Compromising Liberty: Friedrich Hayek’s The Road to Serfdom in Practice
Author: Chris Grocott, Lecturer in Management and Economic History, University of
Leicester School of Management
Corresponding Address: University of Leicester School of Management, University of
Leicester, Leicester, UK, LE1 7RH
Telephone: 0116 223 1779
Email: [email protected]
Biographical Note: Chris Grocott is Lecturer in Management and Economic History
at the University of Leicester School of Management.
His research examines
capitalism and capitalist political economy both historically and in the contemporary
world. He retains, from his PhD studies, an interest in all aspects of Gibraltar since
1704.
1
Abstract: This paper examines a rare and unstudied piece of consultancy work
undertaken in 1944 by Friedrich Hayek for the British Colonial Office and for the
Government of Gibraltar. Hayek’s subsequent reports suggested the reorganisation of
the state-regulated Gibraltar housing market in line with free market principles
designed to relocate the colony’s working class population into neighbouring Spain.
However, rather than freeing Gibraltarians from the evils of state planning, as
identified in The Road to Serfdom (also 1944), this proposal would have delivered
them into the dictatorship of General Franco. Not only was Franco’s regime brutal,
but also it practiced autarkic economic policies virtually identical to those which
Hayek maligned in The Road to Serfdom. In sum, Hayek’s proposals would have
benefited Gibraltar’s landlords at the expense of the liberty of the majority of the
civilian population.
Keywords: Hayek, The Road to Serfdom, Neoliberalism, Liberty, Gibraltar, Spain.
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Introduction
Friedrich Hayek’s The Road to Serfdom was one of the most influential works of
political economy produced in the twentieth century. Written during the Second
World War and published in 1944, Hayek outlined the view that no matter how well
intentioned economic planners might be, the result of their efforts would be
totalitarian government (Hayek, 1962, p. 23). For Hayek moral government was
government based upon liberal economic policies.
At a time when post-war
reconstruction was foremost on the minds of European states, The Road to Serfdom
sought to set-out how in practice liberty might be achieved and how totalitarianism
could be avoided. As a practical document, targeted at politicians, bureaucrats and
the public in general, The Road to Serfdom differed somewhat to Hayek’s later work
The Constitution of Liberty (Hayek, 1960), which advanced his political-philosophy
rather than specific policy tools for obtaining, and sustaining, liberty.
In the decades following the publication of The Road to Serfdom, neoliberal political
economists built upon Hayek’s advocacy of liberal economic policies which, he
argued, were politically consistent with, and indeed a requirement for, personal
liberty. From the 1960s onwards, Hayek’s manifesto in The Road to Serfdom helped
to justify the globally issued neoliberal economic policy prescriptions of, amongst
others, Milton Friedman and members of the Chicago School of Economics. In the
long-run, therefore, Hayek’s work played a substantial part in justifying the
dismantlement of the post-Second World War social democracies of North West
Europe and of the developmental economies of Latin America.
Given the influential role that Hayek’s work played in the late twentieth century shift
to neoliberal economic policies, it is unsurprising that Hayek was Margaret Thatcher’s
favourite political economist. Moreover, the popularity of Hayek’s ideas amongst the
right brought him numerous and prestigious awards. In 1971, he received a Nobel
Prize; in 1984, in Britain, he was admitted to the Order of the Companions of Honour;
1
and in 1991 he was awarded the US Presidential Medal of Freedom. However,
despite Hayek’s immediate and lasting popularity and the usefulness of his ideas to
policy makers, after 1931 and his arrival at the London School of Economics, Hayek
preferred the role of theorist, rather than of practitioner.
Hayek felt that his contribution to society should be advancing the cause of liberal
economics in intellectual debates about capitalism. Within these on-going debates
Hayek argued for the implementation of liberal economic policies, just as he had in
The Road to Serfdom (1962 [1944]). Indeed, only four years later in 1948, in order to
further his position within this debate, Hayek acted as the main driving force behind
the establishment of the Mont Pèlerin society.
The society brought together
academics, business leaders, and politicians to campaign for the implementation of
liberal economic policies. But, nevertheless, Hayek asserted ‘…a theory that all
economists that serve in government are corrupted as a result of serving in
government’ (Hayek, Kresge, Wenar, 1994, p. 82). Because of this, it has been
difficult for scholars to discern whether or not Hayek was committed in practice to the
implementation of the policies he laid down in theory in The Road to Serfdom.
In Britain during the Second World War, Hayek was not given war work because he
was born in Austria, and after he moved to the United States in 1950, he showed little
interest in developing his theoretical insights through practical application. Up to
now, therefore, it has not been known how Hayek would have recommended
implementing his ideas; whether or not he would have remained true to them in
practice; or what the outcome of Hayek’s efforts might have been. Yet despite Hayek
maintaining the view that working for government was corruptive, in 1944 he did
nevertheless undertake some such work. After completing The Road to Serfdom, in
March 1944, but prior to going to the United States in April 1945 to undertake a
lecture tour to publicise his ideas, Hayek was engaged by the British Colonial Office
2
and the Government of Gibraltar to write a set of reports and proposals relating to the
Rock’s post-war economic development.
In later years, Hayek dismissed the importance of a reading of his work on Gibraltar
to an understanding of his political economy. In Hayek on Hayek, for example,
following a conversation about Keynes and Robbins in which he condemned both for
being statesmen rather the economists, Hayek closed down a discussion of his time on
the Rock. He stated that he had accepted his commission in Gibraltar simply so that
he could go overseas during the long vacation, ‘so I went for six weeks to Gibraltar,
which was extraordinary – again, don’t tempt me to tell you anecdotes about this, it
would be endless’ (Hayek, et al, 1994, p. 83). Yet Hayek’s reports on Gibraltar do
deserve attention. Written in the months following his completion of The Road to
Serfdom, the proposals contained in his Gibraltar reports provokes a reassessment of
Hayek’s conception of liberty.
Specifically, the reports reveal an early tension
between his treatment of economic liberty and personal freedom, two concepts which
Hayek often uses inter-changeably but which, in his Gibraltar reports, are clearly
treated separately.
As will be seen, one of Hayek’s proposals in his Gibraltar report was that market
forces should be applied to the state-regulated, and rent restricted, housing market in
Gibraltar so that the invisible hand of the market would deliver Gibraltar’s working
class population from residence in Gibraltar across the frontier and into Spain. He
argued that this mechanism would remove people from a relatively high cost of living
economy in Gibraltar, to a relatively low cost of living economy in the neighbouring
city of La Línea. At the same time, the unfettering of the market would allow rents to
increase in Gibraltar to the benefit of landlords. The use of market forces to improve
living standards was, of course, consistent with Hayek’s beliefs as stated in The Road
to Serfdom. Consistent too was the apparent ease that Hayek felt towards the Spanish
state being a dictatorship from 1939.
3
What cannot be considered consistent with the ideas of The Road to Serfdom was that
the consequence of Hayek’s proposals would have been to relocate Gibraltar’s
working class population into a Spanish economy that was organised around the
economic principles of autarky. In short, Hayek’s commitment to the establishment
of free markets went so far as to allow landlords in Gibraltar to enjoy higher rents but
not so far as to protect the Rock’s working class population from an economic system
which he himself had argued was tyrannical in The Road to Serfdom. What Hayek
attempted to implement in Gibraltar was a small-scale embryonic-neoliberal
experiment. But in the attempt, he was forced to contradict his writing on liberty,
calling into question the extent to which Hayek prized this above his commitment to
free markets.
Hayek’s consultancy work in Gibraltar, and on its economy, has received minimal
attention from academics.
Neither scholars of Hayek’s political economy nor
historians of Gibraltar have considered Hayek’s report in any depth. 1 Nevertheless,
for such scholars and, equally, for those interested more broadly in the development
of political economy in the latter half of the twentieth century, and in particularly of
neoliberalism, Hayek’s reports on Gibraltar are significant because they cast a shadow
on his commitment to liberty as expressed in The Road to Serfdom.
