announced central bank total income stream targeting. Hayek had repeatedly advocated standard central banking policy action to counter a pathological disequilibrium deflation in the early 1930s. Hayek’s position against

The tension which exists in Hayek is in his knowledge and reading of the empirical facts in the market — in the very early 1930s Hayek appears to have spent little if any time looking at the empirical facts in the United State, and the facts he know he read one way re the United States –in the light of the new empirical data constructed by Friedman & Schwartz and published in the 1960s, covering the whole decade of the 1930s, Hayek in the 1970s saw a completely different empirical picture from what he imagined in the very early 1930s, and understood those facts in a very different light. In biology different Darwinist can interpret the causal history differently depending on different understandings of the weight of different causal facts — both use exactly the same Darwinian causal mechanism, how it is applied depends on judgment of the significance of local events. Hayek’s causal mechanism remained the same — his understanding of the facts changed radically as well as his understanding of what weight to apply to different causal element in the theory.

Almost no economist writing in the literature cares to get any of carefully documented or competently presented.

They have a myth to sell, and they damn well are going to sell it.

Chris Marks May 9, 2013 at 3:46 pm

Ransom constantly trots out that tired old half-assed unpublished paper. It was rejected by very journal it went to. Stop lecturing everyone else on Hayek and actually publish something knocking down Kruggie, Delong, etc instead of whining that it needs to be done. You spend way too much time online man. Chill some and start to write seriously.

Greg Ransom May 9, 2013 at 4:20 pm

You are inventing facts out of the back of your pants.

The paper was written at the request of Bruce Caldwell and was not invented for publication and contrary to your libelous claim the paper has never been submitted or rejected for publication.

If you’d like to pursue this further I suggest retaining an attorney first.

Greg Ransom May 9, 2013 at 4:40 pm

To correct the iPhone editor, that should be

not written for and never *intended* for publication

Al May 9, 2013 at 4:47 pm

I see this guy commenting on a LOT of economics blogs. It’s always the same copy and pasting of the thoughts of others, with no real contribution except to say that someone else has thought of something in a quote that he can’t supply. Mental.

Greg Ransom May 9, 2013 at 7:06 pm

Here’s my original idea.

Wittgenstein’s private language argument, the Hayek-Mises price signal/socialist calculation argument, and Hayek on embodied, learned unarticulated rule following vs articulated rules, and Gerald Edelman on open-ended learning via selection processes vs closed formal systems are all talking about the same distinction between closed systems involving ‘givens’ survey-able by one mind vs processes that involve open-ended learning and social networks beyond individual minds.

What’s yours.

Greg Ransom May 9, 2013 at 7:22 pm

And add Kuhn’s evolutionary and practice-embedded picture of the advance of science vs the formalist picture ‘science’ of Carnap and Popper to the list.

Mike H May 9, 2013 at 11:56 am

When I was in college I often get strange looks around me when I quote Hayek in the class, I still remember how I got a failed grade for a paper on “industrial relations” in which I quoted Hayek as saying that trade unionism causes inflation. The remark was that my focus on “economics” (namely, workers’ actually welfare) does not contribute to the “academic understanding” of improving workers’ industrial representation.

I only regretted that I didn’t draw a hammer and sickle on that paper just for the heck of it.

prior_approval May 10, 2013 at 7:28 am

‘in which I quoted Hayek as saying that trade unionism causes inflation’

Germany being an example of how this isn’t true, but why quibble about facts when there are points to be made.

CC May 11, 2013 at 3:33 am

“trade unionism causes inflation.”

me thinks you deserved that “F”

Dan Weber May 9, 2013 at 10:31 am

I was reminded of the last panel of the cartoon guide http://mises.org/books/trts/ during the AIG witch hunt.

Rich Berger May 9, 2013 at 11:07 am

Looking at that cartoon guide made me think of Obamacare. Only 1/6th of the economy, but there’s quite a bit of serfdom in there. Only because it is in your best interests, mind you!

dead serious May 9, 2013 at 1:53 pm

There’s a lot in the federal budget – long before Obamacare came around – that hasn’t in my best interests, you tool.

Leo Lester May 9, 2013 at 4:40 pm

Wow. Greg is kind of angry when anyone challenges his scholarly credentials.

Bruce Caldwell is the top guy on Hayek.

Greg Ransom May 9, 2013 at 4:43 pm

Note that Caldwell’s most recent Hayek paper takes up issues I first raises in the paper I wrote at his invitation linked above.

Leo Lester May 9, 2013 at 4:47 pm

Cool. Which paper is his latest? Thanks.

Greg Ransom May 9, 2013 at 7:22 pm

Go to Taking Hayek Seriously. It’s in the post at the top.

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