Such an
examination is timely for at least two reasons. First, there has been a recent upsurge
in interest in lesser-known aspects of Hayek’s work (Spieker, 2013), whilst Hayek’s
views on planning (O’Neill 2003; Cumbers and McMaster 2010; Dean 2010) remain
of interest to those studying the role of the state in the economy. Second, disruption
of the flow of traffic over the Gibraltar frontier, beginning at the end of July 2013
reminds us of the importance of the frontier relationship for the Gibraltar economy. 2
In order to examine just how closely Hayek’s prescriptions for Gibraltar match his
ideas in The Road to Serfdom, this article brings together research undertaken in, as
4
well as hitherto unused material from, The National Archives/Public Record Office in
London, the Gibraltar Government Archives in Gibraltar, and the Hoover Institution
Archive in California (where Hayek’s papers are stored). Using these materials, first
the background to Hayek’s visit is outlined; second, Hayek’s analysis of the Rock’s
economy and some of his more modest proposals, are examined; third, his significant
liberal economic proposals are examined and the implications of Hayek’s proposals
for our understanding of his political economy are considered; and finally, we see the
reasons why Hayek’s proposals were rejected by the Colonial Office and the
Government of Gibraltar.
Hayek Visits Gibraltar
That Hayek was engaged to undertake his work on Gibraltar was something of a
fluke.
In the summer of 1944, the Colonial Office wrote to Hayek, then at
Peterhouse, Cambridge, where the LSE had been evacuated to from London, to
enquire if he had a suitable doctoral candidate available to prepare a cost of living
index for Gibraltar. Hayek responded to say that he had no such person available
because all of his postgraduates had joined the forces or were engaged in other war
work, and he offered to go to Gibraltar and complete the task himself. Delighted at
the prospect of engaging a senior academic economist, the Government of Gibraltar
asked Hayek if he would consider broadening out his brief to include an investigation
into the future organisation of the Rock’s economy.
Hayek agreed, and visited
Gibraltar to this end between 14 August 1944 and 27 September 1944. 3
Conditions in wartime Gibraltar, as Hayek would have found them, were very
different to those that had prevailed in the 1930s. With the exception of adult males
of working age (of which there were around 4,000), the most obvious difference was
that the civilian population of Gibraltar, which had stood at around 18,000 people, had
been evacuated in 1940. 4 In place of the civilians, there was an influx of service
personnel. In peacetime, the naval and military forces in Gibraltar, including families,
5
numbered around 4,000 people (Constantine, 2009, p. 233). By July 1944, however,
there were a total of 15,801 men from the army, navy and RAF on the Rock. 5 This
figure was augmented at various points during the war. On a regular basis convoys
would visit Gibraltar, whilst between 1940-1 an aircraft carrier fleet, Force H,
operated from the Rock’s dockyard. When in port, the crews of its two battleships, a
battle cruiser, two cruisers, eleven destroyers and the aircraft carrier Ark Royal,
bolstered the number of people resident on the Rock considerably. Later, in 1942,
Gibraltar positively groaned under the weight of the invasion force that rallied there
just prior to the allied invasion of North Africa.
The considerable increase in service personnel in Gibraltar brought with it a great
number of economic opportunities. For Gibraltar’s merchants, supplying the garrison
and victualling ships was a profitable trade.
For the working class population,
providing the labour for this trade meant that the hard times of the 1930s were
replaced with full employment. Even for those living in Gibraltar’s hinterland, the
Campo de Gibraltar (known locally simply as ‘the campo’), opportunities flourished.
Gibraltar’s economy had relied upon Spanish labour crossing the frontier from at least
the 1890s, and the average number of workers making the daily commute increased
from 6,633 in 1939 to 7,800 in 1944 (Stockey, 2009).
Despite these opportunities for work, the considerable increase in the number of
transient workers in Gibraltar created a number of problems. First and foremost, they
needed to be housed. The vast majority of the population of Gibraltar rented its
accommodation. Now vacated, these dwellings were turned over to the military,
whilst rents were restricted by ordinance (Gibraltar’s equivalent of legislative acts) in
order to prevent racketeering. Much of this housing was little better than slum
housing, the upkeep of which had been in the hands of private landlords with little
direction from government as to how it should be improved. Over fifty per cent of it
had been overcrowded before the war, and it was mostly poorly treated by the
6
servicemen who occupied it. Moreover, the war had forced up the prices of goods
and services in Gibraltar, not least of all because of the various global scarcities
created by the conflict.
For the Government of Gibraltar, issues of rents, housing stock, wages, and prices
were central to its policymaking towards post-war economic reconstruction. Accurate
information was vital to this planning and, after all, this is why they had engaged
Hayek’s services in the first place. Prior to Hayek’s cost of living index of 1944, the
last time a survey of the Rock’s economy had been undertaken was 1939.
Circumstances had changed considerably in the five intervening years. By 1943,
officials in Gibraltar estimated that in the post-war era accommodation would be
required for a population of around 24,000 people (Constantine, 2009, p. 353).
Gibraltar’s Governor, Lieutenant-General Sir Ralph Eastwood, and its Colonial
Secretary, Miles Clifford agreed that conditions were utterly unacceptable. 6 In early
1944 they formed a Re-housing and Town Planning Board to oversee the planning of
the redevelopment of Gibraltar’s housing stock (Constantine, p. 354).
Whilst the housing situation in Gibraltar required new directions in government
policy, another factor of the Rock’s economy remained consistent with pre-war
conditions – the state was both the largest employer and the main source of the
colony’s wealth. Given the small size of Gibraltar (around two and a half square
miles) and its unsuitability for agriculture, the Rock relied upon the import-export
trade both to sustain itself and as a source of income. This trade was facilitated by the
colony’s free port status (though despite the name some very low taxes were levied on
a small number of goods), and its rewards were undiminished by income tax. For the
Rock’s merchants the main two markets were the military and navy in the colony,
both garrisoned and transitory, as well as smugglers looking to illegally take goods
such as tobacco from relatively low-tax Gibraltar into relatively high-tax Spain. A
sizeable minority of Gibraltar’s population was involved in the private import-export
7
trade in jobs ranging from coalheaver, whose job it was to carry coal from stationary
hulks to ships out in the bay, through to clerical worker in the shops and warehouses
of the merchants themselves. But it was the state that employed the majority of
workers in Gibraltar. And of those employed by government, it was the Admiralty
who employed the majority of these workers in the naval dockyard, whilst a smaller
group worked for the Government of Gibraltar as part of the City Council’s staff.
Such was the situation that Hayek found in August and September 1944. In short,
Gibraltar’s economy was directly dependent upon the presence of the British on the
Rock; the government was the major employer; and the colony’s authorities were
already engaged in a process of planning its post-war housing and economic
development. Hayek liked none if it.
Hayek’s Reports and Preliminary Proposals
Hayek produced four reports whilst in Gibraltar. The first, completed on 8 September
1944, was a proposal that a detailed statistical analysis be carried out immediately in
order to gain a full picture both of the population of Gibraltar and of those
Gibraltarians who had been evacuated.
The second report, completed on 20
September 1944, was the Gibraltar cost of living index that he had originally been
asked to complete. A few days later, on 24 September 1944, Hayek completed a
wages and salaries report. These were largely anodyne and statistical in nature.
When he returned home, Hayek set about writing the more substantial ‘Report on
Some Economic Problems in Gibraltar’, which he completed in October. It was this
report that contained his proposals for a reorganisation of the Gibraltar economy upon
liberal economic lines.
To produce the above reports, Hayek consulted a substantial amount of statistical data
and qualitative material in Gibraltar. For population statistics, Hayek used the 1931
census and reports on births and deaths collected by the local Police; the Roman
Catholic Bishop provided figures relating to marriages (with the overwhelming
8
majority of the population being Roman Catholics, this would have been a very
significant sample); whilst the colonial secretariat provided information about rates,
death duties, repatriation priorities, and a companies register. The secretariat also
provided information about wages in, and the establishment of, the colonial
government, dockyard, city council, the war department and the top 15 firms in
Gibraltar. Hayek also consulted a 1938 report on overcrowding produced by Major
R. A. Mansell, the Medical Officer of Health; a 1943 report on trade unions and
labour in Gibraltar produced by Major Granville St. John Orde Browne, the labour
advisor to the Secretary of State for the Colonies; and a 1943 report on labour unrest
in Malta produced by an advisor at the Colonial Office, Mr. MacLeod. All three of
these reports proceeded from the presumption that it was the state’s role to help plan
colonial economies and, as we shall see, Hayek took issue with them. 7
In addition to the materials made available to him by the colonial government in
Gibraltar, Hayek also went about the Rock interviewing people on topics of interest to
him.
He met, for example, with representatives of the Association for the
Advancement of Civil Rights (AACR). This group was formed in 1942 to press for
the swift return of the evacuees from Gibraltar. In a short space of time, it established
itself as a respectable political force in the colony under the leadership of local lawyer
Joshua Hassan. In addition to containing a number of local notables, the AACR was
also associated with a number of trade union organisers, giving it a broad
representative voice (Grocott & Stockey, 2012, pp. 70-4). It was because of the
AACR’s interest in labour issues that Hayek met with its representatives during his
time in Gibraltar. Hayek also went about the dockyard and made an effort to talk to
ordinary dockworkers in order to gauge employees’ feelings towards their wages and
conditions in the dockyard. So thorough was Hayek’s investigation that, in order to
discover if there was likely to be a reduction in the birth rate after the war, he even
went from chemist to chemist to enquire if the use of condoms had been increasing in
recent years (he was assured that, in Roman Catholic Gibraltar, it had not). 8
9
The results of Hayek’s analysis of the Rock’s economy can be broken down into three
strands.
First, Hayek was not convinced that the Government of Gibraltar was
making its decisions based on solid demographic data. Second, he felt that a solution
to the housing problem in Gibraltar also had to speak to problems of the declining real
terms value of wages and the increasing cost of living. Third, he was deeply unhappy
at the role the Admiralty played in the Gibraltar labour market and in particular, as he
saw it, the injustice brought about by importing skilled labour from Britain, rather
than training up workers in Gibraltar.
In his 8 September 1944 report on the issue of population statistics, Hayek argued that
the census taken in 1931 was scant in detail and that its results could not be reconciled
with the Police statistics on deaths and marriages. 9 Hayek proposed making use of
the materials gathered during the evacuation, which gave extensive details of
households and individuals, combined with some supplementary forms of data, to
produce a detailed survey of the population. Hayek outlined that this data could be
transferred onto punch cards that could be read by a machine so that the information
could then be sorted and tabulated to suit the government’s needs.
In order to
undertake this, Hayek recommended that technicians and two card-punching
machines be sent from Britain as soon as possible. As we shall see, Hayek’s proposal
to conduct a statistical survey was separate to his ideas on the Gibraltar economy.
Nevertheless, his understanding of the situation, and his proposals, were criticised by
officials at the Colonial Office.
In his analysis of the economy, which underpinned his proposals in ‘Some Economic
Problems in Gibraltar’, Hayek identified that Gibraltar exerted significant influence
on the surrounding Campo. For Hayek, Gibraltar formed ‘the commercial centre of
an urban conglomeration of nearly 100,000 inhabitants, whose working class suburbs
are located in Spain’. 10 Rather than seeing Gibraltar as solely comprising the area
10
within the boundaries of the colony itself, Hayek re-imagined the scale of the Rock’s
limits by including the surrounding Spanish hinterland. By doing this, Hayek was
able to begin to think of some radical solutions to the Gibraltar economy’s problems,
as he saw them, which others had been unable to do.
Hayek pointed out in his report that, until the outbreak of the Spanish Civil War in
1936 the relationship between Gibraltar and its hinterland had been a cordial one.
Nevertheless, the Civil War had prompted hundreds of Gibraltarians living in the
Campo to flee to the Rock to escape the fighting and possible persecution from either
those forces fighting for the Republic or for the Nationalists. Many of these refuges
held left-wing political beliefs and they were reluctant to return to the Campo when
Nationalist forces quickly overran the area in the first weeks of the Civil War. They
then found themselves permanently unable to return to Spain when the Civil War
ended in a Nationalist victory in April 1939. Hayek also noted that many of the
Rock’s wealthy inhabitants still maintained second homes in the Campo. Gibraltar’s
wealthy inhabitants were welcome in Spain because they had, almost unanimously,
supported the Nationalists during the Civil War. As we shall see, from this analysis
Hayek’s thinking was moving towards the idea that in peacetime some of the
Gibraltarian population in Gibraltar might be induced to live in the Campo.
In addition to the labour provided in Gibraltar by those who lived on the Rock and by
Gibraltarians in the Campo, such was the need for hands that a substantial number of
Spaniards made the daily commute across the frontier in search of work. Indeed, this
abundance of work; the relatively higher pay that could be obtained in comparison to
wages in Spain (even though Spaniards were paid less than either British or
Gibraltarian workers); and the opportunity to boost income by smuggling goods back
across the frontier from Gibraltar into Spain, all made working on the Rock a
tempting prospect. In peacetime around half of those entering from Spain were
women working in domestic service (either for the families of the military or for
11
Gibraltar’s well-to-do). The rest, more often than not, were men working in private
employment either in the commercial dockyard or for wholesalers (Stockey, 2009).
In contrast to the private sector, most of the work for the City Council was reserved
for Gibraltarians. And in the admiralty-controlled dockyard, the authorities were sure
to fill up places with Gibraltarians before taking on Spaniards. In part, this was a
security precaution (indeed two Spaniards working in the admiralty-controlled portion
of the dockyard attempted to plant a bomb in 1943), and in part, this was an attempt to
ensure that sufficient employment was available for Gibraltarians. In addition to
steering Gibraltarians into the more stable jobs, the existence of a substantial state
sector in Gibraltar had an effect on wages. Because the cost of living in Gibraltar was
more expensive than in Spain, the wages of Gibraltarians needed to be higher than
those offered to Spaniards. The effect of the Government of Gibraltar and of the
admiralty paying Gibraltarians enhanced pay in the public sector was that this had to
be replicated, at least to some degree, in the private sector if employers wished to
have any hope of attracting capable employees.
Despite the employment created by war, Hayek was concerned that Gibraltar’s heavy
reliance on the state sector for its economic prosperity would not translate into the
post-war world. He estimated that at the time of the 1931 census, 51.7% of the
population worked for the government in one form or another. 11 He was of the
opinion that when the war ended, the reduction in the number of service personnel
based in Gibraltar would mean that there would not be enough employment on the
Rock to provide for its population.
In addition to issues of labour supply, Hayek also gave consideration to the colony’s
wealth and to issues such as the cost of living. One of the problems facing Hayek in
his analysis of the Gibraltar economy was the relative lack of taxation in the colony.
Hayek had to work with the information that was available to him in September 1944.
12
Naturally, revenues from the small forms of taxation imposed in Gibraltar gave an
indication as to overall economic activity. But the lack of an income tax made
calculating the income of the wealthy difficult. (It was easier to work out the income
of the poor because, as we have seen, over half of the workforce was employed either
by the government or by the admiralty both of which published their rates of pay and
the size of their workforces.) Indeed, the only way in which Hayek could even begin
to estimate the wealth of Gibraltar’s entrepreneurial community was through figures
relating to estate duties and even these had only been imposed since 1934
(Constantine, 2009, pp.339-343).
Using information supplied by the registrar of births and deaths, as well as by the
colonial secretariat, Hayek was able to establish how many of the estates left by the
733 people who had died between 1935-9 had been worth over £3,000. He then put
these into four categories, those worth £3,000-£9,999; £10,000-£24,499; £25,000£99,999; and those worth more than £100,000.
Extrapolating these figures and
applying them to the whole colony, Hayek estimated that there were five people in
Gibraltar worth more than £100,000; fifty people worth between £25,000-£99,999; 20
worth £10,000-£24,499; and 125 worth £3,000-£9,999.
Hayek was informed,
anonymously, that since 1939, one person had died leaving an estate valued at £1.2
million.12 In 2010’s money, using the retail price index, this amount was equivalent
to around £51 million. Based on average earnings it was worth the equivalent of
nearly £150 million. Even the 125 people in the lowest category were worth, at the
top end, nearly £426,000 (retail price index) or £1.27 million (average earnings). As
Hayek put it, ‘these are remarkably high figures for a community of this size’. He
also noted that none of the property or wealth that the colony’s rich owned or held in
Spain was subject to this tax. This hinted at the possibility that these people were
worth substantially more than these figures suggested. 13
13
The issue at the working class end of the spectrum was not so much working out how
much people earned. Rather, the question was whether or not the income of the
average Gibraltarian was adequate for a decent living in the colony. One of the
principal problems was the lack of affordable housing.
Non-government owned
properties tended to be blocks of tenements, three of four stories high and arranged in
a square around a central patio containing a water pump. Because space was at a
premium, rents were high. In 1938, Major Mansell had argued that this resulted in
workers cramming their families into one- or two-room dwellings in order to save on
rent. In support of this, Mansell noted that in 1938 51.5% of accommodation in
Gibraltar was overcrowded. This represented around 1250 dwellings, of which the
vast majority comprised only one or two rooms and this with an average family size
of 4.1 people. 14 Major Orde Brown’s labour report of 1943 revisited this issue. He
argued that whilst he had visited Gibraltarians in their homes and found the dwellings
to be clean and the habits of their inhabitants ‘neat’, conditions were nevertheless so
squalid as to pose a serious risk to health.
15
At the very least, Orde Brown noted,
these dwellings were not likely to produce a happy workforce or contented population
in Gibraltar.
As Mansell had before him, Orde Brown recommended that the
Government of Gibraltar bring an expert into the colony to investigate and propose
ways of remedying the situation. This, then, in addition to happenstance, and more
than simply Hayek’s reputation, goes some way to explaining why in 1944 the
Government of Gibraltar was so keen to engage Hayek’s services.
In addition to the need to collect reliable population statistics, and the need to address
poor housing, declining real wages and inflation, Hayek also argued that the admiralty
was acting in bad faith both as an economic force in the colony and as an employer.
Hayek argued that by engaging workers locally and then topping-up the workforce by
importing labour from Britain, the dockyard authorities were acting like a private
monopoly when attempting to prevent local wage rates rising. Hayek condemned this
as ‘exploitation’ and made it very clear that he had deliberately chosen this word to
14
describe the admiralty’s practise. 16 Hayek urged strongly that the admiralty offer
sufficient wages locally to attract Gibraltarian workers into the dockyard, providing
that the wages offered were less than the wages that would be offered to an imported
worker from Britain. By not doing so, Hayek argued, the admiralty was conspiring to
keep the Gibraltarian workforce unhappy, as well as financially worse off, because
Gibraltarians were paid substantially less than their equivalents from Britain.
As Hayek saw it, the main barrier to Gibraltarians reducing the wage differential
between themselves and British workers was that the admiralty reserved the higher
positions in the dockyard, in practice if not in theory, for imported workers from
Britain. If Gibraltarians could access the more skilled jobs, or those requiring clerical
or supervisory skills, then the need for imported workers would diminish. Not only
would this de facto end the wages differential, but also Hayek envisaged that it would
lead to an increase in wages for Gibraltarians across the board. Moreover, to offset
this, as Gibraltarian workers moved to more senior positions, Spaniards could be
engaged in the more unskilled work vacated by them. As the Spanish workers were
paid less, this would lead to economies in the wage bill for unskilled labour.
In sum, the situation that Hayek found at Gibraltar stood in sharp contrast to the ideas
he set out in The Road to Serfdom. A substantial amount of the economy was under
the control of the Government of Gibraltar and, so Hayek felt, the admiralty was using
its significant position in the labour market to artificially distort wage levels on the
Rock. Moreover, perhaps the largest and most obvious state-generated economic
mechanism, the imposition of a frontier, and the creation of different wage and tax
policies on either side of it, created what Hayek perceived to be an unnatural market.
Indeed, Gibraltar’s economy, which relied heavily on the smuggling trade, relied on
illiberal Spanish economic policies to maintain itself (Stockey, 2009). In addition,
differences in the cost of living on either side of the frontier served artificially to
inflate not only wages for Gibraltarians but also, to a lesser degree, for Spaniards
15
resident in La Línea (when compared to the average wage elsewhere in Andalucía).
When taken as a whole, Hayek’s ‘greater Gibraltar’ was an economy in which the
British imperial state forestalled the natural operation of market forces. Worse still, in
its attempts to remedy the problems which Hayek believed this had caused, the
Government of Gibraltar was relying on reports, such as Mansell’s report on housing,
Orde Brown’s on labour, and MacLeod’s on the dockyard, that all strongly supported
state planning of the Gibraltar economy, and of the labour and housing markets. In
the spirit of his recently finished treatise on liberalism, Hayek setout proposals to
thwart these ‘totalitarians in our midst’. 17
Proposals to Reorganise the Gibraltar Economy
We have already seen Hayek’s proposals concerning collecting useful statistical data.
He proposed that consultants be employed to make use of information collected as
part of the evacuation process.
Below we examine the ways in which Hayek
proposed reforming housing and wages policy on the Rock, and his views on how the
admiralty should alter its employment practices respectively.
In relation to housing policy, Hayek’s proposals proceeded from a totally different
understanding of the causes of poverty in Gibraltar than Mansell’s. As we have seen,
Mansell argued that high rents in Gibraltar restricted Gibraltarian families to one or
two room dwellings. Indeed, Mansell’s report had proved to be the final blow in the
battle which had been on-going in the colony’s Executive Council over the imposition
of a rent restriction ordinance. Such an ordinance had been introduced in 1920 but
had been repealed in 1923.
From that point onwards, the unofficial nominated
members of the Executive Council (who were always drawn from the ranks of the
Rock’s entrepreneurial community or else were professionals such as lawyers) fought
hard to ensure that pressure from the main trade union of the inter-war years, the
Transport and General Worker’s Union (a branch of the British trade union), were not
acceded to. In 1938, Mansell’s report put an end to this resistance, and the governor
16
authorised the reintroduction of a rent restriction ordinance. In 1940, the Government
of Gibraltar extended the provisions in the Rent Restriction Ordinance in order to
ensure that no profiteering went on in regards to the rent of premises to servicemen
stationed on the Rock.
The principles behind rent restriction were simple. Given the small amount of space
available to build on, the reluctance of Gibraltarians to live in Spain, and the size of
the population, housing space was limited. Property owners had, in unregulated
times, demonstrated that they were prepared to increase rents to take advantage of this
scarcity. Mansell, the TGWU, and, by 1938, the Government of Gibraltar saw this
situation as being exploitative and sought to restrict rents by ordinance.
Hayek took completely the opposite view to that which prevailed in Gibraltar. He
argued that in fact, rather than high rents forcing families into overcrowded
conditions, the lowering of rents by ordinance resulted in people renting property
which they would normally not be able to afford. For Hayek, then, the problem of
overcrowding was created by the rent restriction ordinance.
Worse still, Hayek
argued, property owners were barely getting enough rent to make improving their
housing stock worthwhile. This had gotten worse because of the additional rent
restrictions that had been imposed since 1 May 1940, combined with the difficulties
of encouraging temporary residents to maintain their dwellings. Higher rents, then,
would not only compel the working class to move to more suitable accommodation
but also allow for the improvement of the conditions which people like Mansell had
maligned. In Hayek’s opinion, there was another compelling reason to end rent
restriction. This related to the state’s role in the housing market. Hayek argued that
the position landlords had been placed in amounted to the confiscation of their
property without compensation, which he saw as being unjust. Moreover, he believed
that in time the government would have to supplement the incomes of property
owners if they were to maintain their dwellings. Ultimately, he stated, this would
17
result in the government’s necessary nationalisation of housing in Gibraltar,
something which Hayek did not want to develop.
Hayek’s solution to the problems of overcrowded and poor housing was a radical
one. 18 He proposed not only that restrictions on rents be ended, but also that rents be
allowed to rise in line with market forces to such a point at which a significant
proportion of the population would relocate across the frontier to live in La Línea,
where housing was cheaper. Hayek argued that there would be a significant number
of benefits to this. In the first place it would mean that occupation of Gibraltar’s
limited number of premises would reflect market forces and, therefore, serve the
economy more efficiently. Second, the additional rents would encourage the better
upkeep of properties and also encourage the building of new properties. Third, Hayek
argued that the working class population that would be displaced into La Línea would
have an improved lifestyle. He noted Gibraltar’s humid climate in the summer,
caused occasionally when air is forced to rise when it comes into contact with the
Rock itself forming a cloud (known locally as a levanter) that dominated Gibraltar but
not the surrounding area. (This was one of the reasons that the wealthier inhabitants
maintained summerhouses in the Campo.) Not only would those living across the
frontier benefit from escaping the weather in Gibraltar, they would also have more
space to live in. This would allow them to grow crops and boost their standard of
living through subsistence agriculture. In addition, this ‘contact with rural life’ would
be valuable in the job market. 19 Whilst living in Gibraltar, workers aspired to ‘urban
occupations’, which reduced their employment prospects. 20 Once in Spain, if there
was not sufficient work in Gibraltar, workers could look to the surrounding region of
Andalucia for agricultural employment. Finally, by moving its unskilled working
class population into Spain, the Government of Gibraltar would benefit from not
having to support unproductive workers. Moreover, Hayek argued that because such
people would have their link with the Rock severed they would be more likely, as we
have seen, to move away from La Línea and into the surrounding region if they were
18
unemployed. In this way, the government would be exporting any potential future
unemployment problems into Spain.
Hayek was aware that his proposals might be met with opposition. He outlined
several possible objections, namely: that the admiralty would want a supply of
workers of all varieties available in Gibraltar in case of war; that it would be
undesirable to encourage the British population of Gibraltar to develop Spanish habits
and identities; and that in Spain British subjects would be deprived of the advantages
(such as health care and education) that they had enjoyed in Gibraltar. He took care
to address each of these responses.
In the first instance, Hayek argued that the Gibraltarian population would not be a
benefit in wartime because if the Rock were under attack its dockyard would be
rendered useless.
In this circumstance, the working population would represent
additional mouths to feed and would not contribute to the defence of the colony. He
was also of the belief that Gibraltar’s economy was so vital to that of the surrounding
hinterland that the Spanish government would not shut it for ‘any great length of
time’. 21 (He was, in fact, wrong – the Spanish Government closed the frontier from
1969 to 1985.) As to the issue of Gibraltarians losing their British identities, Hayek
argued that the working class in Gibraltar were all-but Spanish in their habits. Whilst
wages remained lower than those enjoyed by British workers, he believed that
Gibraltarians would be unable to develop British tastes and identities. This then
chimed with Hayek’s ideas about the admiralty, which will be addressed below.
Hayek argued that if Gibraltarians had greater access to skilled work then they would
become more British in character. They would also be able to afford to live in
Gibraltar. The low-skilled workers left over would, by his reasoning, be all-but
indistinguishable from the Spaniards they would then live alongside. At any rate
Hayek saw this as being ‘in part not inevitable and in part not undesirable’. 22 Finally,
in relation to Gibraltarians being deprived of the amenities available on the Rock,
19
Hayek argued that a private company could be formed, sufficiently induced by
subsidies from the colonial government, to build a housing estate in La Línea for
those Gibraltarians displaced by Hayek’s proposed rent policy. This company could
then be required to provide amenities such as hospitals and schools.
After addressing the issue of relocating the working class population of Gibraltar into
Spain, Hayek turned his attentions to the admiralty’s employment practises. First of
all, he proposed that no employer in Gibraltar, the admiralty included, should pay
higher wages to Gibraltarian workers than to Spaniards. This was necessary for
Hayek’s plan to remove people into Spain to work. Not only did the market for
renting accommodation in Gibraltar need to be liberalised, but also the link between
wages and the cost of living on the Rock needed to be broken in order to prevent
inflation and to prevent Hayek’s plans being thwarted. Moreover, Hayek saw this as
an opportunity to increase the commercial dockyard’s competitiveness against the
ports of Oran and Algiers, both of which drew on cheap African labour. By reducing
the wages of those in government employment, private employers too would be able
to reduce their salary bills. Hayek recognised that some small benefit might be given
to those workers travelling across the frontier, to compensate them for their effort, but
he argued that this should not be too much more than the prevailing wage levels in the
Spanish hinterland. This underscored the objective of moving people out of Gibraltar,
and not attracting Spaniards to the Campo in search of work on the Rock.
Hayek had another reason for recommending that wages be allowed to fall; it would
give a distinct market advantage to skilled labour. Hayek argued that the British
character of the Gibraltarian population would be encouraged by improved education
and access to middle class occupations. He therefore encouraged a two-fold approach
in which technical education would be improved and whereby Gibraltarians would
gradually take positions currently given to British workers in the dockyard. Those
20
who so benefited would then be able to remain in Gibraltar itself, whilst the unskilled
proportion of the population would move into Spain.
Above, we have seen Hayek’s proposals on the future of Gibraltar’s economy. In
particular, we have seen his ideas for liberalising the housing and labour market on
the Rock by conceiving of a ‘greater’ Gibraltar into the suburbs of which he proposed
that the working class population be relocated. We now consider the implications of
these proposals for understanding Hayek’s political economy.
Combating the ‘Totalitarians in Our Midst’
In The Road to Serfdom, Hayek argued that free markets underpin liberty within
societies. However, for Hayek the liberal tradition in Britain had, since the late
nineteenth century, been polluted by attempts to find a ‘middle way’ between total
state direction of the economy and laissez-faire principles extolled by groups such as
the Manchester School of Economics (Hayek, 1962, p.31). He laid blame at both
doors. As Andrew Gamble points out, Hayek was not an ‘anarcho-capitalist’ and as
such Hayek criticised those who in the nineteenth century argued that attempts should
be made to remove the state from all aspects of economic life (Gamble, 1996, p.75;
Hayek, 1962, p.13). Nevertheless, Hayek argued that this simple rendering of the
meaning of liberalism was made necessary by the attempts of well-meaning political
economists, such as John Stuart Mill, to ameliorate the worst aspects of capitalist
economics through state intervention. Noble though the idea might be, Hayek argued
that planning would necessarily lead to state control of the entire economy and,
therefore, totalitarianism. Because of this, the state’s only duty was to provide a
framework within which the free market could operate ‘naturally’.
Throughout the 1930s and 1940s political economy in Britain was increasingly
dominated by the belief, held by many in the establishment, that state planning of the
economy was necessary. Against this, Hayek argued that it was all too easy to
21
sleepwalk into totalitarianism and that, worse still, members of the British
establishment were paving the way for this journey. The Road to Serfdom was, then,
a plea from Hayek to reverse this trend. It reflected the bitter disputes, both public
and private, which Hayek had entered into with Keynes in the 1930s. And whilst
Keynes was not directly accused in Hayek’s chapter ‘The Totalitarians in Our Midst’,
E. H. Carr and others certainly were (Hayek, 1962, pp. 135-149).
For Hayek, planning, socialism, and totalitarianism were parts of the same problem.
IN 1944, by his way of thinking Hayek was therefore surrounded by socialists and
unwitting totalitarians. Even the Bretton Woods agreements, which eventually edged
the global economy closer to neoliberal political economy, would, at the time, have
represented to him a potential deviation from the path of liberalism. This was because
the British delegation there, led by Keynes, argued strongly for a supra-national
organisation dedicated to smoothing out trade deficits and surpluses between the
developed and developing world.
And if the global situation looked bleak, the
domestic situation looked little better. The Beveridge proposals, adopted by the
British Labour Party as a blueprint for the post-war welfare state contained substantial
recommendations of state planning. 23
Whilst the Conservatives did not adopt
Beveridge’s proposals as wholeheartedly as the Labour Party, even the Tories under
Churchill were prepared to see a move towards an expansion of the state’s role in
welfare. Little wonder, then, that Hayek decided that the United States, already
beginning to experience a backlash against New Deal politics, would be a better place
to head, in early 1945, to publicise the ideas in The Road to Serfdom.
In Hayek on Hayek, Hayek gave the impression that his trip to Gibraltar was to be
partly about work and partly about relaxation. Unbeknown to him when he accepted
his commission there was little about the situation on the Rock that would put his
mind at rest. As we have seen, planning was being undertaken in all aspects of
Gibraltar’s economy; the state was a significant economic actor because it employed
22
so many people; and the very presence of the British on the Rock created, what Hayek
considered to be, a false divide between the economic centre of the region, Gibraltar,
and its ‘suburb’, La Línea. Hayek saw reports such those of Mansell and of Orde
Browne as beating a path to serfdom, just as he had outlined in his recently published
manifesto. His proposals for the Gibraltar economy were, therefore, a direct attempt
to counter this tendency.
Hayek argued in The Road to Serfdom that the ‘blueprint’ by which a society could be
planned-out could take two different forms (Hayek, 1962, p. 26). The first, which he
rejected, was planning for state intervention in the economy. The second was the
creation, by the state, of a liberal economy in which market forces could operate,
hindered only by sufficient measures required for capitalism to be maintained. But
whereas The Road to Serfdom made the case for producing a blueprint for the British
economy that resembled the latter option, Hayek’s report on Gibraltar actually made
firm recommendations as to what the Rock’s government should do to reform the
economy in a liberal fashion.
It is easy enough to see how some of Hayek’s proposals reflected the principles that
underpinned his ideas in The Road to Serfdom. Hayek’s proposal to deregulate the
market in rental housing in Gibraltar was justified on the basis that it would allow the
market to allocate resources more properly. More broadly, Hayek’s proposals to
consider the ‘greater’ Gibraltar area, including parts of Spain, clearly reflects Hayek’s
belief that government should construct structures in which a liberal economy, free
from state planning but distinct from the stricter laissez-faire principles of the
nineteenth century, could flourish. Indeed, his suggestion that the government finance
a private company to establish a housing estate in La Línea prefaced later moves
towards private finance initiatives undertaken in the more neoliberal age of the New
Labour government in Britain. It also represented a close reading of Smith’s The
Wealth of Nations, as advocated in The Road to Serfdom, wherein it was argued that
23
the state should act to facilitate, rather than regulate, capital. Even in the labour
market, this sense was reflected in Hayek’s pointed statement about the admiralty’s
restrictions on promotion for Gibraltarians into skilled jobs:
It is essential that the entry into the different trades should be open to all on
equal terms, and that the law should not tolerate any attempts by individuals or
groups to restrict this entry by open or concealed force. 24
Yet, as we shall see, the Government rejected Hayek’s proposal to use the market to
relocate Gibraltarians into Spain precisely because it did require the use of concealed
economic force to achieve its goals.
Critics of neoliberal political economy, such as David Harvey, have argued that one
of the problems with neoliberalism, as a practical programme, is that it is more
concerned with establishing markets than with establishing liberty for individuals
(Harvey, 2007). Hitherto, because of his near-refusal to apply his ideas in practise
and because his proposals on Gibraltar have been almost totally neglected, Hayek was
unimpeachable on this front.
Any claim that Hayek was more concerned with
markets than people was at best conjecture and at worse name-calling. Yet, just as the
Governor of Gibraltar did, we can see in Hayek’s proposals clear signs that he was
prepared to sacrifice liberty of individuals to liberty for markets.
Were Hayek’s proposals simply about relocating Gibraltarians into Spain, with the
possible and unfortunate consequence of depriving them of their British nationality
and identity, then they would not have conflicted with the ideas contained in The
Road to Serfdom. But given that Hayek’s stated aim was to rescue society from the
ideas of ‘those who can think of nothing better than to imitate Hitler’, the proposal to
move Gibraltarians into Franco’s Spain was self-defeating (Hayek, 1962, p. 177).
Franco had consciously modelled his own government on those of the inter-war
fascist regimes. Like, Germany and Italy, Spain was a single-party state controlled by
an authoritarian ruler. 25
Similarly, violence underpinned the creation and
24
maintenance of the regime. Franco, whose forces in the Civil War were augmented
by the Luftwaffe, the German navy, and by Italian troops, had deliberately prolonged
the conflict in order to cause as many casualties as possible amongst not only
Republican troops but also amongst civilians too (Preston, 1994). And as in Germany
and Italy, after the Civil War a secret police and series of state sponsored informers
reported on those who opposed the regime. Many of those so accused were either
executed or else given life sentences in hard labour camps. Paul Preston has recently
argued that Franco’s treatment of political prisoners, amongst others, amounted to
nothing less than a Spanish Holocaust (Preston, 2012).
Moreover, not only did
Franco consciously model his post-Civil War state on those of the fascist powers, but
also in 1940 he had attempted to join the Axis war effort and to this end met with
Hitler at Hendaye, on the Franco-Spanish border (Preston, 1992). Indeed, part of
these negotiations involved discussions over a joint Spanish and German assault on
Gibraltar itself. 26 Ultimately, it was only Franco’s excessive demands asked in return
for Spanish entry into the war that prevented an accommodation between Franco’s
Spain and Nazi Germany.
In the light of Hayek’s proposal to deliver the vast majority of the working class of
Gibraltar into Spain, his stated desire to protect people from those who aped the
policies of Hitler, articulated in the same year as his Gibraltar report, rings hollow. In
Hayek’s defence it might be argued that he was not an ardent defender of democracy.
There is indeed some truth in this. Hayek argued, for example, that he would rather
live in an undemocratic country with a liberal economy than in a democratic country
run on socialist principles. In principle, by Hayek’s argument, it would be the liberal
economy dictatorship which would best guard people’s liberty. Later in his life, it
was on this basis that Hayek approved of Pinochet’s dictatorship in Chile (and
accused the democratically elected Allende of being the real dictator). 27 But whilst
Pinochet was the only head of state to attend Franco’s funeral, there were
considerable differences between the two. Whereas Pinochet’s Chile became the
25
testing ground for the neoliberal economic doctrines of Milton Friedman and the
Chicago School of Economics, Franco’s Spain, aping Germany and Italy, spent the
years between 1939 and 1959 attempting to establish an autarkic economy.
As
Preston argues in his biography of Franco, the dictator ‘denounced the principles of
free trade as an evil sham behind which Spain had been colonized’ (Preston, 1993, p.
344; see also Richards, 1998, Blanco, 2010).
Franco personally oversaw the
implementation of an economic policy that involved cutting imports, refusing credit
from the allies, and imposing rationing (Preston, 1993, 344-5).
But Franco’s
economic policies went beyond the unorthodox and into the bizarre. For a time, for
example, an Austrian confidence trickster led Franco to believe that the Spanish
economy could be revived by investing money in the development of a new industrial
process that would turn water into synthetic petrol through the addition of a few
simple herbs (Preston, 2000, p. 62). The consequence of this micro managing of the
Spanish economy (as both Hayek and Friedman could have readily predicted) was
total economic catastrophe.
As an academic working in Britain during the late 1930s and early 1940s we can only
assume that Hayek had followed events in Spain, which were reported on at length in
the press. At any rate, we know from the papers relating to his visit to Gibraltar that
in 1944 he had undertaken a close investigation of the situation both in Gibraltar and
in Spain. In sum, when faced with making practical proposals for economic reform,
Hayek’s desire to establish a free market along neoliberal lines won out over his
principles as stated in The Road to Serfdom.
Whilst his proposals would give
landlords the liberty to realise more substantial rents, the consequences for the
working class population in Gibraltar would have been disastrous. Not only would
Hayek’s proposals for Gibraltar certainly have robbed many Gibraltarians of political
freedom, but also they would have been deprived of the economic liberty which
Hayek stated he prized not only in 1944 but throughout his future writings. The
contrast between the principles established in The Road to Serfdom, which, after all,
26
were meant to be universally beneficial rather than a defence of sectional interest, and
the practical proposals laid out in ‘Some Economic Problems of Gibraltar’ could not
be more striking.
The Response of the British Colonial Office and the Government of Gibraltar
Despite, as we have seen, the Government of Gibraltar having been keen to bring in
an expert to advise them on the future of the Rock’s economy, and despite the
enthusiasm that greeted Hayek’s agreement to visit Gibraltar to this end, none of his
proposals were implemented. Indeed, his substantive ideas for the Gibraltar economy
were hardly discussed in the Colonial Office in the weeks immediately following their
submission. In part this was accidental. The official dealing with Hayek’s report, Mr.
A. B. Acheson, went on long-term leave only weeks after Hayek submitted his report
in October 1944 and it took sometime for his replacement, Mr. P. A. Wilson, to be
appointed. In part, however, it was because of the political storm the report had
already caused in Gibraltar and because the Colonial Office was nervous about
confronting the Admiralty with Hayek’s blistering criticism of its employment
practises in the dockyard.
In the meantime, whilst Acheson’s successor was being appointed, the proposal for a
new statistical survey of the population, which had arrived at the Colonial Office in
September, a few week’s before ‘Some Economic Problems’, was circulated amongst
various officials and advisors. Hayek’s proposal for a statistical survey was sent to
Dr. Robert René Kuczynski, a prominent demographer who, after retiring from the
London School of Economics as Britain’s first Reader in Demographics, went to work
in the Colonial Office and promoted new methods for taking census data in the empire
(Anonymous, 1947).
In a note written in February 1945, Kuczynski dismissed
Hayek’s concerns about the 1931 census data. He also suggested that the operation
Hayek proposed be carried out would be a complex one and that it should only be
approved if Hayek were prepared to oversee the procedure. 28 But by February 1945,
27
Hayek was preparing to visit the USA on his publicity tour for The Road to Serfdom
and was not, therefore, available. Moreover, the Government of Gibraltar was cold
towards Hayek’s proposal. The idea of taking a detailed statistical survey as quickly
as possible rested on the premise that the returning evacuees would present the
Gibraltar government with immediate accommodation problems. In reality, however,
the timescale for the return of the evacuees was much longer than Hayek anticipated.
It was not until 1951 that the last group of evacuees returned, just in time for the
annual ten-year census to be taken as scheduled.
On 15 March 1945, Sir Arthur J. Dawe, assistant under-secretary of state in the
Colonial Office, wrote to Hayek apologising profusely for the delay in acknowledging
formally Hayek’s report. In his letter, Dawe gave the impression that the Colonial
Office had not yet given Hayek’s reports much consideration due to Acheson’s
absence. He invited Hayek to come to London to discuss his proposals, and a meeting
was arranged for 6 June, after Hayek’s return from the United States. In fact, in the
meantime and as we have seen, Hayek’s proposals for a statistical survey had already
been rejected. His other proposals were discussed in the weeks to follow.
None of the staff at the Colonial Office were particularly impressed with Hayek’s
suggestions. P. A. Wilson, in the typically understated fashion of Colonial Office
officials noted that Hayek’s proposals on relocating Gibraltarians into Spain would
‘arouse a pretty little storm in Gibraltar’. 29 Major Orde Browne commented that
Hayek’s proposals were interesting but that ‘he seems to me to adopt a somewhat
bloodless scientific attitude, as in his suggestion that superfluous Gibraltarians should
be squeezed out into Spain’. 30 He noted the comment of one of the under-secretaries
at the Colonial Office, made in the file dealing with Hayek’s report, that ‘there would
be almost insuperable difficulties in following a policy based on Professor Hayek’s
views in this respect’. 31 Orde Browne agreed, ‘the introduction of a policy which
sought deliberately to drive Gibraltarians into Spain would be indefensible’. 32 He
28
recommended that this idea not be pursued further. On the subject of wage policy,
Orde Browne suggested sending the information collected by Hayek to the newly
formed Labour Advisory Committee for consideration. This, however, was kicking
Hayek’s report into the long grass. Orde Browne confessed that the committee was ‘a
plant of somewhat tender growth, and it is hardly likely to develop enough initiative
and experience to settle the thorny problems that are involved’. 33
S. E. V. Luke, an official in the Colonial Office, noted the controversial nature of
Hayek’s report. He also pointed out that its proposals ran counter to the philosophy
of the Secretary of State for the Colonies, Oliver Stanley. 34 Stanley was committed to
developing the economies of British colonies and made available a Colonial
Development Fund from which colonies could draw money to improve their
infrastructure and economic prospects (Hubbard, 2011, p. 90). Stanley was also
committed to increasing accountability in colonial government, not to reducing the
role of the state in governing the empire. By pointing this out, Luke effectively
decapitated Hayek’s proposals by setting his ideas on relocating the working class
population against the development policy of the secretary of state.
There was little enthusiasm for Hayek’s proposals from the Government of Gibraltar
either. Whilst Governor Eastwood was only officially sent the report in March 1945,
officials in Gibraltar had been in possession of a copy since late 1944. Eastwood had
visited Dawe at the Colonial Office in early January 1945 and expressed
dissatisfaction at Hayek’s reports. On 26 April, Eastwood wrote formally to Oliver
Stanley outlining his views on Hayek’s report.
In a lengthy letter, Eastwood
condemned Hayek’s,
cynical process of compelling British subjects to accept reduced standards of
subsistence and education in a foreign country and it seems to me that such a
conception is alien to the fundamental ideas governing the development of the
British Colonial peoples. 35
29
If Gibraltarians were to be relocated anywhere, Eastwood argued, it would be
elsewhere in the British Empire and not outside of it. Generally, and throughout his
treatment of Hayek’s report, Eastwood was dismissive of Hayek’s work.
The
proposals that Hayek had put forward had fallen utterly flat.
By the end of May 1945, Hayek’s proposals were rejected both by the Government of
Gibraltar and by officials in the Colonial Office. Sir Arthur Dawe, in his meeting
with Hayek on 6 June 1945 made one last attempt to revive them. He outlined the
problems which officials in the Colonial Office and the Government of Gibraltar had
with Hayek’s proposals and asked if he would reconsider them. Buoyed by the
positive reception Hayek had received in the United States, he refused to remove any
passages from his report or to change any of his proposals. 36 Hayek left the Colonial
Office, and Dawe instructed that no further action need be taken over the report.
Hayek’s contribution to the war effort was unequivocally over.
Unintended Consequences
Whilst by July 1945 Hayek’s report had been rejected, its influence was not quite at
an end. The Colonial Office still needed to raise with the Admiralty the delicate issue
of training and wages in the Gibraltar dockyard. In the end, the report was sent,
unaltered to the Admiralty, who responded that, because of the pressure of war work,
they would only be able to consider the proposals setout by Hayek in due course.
Unsurprisingly, no actual response was ever sent. This refusal by the Admiralty to
engage with Hayek’s report created a significant problem for the Government of
Gibraltar. In correspondence between Eastwood and Stanley, Stanley pointed out that
it was impossible to publish Hayek’s report because the Admiralty would not allow
the passages critical to it to be published and because Hayek would not withdraw
them. But for his part, Eastwood informed the secretary of state that the AACR
suspected that the Government of Gibraltar was covering up Hayek’s report, which
they assumed must have recommended pay increases for dockyard workers. 37 This
30
erroneous understanding had arisen when Hayek had met with the AACR in 1944.
He had promised them that he was going to make proposals in his report that would
materially improve the conditions of workers in Gibraltar. But he did not tell the
AACR delegates what those proposals would be. Instead of anticipating that Hayek
was to propose that the working class population should be relocated to Spain, the
AACR reasoned that Hayek had proposed that workers in the dockyard be given
substantial pay increases and that this was the reason that the report had been
suppressed by the Government of Gibraltar. At the end of July 1945, the AACR
called for a strike in the dockyard and more generally throughout the colony aimed at
compelling the government to concede the higher wages which they believed Hayek
had promised them in his report. After urgent telegrams between Gibraltar and
London were exchanged, the Colonial Office brought pressure to bear on the
Admiralty to grant higher wages and authorised an increase in wages for City Council
workers. Rather than free the wages market in Gibraltar, the outcome of Hayek’s visit
to Gibraltar was, in fact, to prompt suspicion and industrial unrest which in turn
inaugurated a new era of micro-managing wage levels on the Rock. Not only had
Hayek’s proposals for a neoliberal Gibraltar economy been rejected, but also his very
presence on the Rock set the basis for considerable state planning in the Gibraltar
economy in the years after 1945.
Conclusion
In Gibraltar, Hayek had attempted to pursue a small early neoliberal experiment. He
did so because he believed that the Rock’s economy was structured in exactly the
fashion that could easily lead to totalitarian government. Indeed, in The Road to
Serfdom, Hayek pointed out that in 1928 the Weimar Government controlled over half
of the economy of Germany; likewise the Government of Gibraltar in 1944 (Hayek,
1962, p. 28). We have seen how Hayek proposed to ‘correct’ these problems with the
Gibraltar economy by creating a neoliberal economy in which markets dictated the
lives of people in Gibraltar and its surrounding Campo. But, as argued above, rather
31
than delivering Gibraltarians from totalitarianism, Hayek’s proposals would have
resulted in many of them living in the regime of General Franco. Moreover, rather
than granting Gibraltarians living in La Línea the liberty of the free market, instead
the system they would live under would be Spanish autarchy.
It is little wonder that Hayek’s proposals were not well received, though the ironic
consequences that came out of their not being published could not have been foreseen.
Space has prohibited anything other than a cursory examination of the reasons that the
Government of Gibraltar rejected Hayek’s proposals. Likewise, the implications of
Hayek’s Gibraltar report for examining Hayek’s grasp of issues of political economy,
and its significance as a document that contrasted sharply with the ideas of the era of
planning, requires further attention. But in short, what we have seen is that Hayek’s
Gibraltar report offers us several ways of engaging with Hayek’s work as a political
economist. We have seen the way in which Hayek’s reports demonstrate that the
creation of economic liberty ranked more highly and was separated out from the
notion of individual freedom as outlined in The Road to Serfdom.
Acknowledgements:
I am very grateful to Stephen Dunne, Steve Fleetwood, Jo Grady, and Gareth Stockey
for commenting on drafts of this article.
Thanks also to Jenny Fichmann who
undertook to photograph for me copies of Hayek’s papers in the Hoover Institution
Archive.
Funding:
I am also grateful to the Arts and Humanities Research Council and to the Department
of History at De Montfort University who funded various aspects of this research.
32
1
Hayek’s report gets a brief mention in Archer (2006, p. 57); Stockey (2009, pp. 173, 198); and
Holland (2012) though it is worth noting that Holland places Hayek’s visit to Gibraltar in 1945 not
1944. There is no mention of the report on Gibraltar in any of the main Hayek biographies or in
Hayek’s work after 1944.
2
The commissioning of reports on the subject of Gibraltar and its relationship with the Spanish
hinterland has continued into the twenty-first century, for example Fletcher, J. (2009).
3
The National Archive (TNA), Colonial Office (CO) 91/522/2 contains the fruits of this visit and a
discussion of it by members of the Colonial Office.
4
For a brief outline of the evacuation of Gibraltar during the war see, Grocott & Stockey (2012, pp. 6871). Stockey (2009, pp. 170-1) notes discrepancies in the figures for the number of workers who
remained in Gibraltar. The lower figure of 4,000 fits more accurately the 1931 census combined with
natural growth (adjudged by records of births and deaths) and the immigration from the surrounding
hinterland occasioned by the Spanish Civil War of 1936-39. For an extended treatment, see Finlayson
(1990). Accurate population figures are very difficult to find for the late 1930s and early 1940s
because of the lack of a census in 1941. In 1944, at Hayek’s request, the head of the Crown Works
department in Gibraltar estimated that in 1939 that the population was 17,600. See, Hoover Institution
Archive, Stanford, Box 113/5, letter from Hoare to Hayek 25 September 1944 and enclosure.
5
TNA, CO 91/522/2, F. A. Hayek, ‘Report on Some Economic Problems in Gibraltar’, October 1944.
6
Throughout, the title Colonial Secretary refers to the head of the administration of the Government of
Gibraltar and not to the Secretary of State for the Colonies who was the political head of the Colonial
Office in Britain and a member of the British government’s cabinet.
7
Hoover Institution Archive, Box 113, files 5 and 6 contain Hayek’s source material, though sadly no
notes written by Hayek other than marginalia.
8
TNA, CO 91/522/1, ‘Some Economic Problems’, p.6.
9
TNA, CO 91/522/2 contains Hayek’s report on, and proposals about, population statistics.
10
TNA, CO 91/522/1, ‘Some Economic Problems’, p. 2.
11
Ibid, p. 1.
12
It is likely that this was a reference to the estate of John Mackintosh, who had died in 1940 leaving a
fortune of, in fact, around £2 million. Constantine, (2009, p. 289).
13
TNA, CO 91/522/2 ‘Some problems’, pp. 8-9 gives Hayek’s figures, calculations, and methodology
for working out the amount of wealth available to the colony’s entrepreneurial community. See
http://www.measuringworth.com for a useful calculator of money conversions and equivalents
(accessed 17 January 2012).
14
Hoover Institution Archive, Hayek Papers, Box 113/5, Report on the Overcrowding Survey in
Gibraltar 1938, 10 June 1938.
15
TNA, CO 888/3, Colonial Labour Advisory Committee (Minutes and Papers), 1944-46.
16
TNA, CO 91/522/2, ‘Some Economic Problems’, p. 15.
17
‘The totalitarians in our midst’ was how Hayek labelled Britain’s planners in The Road to Serfdom.
18
They are contained in TNA, CO 91/522/2, ‘Some economic problems’ pp. 10-13.
19
Ibid, p. 12.
20
Ibid.
21
Ibid.
22
Ibid.
23
Indeed, the ideas of Beveridge took substantial work to break down on the part of neoliberals. Seem
for example, Grady (2010).
24
Hayek, ‘Some Economic Problems’.
25
For the Spanish fascist party, the Falange, see, Preston (1995, pp. 109-130); distinctly more
sympathetic is Payne (1962), nevertheless, the status of Spain as a one party state under Franco is
undeniable.
26
Stockey (2009, Chapter Six) outlines in detail Spanish plans to attack Gibraltar, and subsequent
Spanish espionage against the Rock (including hosting in the Campo German and Italian spies and
military units) once the Hendaye negotiations broke-down.
27
The Times, Letter by Hayek, 2 August 1978.
28
TNA, CO 91/522/2, Note by Dr. Kuczynski, 26 February 1945.
29
TNA, CO 91/535/1, Notes by P. A. Wilson, 7 March 1945.
30
TNA, CO 91/535/1, Note by Major St. John Orde Browne, 24 May 1945.
31
TNA, CO 91/535/1, Note by S. E. V. Luke, 18 May 1945.
32
TNA, CO 91/535/1, Note by Major St. John Orde Browne, 23 May 1945.
33
TNA, CO 91/535/1, Note by Major St. John Orde Browne, 24 May 1945.
33
34
TNA, CO 91/535/1, Note by S. E. V. Luke, 2 March 1945.
TNA, CO 91/535/1, Eastwood to Stanley, 26 April 1945.
36
TNA, CO 91/535/1, Note by S. E. V. Luke, 2 July 1945.
37
TNA, CO 91/522/3, Correspondence between Eastwood and Stanley, July 1945 onwards.
35
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